Andrew Neil: This Safety First budget might be seen as a missed opportunity for the Conservatives

Chancellor Jeremy Hunt succeeded with his sleight of hand: Yesterday, with great fanfare, he unveiled a “budget for growth” – which in fact produces no growth. The insolence is breathtaking.

The Office for Budget Responsibility (OBR), the state’s official economic forecaster, still believes the UK economy will shrink this year, though not by as much as it predicted just last November.

But that has less to do with Hunt’s newfound enthusiasm for growth and more to do with the fact that, along with most other institutional forecasters, the Office for Budget Responsibility has recently been very gloomy about our economic prospects this year.

The balance sheet office had thought the economy would decline by 1.4 percent in 2023. Four months later it was determined that it would decline by only 0.2 percent, which means (if this is true) that we are avoiding the recession that most of the leading forecasters also predicted. .

But it is still a decline rather than growth, which means that until the end of this year, alone among the world’s major economies, the UK economy will not be larger than it was at the end of 2019, on the eve of the pandemic. .

To add a fourth year of stagnation with this budget suggests that the chancellor, for all the rhetoric, is still grappling with the very concept of growth.

It is true that the economy is now expected to grow by 1.8 percent next year and another 2.5 percent in 2025. We will see if this growth materializes. Often not. But even if it did, it wouldn’t be spectacular growth after four years of playing the country in recession.

Nor does it herald a new era of incremental growth. After 2025, growth is expected to dip below 2 percent for the foreseeable future.

I take these “out of the year” forecasts with a big bowl of salt. After all, if OBR couldn’t get growth this year right just a few months ago, why on earth would you expect it to have an idea of ​​growth in 2026 or 2027?

But he points out that for all its talk of growth yesterday, the Office for Budget Responsibility remains suspicious that the chancellor has inserted it firmly into British economic policy in a way that will last. So do most independent commentators.

The Office for Budget Responsibility in November managed to overestimate how much we would need to borrow this financial year (2022-23) by a whopping £25bn, even though it only had a few more months to go.

She underestimated the tax revenue and overestimated the cost of the energy price guarantee, which proves that she is not reading this column.

More importantly, it means that the government raised taxes and cut spending based on false expectations.

It now believes it also overborrowed for the next three years by an average of £25bn a year. Yesterday the chancellor took a large part of this new high to fund diversified public spending.

Note that for all the conservative talk about really believing in low taxes, the moment some extra douche becomes available, he continues to spend more, not cut taxes.

Hunt has found billions for more childcare, unfettered pensions, speculative investment in untested green things (like carbon capture and storage), energy bill subsidies, investment allowances, and various rates for favored industries, especially if they can claim to be high-tech. . But not a penny for tax cuts.

This was the budget of a mainstream social democratic government that believed in a large, active state and that government should moderate the workings of the market in every sector and at every opportunity.

To pay for it all, the tax burden will rise to 37.3 percent of GDP next year, the highest level since World War II. This may or may not be the right way to run the economy in the 2020s, but it’s not the way conservatives are used to it, at least until recently.

No wonder Keir Starmer of the Labor Party was so naïve, struggling to find anything to criticize, except in general terms. Far from being the right-wing ogre of Labor legends, the Sunak-Hunt government has parked most of its tanks on the Labor lawns.

Hunt attempted to prove that he was cutting corporate tax (CT) on the company’s profits by revealing new investment bonuses. But this was high-level sophistry.

It takes some cheek to be a tax cutter when you raise CT from 19 percent to 25 percent. The advisor was trying to claim that his new bonuses would make up for the higher prime rate. But they won’t. Right now, if you invest £100, you can claim a £130 deduction before you pay profit tax of 19 per cent.

From next month (and for three years only), if you invest £100, you’ll be able to deduct £100 before paying 25 per cent profit tax. If you think this is a tax cut, I have a bridge to sell you.

Under this new system, revenue from money transfers is expected to rise to its highest level since the introduction of the tax in 1965. Buried in the OBR schedule are expectations that it will not lead to more business investment. As lawyers used to wind up in court, I am closing my case.

Sprinkling around spondulicks on a few of his favorites during Lady Bountiful’s act, the consultant curiously forgot to mention that the living standards of the average family are currently experiencing the biggest drop since records began.

Inflation is the main culprit but government tax policy has made the pain worse. By freezing all tax thresholds, low-wage workers are dragged into the band of the 20 percent base income tax rate and middle-income earners face a marginal tax rate of 40 percent (plus National Insurance and, in many cases, exorbitant repayments of home loans). the students).

But there was nothing in the budget to improve this. The Chancellor could have loosened up a bit more without hurting his overall financial position in the long run. After all, there is nothing particularly awful in Britain’s fiscal position to scare the horses in the debt markets.

Our national debt-to-GDP ratio is the second lowest after Germany among the Group of Seven major market economies, and our annual budget deficit is the third lowest in the Group of Seven after Germany and Canada.

A little more preparation to the pump could have spurred some much-needed growth and even strengthened our financial position with increased revenue. There was also no need to fear that it would perpetuate inflation, now expected to fall below 3 per cent by the end of the year, and incredibly, shortly after it reached 0 per cent!

The basic fiscal rule of the government is that the national debt should decrease as a proportion of GDP. But the growth outlook for the coming years is so weak that even by 2027/28 debt as a percentage of GDP will still be 94.6 percent, two percentage points higher than it is today. However, rather than a judicious combination of higher spending and tax cuts to spur growth, the government is more quietly relying on increased immigration instead.

The OBR assumes a higher growth rate than it was last November only because it believes net migration will rise by approximately 250,000 annually instead of the 200,000 it assumed until recently. Over the next five years, net migration is expected to reach 1.6 million. No doubt Sunak and Hunt will keep quiet about it on the red wall.

Hunt rightly earned praise for stabilizing the ship after the Kloster Truss interregnum fell last fall. But the Conservatives have miles to make up for it in the eyes of voters, and they are running out of time to do so.

It would be an exaggeration to say that Hunt’s “safety first” budget lost the Conservatives in the next election. It probably happened during the Johnson-Truss years anyway and it can’t be fixed.

But if growth continues to slide this year, more and more Conservatives will start thinking out loud that yesterday’s budget was a big missed opportunity to give them a fighting chance on polling day. Hunt will then have a lot of explaining to do.