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Jeremy Hunt today put growth at the heart of his spring budget, pledging to cut taxes and make work pay.
As predicted, the Chancellor cut 2p from National Insurance for the second time in four months and offered the prospect of further personal reductions in the future.
But despite his efforts to boost Labour’s weapons by abolishing non-dom tax status for wealthy foreign residents and imposing new taxes on second homes, it was not enough to make a significant dent in the Conservatives’ terrible performance in the polls.
The Prime Minister’s last best hope is to engineer more tax cuts before the general election due later this year.
Hunt had very little room to maneuver this time thanks to strict rules designed to help keep financial markets in place after the trauma of Liz Truss’s aborted tax cut presidency in the fall of 2022.
However, for the first time in recent memory, he invoked the mantra that lower taxes produce more revenue. This should be an obvious statement from a conservative, but it is a truism that has been largely ignored in recent times as the enormous costs of the 2008 financial crisis, the pandemic (just $370 billion) have piled up. of pounds sterling) and aid to Ukraine to combat the Russian invasion. above.
Jeremy Hunt today, before delivering a Budget in which he had little room for maneuver
Part of its limited room for maneuver is due to changes in economic forecasts. The pessimism projected by the Bank of England, the Office for Budget Responsibility and much of the media is increasingly being questioned.
With the economy forecast to grow 0.8 percent this year and an even more encouraging 1.9 percent in 2025, the shallow, transitory recession seen late last year should soon be a thing of the past.
And based on Treasury’s track record, even these forecasts could be improved quickly.
Two of the great engines of the British economy, the property market and the services sector, are already gaining strength.
Construction optimism is at its highest level in six months amid signs of recovery and, even more importantly, services (which account for nearly 80 percent of national output) are rising, and the future of information technology and consulting seems brighter than in the past. at any time in the last two years.
The Chancellor also revealed a dramatic improvement in the outlook for inflation, which has put intense pressure on many household budgets in recent months.
The annual rise in consumer prices is forecast 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 easing of the crisis of living 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 positive side, it means Bank of England Governor Andrew Bailey should be in a position to start cutting the interest rate from its current level of 5.25 percent by the summer, a move that will help reduce the mortgage cost.
2p cut to National Insurance is second such reduction in four months
As part of the effort to boost production and lift Britain out of the doldrums, the Chancellor also offered tax incentives and financial help to Britain’s fast-growing creative, life sciences and technology sectors.
A special mention was given to AstraZeneca, the UK’s leading global pharmaceutical company, which has agreed to invest a further £650m in Cambridge and Liverpool.
In an effort to reinvigorate investment in UK-listed companies, Hunt also introduced the ‘British ISA’. This will allow citizens to invest another £5,000 tax-free in UK funds to support good, domestically owned companies, which have recently come under siege from foreign buyers and private equity tycoons.
Meanwhile, investing £3.5bn in new technology for the ailing NHS can make huge strides in boosting productivity and outcomes in our overstretched Health Service. The downside is that such reforms take years to have a significant impact.
The bitter truth for Hunt is that, despite a valiant effort to boost output and growth, his measures will take a long time to dispel the public perception that the Tories have done a poor job and public services are collapsing. And time is something he is running out of.