- By Faisal Islam
- business editor
1 hour ago
image source, Getty Images
It will be something of a milestone for Jeremy Hunt to actually reach the point on March 15th where he can hold the famous budget red box in front of number 11.
Incredibly, he becomes only the second of the last five Chancellors to perform this rite. The other, of course, was Rishi Sunak, now his Downing Street neighbor and Prime Minister. Three of Mr. Hunt’s predecessors did not hold office long enough to have an official budget.
Given the turmoil we’ve seen in the Tory party of late, the message Mr Hunt is trying to send with this red box is one of stability. While the Treasury Department is pleased with the progress in financial markets since Liz Truss’ mini-budget – which sent financial markets into a tailspin and sent mortgage rates skyrocketing – there are still some lingering hangovers from that era.
How is Britain?
Mr Hunt’s first challenge will be to communicate the latest official forecasts for the UK economy, to be released alongside the budget by the Office for Budget Responsibility (OBR), the government’s independent forecaster.
On the one hand, the current year will look far less malicious than it did in the fall. A drop in energy prices and government borrowing costs will mean a milder downturn, less immediate borrowing and some scope for one-off giveaways.
On the other hand, the Bank of England and the International Monetary Fund (IMF) have pointed to medium-term challenges for the UK economy.
The workforce has not recovered from the pandemic, post-Brexit trade barriers have weighed on some parts of the economy and investment, and the UK is particularly sensitive to rising interest rates after they have been closed to zero for so long.
So far, the UK economy has coped far better than expected with the simply awful energy shock unleashed by Russia’s invasion of Ukraine. That could be because some consumers have been helped by additional savings during the pandemic. Or it could still prove to be pushing the pain into the future through rising credit card debt and other types of debt.
Nonetheless, it is the UK’s medium-term outlook that sets the path for tax and public spending and the tram lines for the financial debate at the next election. That’s why the Chancellor told me last month that he doesn’t expect to have the “leeway” for a major new energy promotion initiative.
help energy bill
Happily for many billpayers, support is expected to remain at current levels for three more months, meaning a typical household would continue to pay £2,500 a year rather than increasing to £3,000 (although this support level would not ). count as a “main subject”). After that point, it’s unlikely that further help will be needed as gas prices fall.
In the longer term, the Government intends to boost UK nuclear power to increase energy security and has announced it will invest £20bn in carbon capture and storage over 20 years as part of net-zero targets.
Collective bargaining agreements for striking workers
I would also expect a few billion pounds in public sector payroll top-ups, although this may not be a formal part of the budget process. The government appears to be in settlement mode. As former Tory union czar Richard Balfe told me last week, these are likely to be deals for the current financial year as well as the new one beginning in April.
back to work
The other big issue in the budget will be trying to push policies aimed at getting Britain back to work. Mr Hunt wants more over-50s who have taken early retirement to return to the workforce to fill gaps. But he’ll probably use some carrot and stick. For example, more favorable tax breaks for pension pots, but also an extension of the statutory retirement age would be conceivable
Also expect some effort in terms of job performance and a bigger push in childcare, which will be a key issue in the budget.
boost investments
While we’ll get some warm words on tax cuts, the chancellor’s strategy suggests he prefers to address it in his fall statement later this year. His priority at the moment seems to be to help with the business investment issue, but only when borrowing and the economic situation are more secure.
And then there is the big plan for the future of the economy. Mr Sunak would love the UK to be a scientific superpower, using post-Brexit freedoms to return to high growth after a bumpy decade. The Northern Ireland Brexit deal has also paved the way for smoother economic relations with the EU.
Chief Scientist Sir Patrick Vallance has worked on pro-growth regulatory changes in key sectors such as artificial intelligence, pharmaceuticals and green tech. Whether it will be enough to help the UK compete with the big plans pushed by the US and EU remains to be seen.
Certainly, the prospects of the strategy will be welcomed by many business people. It is noteworthy that Labor leader Sir Keir Starmer is increasingly public about talks with top foreign investors, who he says have been put off by political instability.
Actually being able to present an official budget should not really be considered an achievement for a chancellor. But that shows why next Wednesday will still be mostly about economic, financial, fiscal and fiscal stability.
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