Hunt will stick to ‘safe’ Budget
CHANCELLOR Jeremy Hunt is set to resist calls for increased spending and permanent tax cuts at Wednesday’s Budget and be cautious, due to the challenging medium term economic outlook.
Instead, he is tipped to use the increased fiscal headroom he has from the better-than-expected performance of the economy to extend the Government’s current cost-of-living support measures at their current levels.
It is understood that Hunt will use part of the windfall to keep the Energy Price Guarantee at £2,500 for a further three months, which would keep household power bills from rising by 20 per cent in April. The Resolution Foundation think tank estimates that this will cost £3billion.
Additionally, he is tipped to cancel the planned 12p rise in fuel duty, a move that will cost £5billion a year.
The independent Office For Budget Responsibility (OBR) will publish its latest economic forecasts alongside Hunt’s Budget, and it is believed it will say that Government borrowing for the 2022/23 and 2023/24 financial years will be around £30billion lower than it had predicted back in November.
However the OBR is likely to say that the medium-term outlook for the public sector finances still looks challenging, due to anaemic economic growth. As a result, Hunt will not have too much room for giveaways and is likely to preach fiscal discipline, given Britain’s £2.5trillion debt mountain.
“Any hopes Hunt will be able to deliver significant permanent tax cuts and/or spending increases, while sticking to his previous debt-reduction plans, will probably be dashed by a downgrade to the OBR’S prediction for GDP growth in the medium term,” said Capital Economics deputy chief UK economist Ruth Gregory.
Tim Sarson, head of tax policy at KPMG UK, agreed: “Despite the economic ups and downs since the Autumn Statement, there have been some glimpses of hope. However this does not mean we expect this to herald a new period of fiscal loosening. The public finances continue to be tight and so the focus remains on reducing borrowing and keeping an eye on inflation.”
Barclays head of European economics research Silvia Ardagna said the chaos that gripped the economy following the disastrous mini-budget of predecessor Kwasi Kwarteng will be on Hunt’s mind.
“Do not expect a major fiscal loosening at the Budget, given that it makes sense for the Government to preserve flexibility ahead of next year’s election,” she said. “Ministers will also be anxious to avoid the kind of adverse market reaction that greeted last September’s so-called ‘mini-budget’, in a context of high inflation.”
Aside from maintaining the current cost-of-living support measures, Hunt is also expected to announce a temporary boost to defence spending, in recognition of increased geopolitical instability.although the corporation tax hike is likely to go ahead, Hunt may soften the blow with fresh tax incentives to encourage investment.