Jeremy Hunt today put growth at the heart of his spring budget – with a promise to cut taxes and make work pay.
As predicted, the Chancellor cut 2p from National Insurance for the second time in four months and held out the prospect of further personal cuts.
But despite his attempts to tighten Labor’s guns by abolishing non-domestic tax status for wealthy foreign residents and imposing new taxes on second homes, there was not nearly enough to make a significant dent in the poor Conservative results in the polls.
The Prime Minister’s last hope is to deliver further tax cuts before the general election expected later this year.
Hunt had very little room to maneuver this time around thanks to strict rules designed to keep financial markets in check after the trauma of Liz Truss’s aborted premiership over tax cuts in autumn 2022.
Nevertheless, for the first time in recent history, he invoked the mantra that lower taxes generate more revenue. This should be an obvious statement from a Tory – but it is a truth that has been largely ignored in recent times, as the enormous costs of the 2008 financial crisis, the pandemic (£370 billion alone) and aid to Ukraine in combating the Russian invasion. upwards.
Jeremy Hunt today, before submitting a budget that left him with little room to manoeuvre
Some of its limited wiggle room comes from shifting economic forecasts. The doom and gloom projected by the Bank of England, the Office for Budget Responsibility and much of the broadcast media is increasingly being tested.
With the economy expected to grow 0.8 percent this year and an even more encouraging 1.9 percent in 2025, the superficial ‘blip’ recession of late last year should soon be a thing of the past.
And if the track record of the Treasury Department is anything to go by, even these predictions could be quickly revised.
Two of the big drivers of the UK economy, the housing market and the services sector, are already gaining momentum.
Optimism in the construction sector is at its highest level in six months, amid signs of an upturn and, importantly, services – which account for almost 80 percent of national output – are increasing, with the future of IT and consultancy looks brighter than ever before. at any time in the past two years.
The Chancellor also unveiled a dramatic improvement in the outlook for inflation, which has put a strain on many households’ budgets in recent months.
Annual consumer price growth is expected to fall to 2.2 percent this year (close to the Bank of England’s 2 percent target) from a peak of 9.1 percent in 2022. This crisis of easing the cost of sustenance will be welcomed, but it may be too late in the election cycle for the public to give the government the benefit of the doubt.
On the plus side, this does mean that Bank of England Governor Andrew Bailey should be in a position to start cutting interest rates from the current level of 5.25 percent by the summer – a step that will help reduce the cost of interest. mortgages.
The 2 cent cut on national insurance is the second cut in four months
As part of efforts to boost manufacturing and lift Britain from despondency, the Chancellor also offered fiscal stimulus and financial aid to Britain’s fast-growing technology, life sciences and creative sectors.
A special mention was given to AstraZeneca, Britain’s largest pharmaceutical company, which has agreed to invest a further £200 million in Cambridge and Liverpool.
In a bid to revive investment in UK listed companies, Hunt also unveiled the ‘British ISA’. This will allow citizens to invest a further £5,000 tax-free in UK funds to support good domestic companies, which have recently come under fire from foreign buyers and private equity barons.
Meanwhile, the £3.5 billion investment in new technology for the floundering NHS could make big strides towards boosting productivity and outcomes in our overburdened healthcare system. The downside is that such reforms take years to have a meaningful impact.
The bitter truth for Hunt is that, despite a valiant effort to boost output and growth, it will take a long time for his actions to dispel the public perception that the Conservatives have done a poor job and that public services are falling apart. And time is something he’s running out of time for.