Hunt likely to save Election Day spending spree, not budget speech | Budget 2023

Jeremy Hunt is under pressure to be generous as he delivers his first budget speech since becoming chancellor last October.

Public finances have improved considerably since the chaotic days following Liz Truss’ mini-budget in September, which jolted international money markets and sent interest rates on government debt skyrocketing. The cost of UK debt funding has fallen in recent months and the cost of gas in wholesale markets has fallen.

Up to £30billion could be spent over the next five years while leaving the Chancellor within his main budgetary rule of reducing the proportion of debt to annual income – the debt-to-income ratio. GDP – by 2027. Figures from the Office for National Statistics in January showed the UK’s total debt last September was £2.22tn and the debt to GDP ratio was 100 .2%.

Business and consumer groups want a short-term extension of support for energy bills, to cover the period before the drop in wholesale prices begins to be felt. They also want the Chancellor to ease planned tax increases, including corporate tax, which they say will limit investment.

Public sector workers have demanded a pay rise above the 3.5% forecast by Hunt, and households more generally will want an extension of the energy price guarantee at its current level until July, especially now that ‘It will cost the government less than £3billion.

Hunt is expected to offer freebies, including money for childcare schemes, and a pension tax cut for the better-off has also been announced, which pension experts describe as an effort clumsy to prevent GPs and surgeons nearing retirement from leaving the health service .

However, the Chancellor’s purchasing power will depend on new forecasts from the Office for Budget Responsibility (OBR), the Treasury’s independent forecaster.

The OBR could paint a picture of the economy more gloomy than the previous one, indicating a drop in tax revenues over the next five years. Many economists expect him to say that this year is going to be better than expected, but the following years will be worse.

This could leave the income side of the ledger largely the same. Expenses could also be the same once the extra expenses are offset by lower than expected interest and energy bills.

A neutral budget would preserve much of the Chancellor’s war chest until next year, when he wants to embark on election-winning projects and programs, including personal tax cuts that reverse the blow financial support for this year’s increase in income tax thresholds.

The National Institute for Economic and Social Research says the Treasury should ignore the political cycle and prioritize the long-term health of the economy. Adrian Pabst, its deputy director, says the Treasury has become obsessed with the level of debt to the exclusion of any other measure of economic health, including growth prospects.

“It is in the interest of the country to move forward and move forward now with higher levels of public investment and additional spending on health and social protection, without waiting for it suits the election cycle,” he says. “If the chancellor delays, he will only have to deal with weaker growth in the future.”

Labor shares this fear. Rachel Reeves, the shadow chancellor, wants to see higher levels of public investment to accelerate green infrastructure projects, arguing they will lift long-term growth expectations and ease pressure on Britain’s public finances.

Pabst’s colleague, economist Stephen Millard, says a change of mindset within the Treasury is needed to achieve this goal. “We have long argued that there is a need for a new framework which recognizes the fundamental objective of fiscal policy to improve the well-being of UK households by addressing market imperfections, redistributing wealthier households to the poorest households and encouraging productivity growth across the country. the UK through well-targeted investments in public infrastructure, without committing borrowing to an unsustainable path.

“Debt and deficit targets are useful ways to help convince markets that it is safe to lend to the government, but fiscal policy should not be set solely on the basis of meeting these targets, which are , essentially arbitrary.”