SERIOUS OR ELECTION GIMMICK?

John Boydell - Friday, 24 November 2023

As always, I’m not on anybody’s “side” politically, just trying to champion common sense.

When you’re trying to take as well as give but leave the impression you’re only giving, then you need a serious demeanour. Now Jeremy Hunt is a serious-demeanour guy: perfect for the job, you’d think. There’s a slight obstacle, however, that’s nothing to do with his demeanour, in that it was only a couple of months ago that he was saying there was no room for cuts in taxation [because the country was broke and borrowing was sky-high as were servicing costs of that borrowing]. Further he opined that taxation cuts would simply feed inflation, which was hurting so many people. He was correct in his stance, however regrettable. If “a week’s a long time in politics” then how long is eight weeks or so? Long enough, it appears to ditch that message and deliver an alternative that there is room for tax cuts and that inflation won’t be fed as a result. Duh? Have the economic fundamentals changed in those eight weeks? Of course not, but the politics has. There is much debate going on within government as to the timing of the next election. The early money was on October or November of 2024 but there’s now active talk of, perhaps, May. Having made such a play of “stop the boats” and raised its place in the consciousness of so many voters, you wouldn’t want the numbers there going in the wrong direction, which they do through the summer when sailing conditions are more benign. Labour will be sure to remind voters that net legal immigration was 745,000 in 2022 so that and increasing “illegal” immigration will be a good stick to beat the Government with. It’s also a bit of a hint to thinking that the National Insurance reductions would take effect from January, rather than from the traditional 6 April date. Why might you want to make voters feel a bit better off earlier than would be normal?

Growth will be flat or feeble through 2024 and 2025 and the truth is that there wasn’t really money available for tax cuts. A vote winner would have been to restore the tradition of uprating the personal allowance but that would forego serious tax revenue that the country desperately needs. Against this the messaging of “we’re cutting taxes and we’re on the side of the people” looks a little feeble and invites inevitable criticism. Nevertheless, the Chancellor, being a serious bloke, will have had a genuine look at where he might be able to do something that helps the country, in addition to his party’s electoral prospects. What falls into that category and will pass the comparison/criticism test? Well, there’s “Full Expensing” extended “permanently”. This is likely to encourage investment in new plant and machinery, with gains in productivity down the line, as businesses now have a consistent long-term position to plan against (oh for some more of that approach). Then there’s removal of the lifetime cap on pension saving that has led to the inevitable disincentive to continue working that applies to some talented people. If they can contribute to our economic landscape, don’t force them out early. Some changes to Solvency II are interesting, too, designed to see more pension money invested in growing UK businesses. The National Insurance changes are welcome, if they are sustained, but will they be, given what’s coming down the line? More welcome for voters, if not for the country’s finances, would have been a reduction in the headline rate of income tax but the NI decreases cost less so, unsurprisingly, that was the route chosen. Other measures fall more into the give-and-take cycle that usually applies, with benefits being uprated and the triple lock also kept, raising state pensions by 8.5%. The failure to uprate personal allowances for such a long time will, however, shortly end up with pensioners having to pay back some of their entitlement in tax. Who’d have thought that a few years ago?

How is all this going to play out with the voters and will they perceive “serious” or “gimmick”? All other political parties will be sure to point out the gimmick side of things. Thoughtful economic commentators will do the comparisons and contexts that give a more balanced picture to those prepared to pay attention. The really fundamental test for voters at the next election will be ‘Do you feel better off [despite the Chancellor’s “giveaway”]’? The likely answer is ‘No’ and there’s substance behind this, not just sentiment. The Resolution foundation observes: "This parliament is set to achieve a truly grim new record: the first in which household incomes will be lower at its end than its beginning”. It’s analysis is that, since the last election in 2019 and the likely time of the next one, the average household will be ￡1,900 (or 3.1%) poorer. Cost of living support is not being extended as much as before and energy prices are rising, once again, as we head into winter. While public spending is rising, inflation will take its toll, particularly in non-protected areas outside health, defence and schools. Public complaints that “nothing works anymore” are only likely to rise because services are likely to go backwards, not forwards. Further, the megaphones will be out for all those in opposition to point out that the ￡10 billion of goodies announced by the Chancellor is dwarfed by the ￡90 billion imposed so far and which will rise as fiscal drag kicks in more and more.

As I say, Jeremy hunt is a serious guy. I suspect his inclination was to do nothing, as he’d previously indicated. However, there’s an election coming and the Government’s record, overall, is not a lot to stand on. Further a large section of Tory MPs have been clamouring for tax cuts, and factions of the party need to be kept onside, too. The conclusion, serious or gimmick? Hmmn… mostly a serious attempt at pragmatic gimmicks that will not relieve the even worse pressures on finances down the line and which will mean more taxes or cuts in services. But Jeremy Hunt still comes over as a serious personality, which can be useful in politics. Good for him.