The opening two months of 2023 has seen the UK turn in a better than expected economic performance. ‘Better than expected’ is a relative term here of course, given expectations at the end of last year were about as low as it’s possible to be. But nonetheless the UK has so far avoided a technical recession as GDP bumps along close to 0%. Public borrowing is now also forecast to be £30 billion below previous forecasts for the financial year, reflecting the fall in energy prices and the lower cost to the Government in energy bill subsidies. The Treasury has also benefited from higher than expected tax receipts, with inflation leading to a reported £100 billion windfall.
All this has combined to give Jeremy Hunt a dilemma. Could he use this as a big opportunity for a statement budget? One that showcases how the Sunak Government’s economic approach has put the country back on the right track and rewards the country with more support on cost of living? Or, given the fresh memories of the last time a Chancellor tried to make a big splash, will he keep things quiet for now with the age-old promise of jam tomorrow?
The latter seems to be the most likely outcome. Hunt has always been a cautious politician and he will no doubt be aware that beyond the positive headlines, the economy is far from out of the woods yet. A lower and shallower downturn means slower growth down the line which will continue to put pressure on public borrowing. This means anything even remotely resembling tax cuts remains off the table for the foreseeable future. With no room for good news, all signs point to the Chancellor hoping this Budget can be a quiet and uneventful one.
So, what can we expect? Well, we know the Treasury’s fixation remains on balancing the books, and cuts to capital projects like HS2 have been pushed through ahead of Budget day to lessen the feeling of doom and gloom on the day. Inflation has no doubt made meeting spending commitments more difficult to keep but delays serve only to increase the costs in the long-term and it’s a classic example of short-term thinking from the Treasury.
And these teasers may end up setting the wider tone for next Wednesday’s statement, as a Budget with a focus on the short-term stability of the economy. The promised rise in Corporation Tax from 19% to 25% is almost certain to go ahead despite growing pressure from business and Tory MPs to soften the policy. We may see a nod to this, with speculation growing about measures to replace the ‘super-deduction’ tax incentive scheme for productivity-boosting investments, which expires in April.
Energy bills will remain a focus of attention. We’re likely to see an announcement that the energy bill guarantee scheme will remain capped at a £2,500 typical annual household bill. This had been planned to rise to £3,000 from the end of March, but with energy prices falling so fast it would look increasingly callous to raise it.
Another pressing priority is getting the long-term sick and early retirees who have dropped out of the workforce post-pandemic back into employment. Expect to see tax incentives for the over 50s and tweaks to the benefits system which either make it harder to get long-term sick notes from GPs or make it easier to continue claiming sickness benefits while working part time, depending how generous the Treasury is feeling.
Finally, we can expect to see some move towards ending the ongoing public sector pay disputes which have dragged on for over a year now. This is one area where the windfall in tax receipts and lower public borrowing could unlock better pay-deals and finally halt the strikes, but anything that looks like union appeasement will always be politically sensitive for a Conservative chancellor and with reducing inflation still Hunt’s top priority, there’s still an argument to resist across-the-board increases above inflation.
Whether the Budget is as quiet as we expect, or whether there’s a few hidden rabbits under the Chancellor’s hat, Field will as ever be scrutinising the detail and this year we will be convening the morning after with an online panel event featuring insight from the likes of The Centre for Policy Studies’ Robert Colvile, the Spectator’s Isabel Hardman and Labour’s Shadow Minister for Business and Industry Bill Esterson MP. The event will be online on Thursday, March 16th between 9 and 10am. To confirm your place and receive a dial-in link, please RSVP via email at email@example.com.