Jeremy Hunt prepared for his first Budget last weekend with a 19-mile run, part of his training for an upcoming marathon. Unfortunately for the UK Chancellor, his political strategy is more essential.
With general elections expected in 2024, Hunt has precious little time to turn around the sluggish economy and then craft a political story that could help the Conservatives win a fifth consecutive term.
Hunt had four shots to make it right. The first was his Autumn Statement last November, which sought to restore stability and fiscal order after the chaos of Liz Truce’s short premiership.
The chancellor privately admits that no one discerned a “growth strategy” in last year’s emergency statement, a clear problem for a country facing the lowest growth of any G7 country this year.
Shot two was Wednesday’s “Budget for Growth.” It was Hunt’s attempt to back up his boosterish rhetoric about Britain “proving the doubters wrong” by setting out some measures to boost the economy. But it was very much a staging post for the next two “fiscal events”.
Hunt has told Tory MPs that he expects inflation to be under control by his next Autumn Statement. Official forecasts say price increases will fall below 3 percent by the end of the year; At that point he hopes to turn on the spending spigot.
Then by the time he delivers his second budget in spring 2024 — the fourth phase of the fiscal plan — Hunt hopes voters will be showered with cash. “At that point we’ll blow up the fiscal headroom,” says one Tory strategist.
The economy may be weak – the Office for Budget Responsibility has downgraded its medium-term growth forecast – but Tory election planners admit they cannot avoid fighting the issue even if they wanted to.
Hunt will hope to convince voters that the worst is over, that collective sacrifices during the Covid-19 pandemic and the Ukraine-induced energy crisis have paid off — and the rewards are coming.
“The IMF says our approach means the UK economy is on the right track,” he told MPs on Wednesday. “We’re on the right track, don’t turn back,” is seen by Tory insiders as the party’s key election message.
There are some problems with this strategy, not least economic stability this year and the fact that Hunt currently has only £6.5bn of headroom against his fiscal rule, which is to reduce debt as a share of GDP over a five-year period.
It does not offer a certain scope for election-winning, as many Tory MPs are demanding. So Hunt expects the economy and public finances to improve faster than expected.
The chancellor is crossing his fingers that external events work in his favour, particularly the continued fall in global energy prices. The end of the war in Ukraine would be particularly good news.
The budget growth strategy he decided on Wednesday may make a difference, but probably not on the timescale of the next election, which is what most politicians do.
The most obvious growth-booster in the short term is a £9bn-a-year tax break for business investment; Other ideas like investment zones or measures to get people back to work will take longer to complete.
Hunt was ultimately limited in this budget by tight public finances and his overriding goal of pushing down inflation. “Bringing inflation down is the biggest tax cut,” Hunt tells MPs. He hopes to have more room to maneuver by fall.
But while the budget may not be an immediate boost, it does serve another purpose in setting the political narrative of the kind of economy Rishi Sunak’s Tories will want to build — if they win the next election against a resurgent Labor opposition. Huge margins.
Hunt’s plan had a strong One Nation Tory theme, reflecting the moderate wing of the party from which he came. A huge extension of free childcare and a further £3bn to curb energy bills are emblematic of this approach.
The chancellor also uttered the term “industrial strategy”, a concept that hardly comes to mind when heard pass Sunak’s lips. Indeed Sunk recently took the idea out of the Whitehall nomenclature – demolishing the Department of Business, Energy and Industrial Strategy.
Hunt also gave a name check to Lord Michael Heseltine, the Tory godfather of urban regeneration and state intervention, as he unveiled a new generation of 12 investment zones, dubbed “potential Canary Wharfs” after the London Docklands development Heseltine ran in the 1980s. The Chancellor has not yet given up on retaining the “red wall” of Labor seats won in 2019.
Labor leader Sir Keir Starmer claimed Hunt had stolen many of his ideas from the opposition but quickly seized on a policy that undermined One Nation’s recognition of the budget.
Starmer said the plan to scrap the cap on lifetime tax-free pension contributions was a “huge gift to the rich”, calling it a £1bn tax cut for the richest 1 per cent of earners.
That attack may work in the short term, but Starmer’s main criticism of the government in the 2024 election is simple: that the Tories have presided over stagnant living standards and failing public services.
Starmer said Hunt had only provided “sticking plasters” to the country’s economic wounds and that the chancellor was “dressing stability as stability”. Hunt hopes to prove him wrong, but time is not on the chancellor’s side.