Chancellor Jeremy Hunt's budget blitz: can Spring Statement save the Tories from oblivion?

Budgets in Britain are like London buses. Before one financial statement is digested, another comes along.

The ink is barely dry on the two percentage point cut in national insurance for employees – which comes into effect tomorrow – that was implemented on November 22.

Yet Chancellor Jeremy Hunt will be back at the post box on March 6.

The announcement made in the dead zone between Christmas and New Year causes both irritation and frenzied excitement.

Constitutional gurus at the Institute for Government have told Hunt to call off the Spring Statement on the grounds that government bonds “rarely get a break to catch their breath.” It has a point.

Political junkies are gearing up for a snap general election, with Sir Keir Starmer instructing his troops to get to work on the Labor manifesto after a rush.

And the Tories, fearful of a wipeout, have renewed speculation about the abolition of inheritance tax. It is thought that scrapping this much-hated levy may be the only way to secure traditional support in counties where the LibDems are in turmoil.

The truth is that the economy is becoming increasingly unpredictable.

The consumer price index forecast of 3.6 percent, which the Office for Budget Responsibility made in November, already appears outdated. The rapid improvement in the cost of living outlook with falling prices for every major component – ​​energy, food, services and housing – means all the dials need to be reset.

Taxes amount to 37 percent of national income in November, a record high in peacetime.

So there is an opportunity for the Tories to take some real distance from Labour's big spending and its unfunded promises about going green and restoring public services.

The latest CPI figures for November surprised on the negative by falling from 4.6 percent to 3.9 percent – ​​still almost double the Bank of England's target of 2 percent. But credit conditions are tightening as the flow of money into the economy comes to a standstill.

There are concerns that the Bank of England – by raising interest rates fourteen times to 5.25 percent in the past two years – has exaggerated the pressure.

When the Bank of England's Monetary Policy Committee met in early December, signals from Governor Andrew Bailey were that there was little chance of a rate cut until August 2024.

Three members of the committee even voted for higher rates. They couldn't be more wrong.

Barring any mishaps, money markets are predicting a fall in official interest rates as early as spring, although prudence may dictate that the Bank wait until after the budget.

What we do know is that the cost of two-year fixed rate home loans has fallen below 5 percent, while the peak of 6.86 percent was reached in the fall of 2022 after Liz's experimental and unaudited economic plan Truss.

Three factors will help create room for tax cuts in what is likely to be Hunt's last hurray as chancellor (he has indicated he will leave the House of Commons after the election).

First, lower inflation lowers the costs of running the government. In particular, it makes wage agreements in the public sector and indexed benefits and pensions more manageable.

Secondly, the cost of servicing Britain's £2.6 trillion debt mountain will be dramatically reduced.

Successive Chancellors, the Debt Management Office and the Ministry of Finance have provided their own support by indexing around 25 percent of sales of government shares (gilts) to inflation.

This meant that when inflation peaked at 11.1 percent in October 2022, the interest burden soared. As inflation has fallen, the cost of borrowing for taxpayers has also fallen.

Finally, the Bank, the Office for Budget Responsibility and the International Monetary Fund have consistently underestimated Britain's economic resilience and ability to withstand a recession.

No one is predicting American growth. The UK doesn't have the tech giants that can make this happen, or a resourceful workforce willing to get off the couch. But as audit giant PwC noted last week, 2024 will be the year 'when Britain turns the page'. Our light-footed service economy is much better equipped to weather economic storms than manufacturing-heavy Germany.

The stronger the production, the better for public finances. More growth and a high level of employment strengthen government revenues. It also puts downward pressure on social security contributions.

According to some city estimates, Hunt could have as much as £12 billion of leeway to work with in March.

That's without breaking promises for lower loans and debt by the end of a five-year forecast period. The question then becomes how the money can best be spent.

One of the reasons tax revenues have helped keep the treasury replenished is because of stealth taxes. These are the higher returns that come from freezing rights at a time of rising inflation. There is no prospect of returning all the £40 billion generated for the government each year.

By their nature, alleviating stealth taxes would not be an effective political tool because the results are invisible.

That's why smart politicians favor a dramatic cut in the basic income tax rate.

Abolition or halving of inheritance taxes is clearly on the agenda. This newspaper would also like to see an end to the tourist levy (VAT paid by foreign visitors), which puts London and Britain at a commercial disadvantage compared to Paris and Milan.

A cut in stamp duty would help ease the housing market impasse, making downsizing easier for home-blockers living in family homes larger than their current needs (like this writer). Relief in business rates would give a boost to high streets and pubs.

There is no shortage of ways in which Hunt can offer incentives to Tory voters. The early spring budget will be the last chance for Rishi Sunak's government.