As far as budgets go, Jeremy Hunt’s 2023 Spring Budget is unlikely to go down in history as a game-changing event. It should be seen as a tool of Rishi Sunak’s Government to put the country on course to meet its goals ahead of the looming general election: To halve inflation, grow the economy, decrease public debt, cut NHS waiting lists and stop small boats crossing the English Channel.
A gloomy outlook
The setting surrounding this budget is far from shiny. The Office for Budget Responsibility (OBR) says we are seeing the lowest level of average household income since the 1950s and the highest tax burden since the war. In other words, households are having their pockets squeezed and what money they have is being taxed more. The OBR does expect the current downturn to be ‘short and shallow’ but this will be of little comfort to most of the public.
It is also a challenging time for businesses across a variety of sectors, battling the knock-on effects of the weakened purchasing power of the public. Major concerns have been expressed by the property sector; the budget had nothing for house building or reinvigorating the property market. Data this week shows mortgage offers were down in Q4 by 33%. With the first-time buyer scheme ending soon, there is likely to be a downturn in the housing market.
While any reference to “Silicon Valley” was surgically removed from Hunt’s speech following the collapse of the Silicon Valley Bank, a significant proportion of the announcement was dedicated to what the Government plans to do to boost the UK’s tech sector. The long-awaited Semiconductor Strategy was notably absent, but £900m was pledged for research into AI and £2.5bn has been earmarked for investments in quantum computing. The Government also backtracked somewhat on the intense cut to the R&D tax credit it announced last autumn, which was welcomed by start-ups and investors even if it leaves many with a higher tax burden than they had a year ago.
On the plus side for many businesses, we saw more power being transferred to the Metro Mayors, who will become key to the delivery of the Government’s Levelling Up agenda. This can be seen as ‘a 180’ on the local enterprise partnerships (LEPs), an Osborne scheme to deliver economic development. We are also getting eight new Enterprise Zones across the UK.
On the whole, Hunt’s budget had enough touchpoints with most factions of his party to sate any significant opposition. We know there is a certain appeal among the Tory backbenchers for widespread tax cuts – which was not delivered – but Hunt can hold them off if he manages to bring down inflation and keep the confidence of the markets.
There are a number of true ‘goodies’ in the budget for many Conservative MPs; strong focus on being prudent with a purpose, with the purpose being ‘everywhere’. This reflects how the party wants to fight the next general election: Locally.
England’s struggling swimming pools are to be offered support via a £63m fund that Sport England will dish out over the next year, which was announced by Hunt alongside name checks for Tory marginal seats. There will also be a £7m pothole fund and a new ‘Brexit pub guarantee’. People might roll their eyes at such measures, but they may prove to be the firepower MPs need on the doorsteps.
Labour’s response to the budget was not focused on any specific policies or spending pledges, as there weren’t any that were sufficiently controversial to the average voter. Instead, but the opposition focused on the negative long-term trajectory of the UK economy since the Conservative Party came to power in 2010. The message? The mess the country is in is of the governing party’s own making and that it cannot be relied upon to properly support critical parts of the public and private sector as the crisis deepens or ensure that any eventual growth is distributed fairly across the economy.
Sunak and Hunt will be hoping that the economic outlook of the UK will slowly start to shift, or that some of today’s dismal projections for the economy will prove to be overly pessimistic. If that is the case, their spring budget could be painted as a first step in a Tory-orchestrated bounce back. On the other hand, anything barring a macroeconomic miracle will allow the Labour party and other opposition forces to claim, at best, that all that the current Government has done is soften the country’s decline. It’s a tricky situation to be in – one which will most likely be resolved by many forces beyond Sunak and Hunt’s control as we head towards the next election.