As Jeremy Hunt delivered his Budget, Tube drivers, teachers, and junior doctors were striking outside. Britain』s high cost of living, public sector pay disputes, and stretched public services provided a chaotic backdrop to a statement that focused on boosting the country』s ailing economic growth. The chancellor』s announcements do little to tackle the most immediate problems. Yet, caught between tight public finances and political pressures, Hunt deftly provided a boost to investment and the workforce. There is still much work to be done to fix Britain』s economic malaise, but his measures offer a sensible platform to kick-start the process.
The chancellor benefited from an improving short-term economic picture. The Office for Budget Responsibility now forecasts that the UK will avoid a technical recession this year, with inflation set to drop to 2.9 per cent. The rapid decline in gas prices has helped. It also produced a near-term windfall in public finances, which Hunt has used in part to keep the energy price guarantee at current levels for another three months, rather than raise it. Real living standards are still set for their largest two-year fall since the 1950s; ending the freeze on fuel duty would have provided more space for cost of living support.
Hunt still had little room for permanent tax or spending measures to stimulate the economy. Rather than plump for significant unfunded tax cuts as his predecessor did so disastrously last autumn, Hunt opted for supply-side measures that directly unlock growth, while staying within fiscal constraints. The OBR shows Britain』s debt ratio to be on a sustainable path — meeting the government』s aim to have it falling within five years, though only just.
At the centre of his growth strategy are measures to boost stagnant business investment, and get more people back into the workforce. The scheduled six-point increase in corporation tax, and expiry of the 「super-deduction」 for investment, would have further subdued private sector expansion. Introducing full expensing of capital expenditure against tax bills, though only for three years, is a welcome step to help turbocharge investment. Implementing it permanently would have done more to boost long-term growth, though it would have blown the fiscal rules.
Most eye-catching were the efforts to reduce the high level of economic inactivity that has held back Britain』s recovery from the pandemic. Expanding existing free childcare support for three- and four-year-olds, over time, to those over nine months, and offering more funding to providers is forecast by the OBR to have a notable impact on lifting employment. It was also a canny political move ahead of an election next year. Steps to encourage disabled people to work without fear of losing benefits are similarly positive. Scrapping the £1mn lifetime tax-free pension allowance will entice senior doctors and civil servants to work for longer — even if such a 「bung」 to a small section of wealthy people may provoke a backlash.
Efforts to boost regional growth were largely a rehash of old plans, and lacked ambition. A bolder plan would have tackled Britain』s restrictive planning system, which hold backs the building of housing and infrastructure. There was also little in this Budget to support the skills agenda: getting more people into the workforce is important, but so is raising labour productivity.
Hunt has begun to shape a strategy to boost Britain』s long-term prospects. But debt is still high and the years ahead will involve tight spending plans, with health, welfare and defence demands mounting. Finding ways to drive faster economic expansion will be key to carving out more space in the public finances. Despite today』s efforts, Britain』s underlying economic growth remains sluggish. This Budget was a step in the right direction, but there is a long way to go yet.