The Independent

Will the chancellor pull out a rabbit in his first Budget?

Jeremy Hunt will want to avoid further fiscal drama – but that doesn’t mean there won’t be a sweetener, says Sean O’Grady


Budget day is a great political set-piece, with red-box tradition and ritual mixed with a certain amount of trepidatio­n. This year may be a little different, as Jeremy Hunt, delivering his first formal Budget, has already outlined his strategy for the public

finances. Things are getting a little easier for him, as tax revenues have been healthy, but he will still have to confront some tough decisions.

Will there be any surprises?

Modern Budgets get leaked fairly extensivel­y, and the old habit of purdah, whereby Treasury ministers refused all interviews for weeks beforehand, was abandoned some time ago. Hunt has been touring the television studios to try to dampen expectatio­ns of any giveaways.

Kwasi Kwarteng’s “fiscal event” was prepared in top secrecy, and full of rather unwelcome surprises. This time, it seems that if there were going to be any surprises, we’d know about them by now, which of course would mean that they wouldn’t be surprises.

It is most likely that all the hikes in personal and business taxation announced last year will be retained, including the move to push corporatio­n tax up from 19 to 25 per cent. This is the focus for Tory discontent at the moment, with the band of dedicated Trussites in the Conservati­ve Growth Group almost certain to rebel on the issue.

Rishi Sunak, of course a former chancellor and closely involved still in the economic agenda, always maintains that investment incentives work better than adjustment­s to corporatio­n tax in improving productivi­ty and economic growth. Therefore Hunt might announce some new tax breaks to spike the guns of his internal critics.

The Trussites point to decisions such as that of AstraZenec­a to relocate its HQ in Ireland, where corporatio­n tax is 12.5 per cent. (They also find the OECD agreement on a global minimum company tax rate of 15 per cent irksome.) They seem set on making some sort of gesture during the votes on the finance bill.

So, no excitement?

Not much. Despite the pre-Budget spin, chancellor­s do like to pull some sort of bunny out of the hat if they can. This year a

freeze in fuel duty (again) will cheer up the Tories and The Sun, even if it’s widely expected. It’s usually unveiled towards the end of the speech, all the better to tee up the cheers from the government backbenche­rs.

This year, all the major lines of policy were set out by Hunt even when Truss was still prime minister – putting the defeat of inflation first, and making a tight fiscal policy to support the Bank of England’s strategy of steadily raising interest rates.

Given the relatively healthy state of the public finances compared with how things were last autumn, Hunt could say something dramatic about, say, a new pay settlement for nurses. He and Sunak are anxious to bring the wave of strikes to a halt, and seem to have identified the nurses as the key to winning back public opinion.

Anything else to look out ffor?

Mainly the size of the Tory rebellions. As with those on the Illegal Migration Bill, they are almost a proxy indicator for confidence in Sunak. It will be interestin­g to watch how Truss and Boris Johnson behave, given their apparently unquenched thirst for power. If a revolt is large enough, and the opposition parties vote in unison, Hunt and Sunak could see some fairly close divisions.

Nadhim Zahawi and Kwasi Kwateng – the other two of 2022’s four chancellor­s of the Exchequer – might attempt to make dignified and measured interventi­ons in a doomed attempt to rehabilita­te their respective reputation­s.

On the other side, it will be Starmer’s traditiona­l obligation to respond to the statement, but more attention will be on how Rachel Reeves carves out some fiscally distinctiv­e territory for her party – and makes the numbers on green growth add up.

Will we be better or worse offfffffff­fff?

Most people will be worse off, but Hunt may well take advantage of lower energy prices to cancel the planned £500 increase in average household energy bills, which was due to come into force next month. That would mean bills for the average household staying at around £2,500, instead of going up to £3,000 as previously announced.

Those with significan­t self-employed income from dividends and capital gains will be hit especially hard, which will make the measures more progressiv­e. The tax burden will be at a multidecad­e high, mortgage rates will continue to climb, and Hunt will have to acknowledg­e that there are still tough times ahead.

For those still struggling with gas and electricit­y bills, one popular change would be to outlaw the so-called “prepayment premium” and level down the cost of energy for those who have to pre-pay.

What impact will it have on politics?

It’s not going to transform Tory fortunes, but nor will it do them much harm. In image terms, it’s all about making the

government look calm, competent, and determined to take the difficult decisions (even if it is reversing past Tory mistakes).

The intention is to deepen the contrast with Labour, but also with the respective uncertaint­ies, instabilit­y and chaos of the May, Johnson and Truss government­s. This is a “new” government, albeit with some old-fashioned ideas.

The next big electoral test will be the local elections in May, already assumed to be a wipeout for the Conservati­ves. Any faint signs of improvemen­t will be seized upon as the first stage in a recovery the government hopes will pick up with an improving economy next year.

What would success look like ffor Jeremy Hunt?

As much support as he can muster from his own ranks, and as little impact as possible on the financial markets. Drama is bad. Boring is good.

In the slightly longer run, Hunt will be extremely pleased if his measures to get working parents, the early-retired, and people with disabiliti­es or long-term illnesses back into the workforce prove a success. Absent more inward migration, increasing economic participat­ion rates is the only way to address the shortage of labour in the economy, which is pushing wages, business costs, prices and the inflation rate higher.

Therefore we may expect to see Hunt make the most of some reforms to the social security system. These will include ending the formula used to assess eligibilit­y for sickness benefits, paying parents on universal credit childcare support up front, and increasing the amount they can claim by several hundred pounds.

Parents will face formidable obstacles in paying for nurseries – but there’s to be some help at last. Some universal credit claimants will be allowed to continue to receive payments after they return to employment.

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 ?? (Zara Farrar/HM Treasury) ?? Hunt may pinpoint a new pay settlement for nurses
(Zara Farrar/HM Treasury) Hunt may pinpoint a new pay settlement for nurses
 ?? (PA) ?? On the opposition benches Rachel Reeves will need to make Labour’s numbers on green growth add up
(PA) On the opposition benches Rachel Reeves will need to make Labour’s numbers on green growth add up

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