Decoding the Spring Budget: the implications of Jeremy Hunt’s fiscal statement for business
By David Gauke, Senior Advisor
Rt Hon David Gauke is Senior Advisor to Instinctif Partners. He is a political commentator and was previously a Conservative Cabinet Minister as the MP for South West Hertfordshire. He was Chief Secretary to the Treasury, Secretary of State for Work and Pensions, Lord Chancellor and Secretary of State for Justice. See some of his other commentary via our video series, Gauke Talks.
The Government’s Spring Budget delivered encouraging news as the Office for Budget Responsibility (OBR) had upgraded its economic forecasts. Although the 1.4 per cent contraction predicted last autumn has improved, concerns remained over the potential for downgraded forecasts in the coming years. Instead, the OBR has concluded that the UK economy will be 0.6 per cent larger than previously anticipated.
As such, this positive development gave Jeremy Hunt a little more flexibility than he might have expected. He has used this to make our corporate tax regime more competitive than it was otherwise going to be (because of the hike in rates from 19 per cent to 25 per cent) and to encourage more people to work through policies such as greater support for childcare, scrapping the lifetime cap on pensions savings and welfare reform.
It is worth stepping back and looking at the political strategy here. Living standards are still continuing to fall fast and if the Government was looking to enhance its popularity in the short term, it would focus on addressing this. The energy price guarantee has been extended, as has the fuel duty freeze, but the focus of the Budget is on the less obviously politically salient issues of business investment and labour inactivity.
This is consistent with the Conservatives’ political strategy of not getting too caught up with day-to-day politics. Instead they are attempting to establish a credible reputation in time for the 2024 General Election of being able to get things done. Such was the damage done to trust in the Tories by the events of 2022, Rishi Sunak believes that his best route to victory rests in a “show not tell” approach, to point to a record of achievement. The purpose of this Budget, therefore, is to enable him to show in 2024 that business investment is rising and that the problems caused by labour shortages have been overcome. This, he hopes, will feed through into greater economic optimism.
Whether this proves to be the case remains to be seen. But the Sunak approach to Government as essentially being about problem-solving permeated this Budget. It was a fuller Budget than expected a few weeks ago (although almost everything had, by the time the Chancellor stood up, been leaked). The Budget Red Book always contains a list of measures that have an impact on the public finances, known as the scorecard. Usually the scorecard is one or two pages. This year it was six.
It is a Budget that is hard to place ideologically. There were cuts in business taxes but also an extension of the welfare state as additional support is provided for childcare. There was increased devolution with deals with Greater Manchester and the West Midlands and the introduction of twelve new investment zones with beneficial tax or spending regimes. There was more support for SMEs investing in R&D. Existing tax reliefs for the creative sector were made more generous.
Before the end of the month, there will be “Green Day” when the Government will respond to the Skidmore Review on achieving a net zero economy. We will get a better sense at this point of how the Government will respond to President Biden’s Inflation Reduction Act, which provides huge subsidies to green technologies.
What is clear is that we are in a period of change and that successful businesses will have to navigate it. The Government is moving in the direction of restoring an industrial strategy in terms of supporting what it sees as key sectors. Science and technology will be increasingly at the heart of Government policy. Devolution is likely to accelerate. And all of these trends will continue in the event of a change of Government at the next election.
For businesses, this raises many issues. It creates risks and opportunities as Government looks set to become more interventionist in a period of technological, political, environmental and societal transformation. The need for politicians to understand business and for business people to understand politics has never been greater.