FTI Consulting UK Public Affairs Snapshot: Spring Budget 2024: Steady pace to prosperity or running out of road?

This afternoon, the Chancellor of the Exchequer, Jeremy Hunt, presented his Spring Budget to the House of Commons, calling it a “Budget for long-term growth”.

In framing this, Hunt may have taken inspiration from his training for the London Marathon – 17 miles this morning. He explained that there was no chance of a sprint at this stage, noting the continuing economic impact of the pandemic and the conflicts in Ukraine and the Middle East.

Despite these factors, according to Hunt, the Government has made “good progress” in tackling inflation and growing both people’s wages and the economy.

Indeed, this Budget saw a continuation of the “turning a corner” narrative deployed by the Prime Minister to suggest that we are at the point where falling inflation means better economic performance.

The Office for Budget Responsibility (OBR)’s predictions of increased growth and falling inflation and interest rates support this view, with the expectation being that the economy will grow 0.8% this year, then 2%, 1.8%, and 1.7%.

Nevertheless, these growth figures are not the strongest card for a governing party leading a country in technical recession. Labour’s counternarrative of falling living standards is likely to be one that resonates among the electorate.

This was a heavily pre-briefed Budget and the headline announcement of a further 2p cut to National Insurance came as little surprise. Taken together, these are worth £900 to the average worker. As with last year’s cuts, though, there will be no shortage of figures on the right pointing out that fiscal drag makes this a “two cheers” announcement at best.

Alongside this – and responding to a recent YouGov poll suggesting that the public favours more spending on public services over tax cuts – Hunt opted to maintain predicted public sector spending growth at 1% rather than the anticipated cut to 0.75%.

He announced an additional £2.5 billion of day-to-day funding for the NHS in England in 2024-25, as well as £500 million for an extension to the Household Support Fund and £800 million to boost productivity across other public services.

This is potentially smart politics designed to scotch arguments that the Conservatives are ideologically wedded to a smaller state.

Central to the Budget were two policy ideas borrowed from Labour: Reform of the non-dom tax regime and the extension of the Energy Price Levy.

The Chancellor announced that non-domiciled tax status would be abolished and replaced by a “simpler system”, expected to raise £2.7 billion a year by 2028/29 – less than the £3.6 billion that the Opposition predicted.

The Labour Party had planned to use this revenue to fund a £1.6 billion NHS workforce plan, as well as breakfast clubs and extra dentistry appointments.

In a similar vein, the extension of the Energy Price Levy is expected to generate an extra £1.5 billion, a lower-earning version of the Labour policy.

Labour had earmarked these funds for a £1.3 billion home insulation scheme and a £1.6 billion state-owned energy company. Politically, these are bold moves – at least one of which Hunt has previous form for criticising. But they also now put Labour in a bind.

As a result of Hunt’s actions, Labour will need to find new sources of revenue to fund these pledges or borrow more in order to do so.

Increased borrowing would likely breach Labour’s fiscal rule of not borrowing to fund day-to-day expenditure, and raising taxes would give the Conservatives a potent attack line.

This is similar to the trap set by Norman Lamont in 1992 – a totemic year for students of last-minute Conservative comebacks. However, a more fiscally disciplined Labour Party, riding high in the polls, still has time ahead of a General Election to seek to address this challenge.

Few of the other measures introduced today fall into the game-changer category. Increases to the child benefit threshold, taking it to £60,000, will be popular. Theatre tax reliefs will provide a welcome boost to a sector not known for its love of the Conservative Party.

The introduction of a British ISA on top of existing allowances will continue the narrative of boosting British businesses, and the planned summer retail offer of shares in NatWest offers opportunities for 1980s rhetoric and for things to go wrong.

Yet, all in all, this was a low-key Budget. This begs the question of whether the plan is in fact for a second and even more political fiscal event to be held later this year, perhaps delivered by a different, more political Chancellor.

A second Budget later in the year would, after all, be on the back of better growth figures and an OBR forecast that lasts until 2030. If deployed, this would be designed to secure control of the headlines and keep Labour off the airwaves ahead of the election.

The second, deeper question is whether even that would matter very much. Polls have remained stubbornly bad for the Conservative Party.

Households will not see their real-terms disposable income recover to pre-pandemic levels until 2025, according to new forecasts from the OBR. And even the promises of more tax cuts are unlikely to change the sentiment of those who have deserted the Conservatives.

Even with an economic plan that’s slowly yielding results – following two unspectacular fiscal events – to use an analogy that the Chancellor will be grimly familiar with as he laces up his trainers, this Budget was the equivalent of fuelling correctly and setting the right pace, only to still hit a wall.