Hunt is taking a gamble on inflation even as Britain teeters on the edge
He checked his list, he checked it twice, Jeremy Hunt wants you all to thank him for coming yesterday.
But just because the Chancellor of the Exchequer chose to use his Autumn Statement to pose as Santa Claus doesn’t mean we have to let him treat us like children. Because whether you’ve been naughty or nice this past year, he offered us all remarkably little.
Much has been made about the mythical ‘headroom’ better than expected tax receipts have given Jeremy Hunt. Less has been made of the fact that the government is borrowing more than it expected as well.
Taken together these underline the government’s failure to get inflation under control, with the Office for Budget Responsibility having trebled its estimate for inflation in 2024. The pound in your pocket, in your employer’s bank account, or your local school or hospital budget continues to be worth less due to the failed economic policies of the Tories.
Worse, Jeremy Hunt did not even fully account for such inflation in the provisions he has made on public spending. Whether it’s his assumptions about increased productivity in public services negating the need to increase budgets or how tightening eligibility criteria may reduce the number of people claiming benefits, the Treasury risks being forced to spend more money than it plans.
The Office for Budget Responsibility says this clearly: by 2027, government departments will have nearly £20bn less to spend in real terms than was previously planned, and that this is a real risk to their forecasts.
It cannot be stressed enough that at a time of low unemployment and high inflation, the government should not be increasing borrowing, which according to the OBR they have by at least £27bn a year, compared to previous forecasts.
Increased government borrowing will only prolong the misery caused to homeowners and businesses, as more and more of their income is eaten up by higher interest rates. It will also prolong the misery for society as a whole, as the government debt is reserviced on worse terms than before, with the interest rates on government debt placing a deadweight on the national books for years to come.
It is some small solace that the measures that Hunt has announced are reasonably sensible, even if it’s irresponsible to pay for them with increased borrowing. Making permanent the ability for businesses to fully expense investment in equipment will hopefully continue the progress made in expanding Britain’s industrial base, encouraging businesses to invest to grow, rather than just banking profits. Likewise cutting personal national insurance contributions does better target tax cuts at lower- and middle-income workers than cuts to income tax would, never mind the cut to inheritance tax that had been rumoured.
But perhaps the most telling aspect of the cut in National Insurance is that its being rushed into effect, with contributions reduced as of 6 January 2024.
This speaks to the fundamentally short-termist nature of the measures announced by Hunt yesterday. He failed to reform a tax system that unfairly and illogically punishes successes due to punitive marginal rates, and the Chancellor committed to making that problem much worse by sucking more middle class taxpayers into paying the higher or top rates of tax by frozen income tax thresholds. Even the difficult year ahead for public services is nothing compared to the draconian cuts that are planned for subsequent years.
If you believe the government’s own forecasts, 2024 is as good as it’s going to get for the rest of this decade. And they’ve moved not to change that fact by taking the difficult but necessary decisions to improve things in the long-term.
Instead, they have gone for short-term fixes to make the first few months of the new year slightly more pleasant. Hopefully that’s a sign that after three Prime Ministers and five Chancellors, the government is readying itself for a May election. This really will be as good as it gets!