Jeremy Hunt: Why the Chancellor wants this Budget to be boring

  • By Faisal Islam
  • Economics editor

image source, Getty Images

It will be quite a milestone for Jeremy Hunt to actually get to the point, on March 15, where he can keep the famous red Budget box out of Number 11.

Incredibly, he becomes only the second of the past five Chancellors to perform this ritual. The other, of course, was Rishi Sunak, now his Downing Street neighbor and Prime Minister. Three of Mr. Hunt’s predecessors did not last long enough in their jobs to be able to keep an official budget.

Given the turmoil we have seen in the Tory party recently, the message Mr Hunt will send with the red field is one of stability. While the Treasury is happy with the progress in financial markets since Liz Truss’s mini-Budget – which sent financial markets into a tailspin and drove up mortgage rates – there are still some lingering hangovers from that period.

How is the UK doing?

Hunt’s first challenge will be communicating the latest official forecasts for the UK economy, which will be released by the Office for Budget Responsibility (OBR), the government’s independent forecaster, alongside the Budget.

On the one hand, the current year will look far less bad than it did in the autumn. Falling energy prices and public borrowing costs will mean a milder slowdown, less immediate borrowing and some possibility of one-off gifts.

But on the other hand, the Bank of England and the International Monetary Fund (IMF) have pointed to medium-term challenges facing the British economy.

The size of the workforce has not recovered from the pandemic, post-Brexit trade barriers have weighed on some parts of the economy and on investment, and the UK is particularly sensitive to interest rate rises, after such a long period where they have been close to zero .

So far, the UK economy has handled the simply terrible energy shock that Russia’s invasion of Ukraine unleashed far better than expected. This may be because some consumers have been supported by extra savings during the pandemic. Or it could still turn out to be a mix of pain into the future through mounting credit card debt and other forms of debt.

Yet it is Britain’s medium-term outlook that determines the path for taxes and public spending, and the tracks for the fiscal debate at the next election. That is why the Chancellor told me last month that he did not expect to have “headroom” for a major new initiative on energy support.

Help with the energy bill

Fortunately for many bill payers, support is expected to be maintained at current levels for three more months in the Budget, meaning a typical household will continue to pay £2,500 a year rather than rising to £3,000 (although this level of support would not count as “major”). After that point, further help is unlikely to be needed as gas prices fall.

In the longer term, the government is looking to boost UK nuclear power to increase energy security and has said it will invest £20bn. pounds in CO2 capture and storage over 20 years as part of net zero goals.

Wage agreements for striking workers

I would also expect a few billion pounds in addition to public sector pay settlements, although this may not be a formal part of the budget process. The government appears to be in conciliation mode. As former Tory union czar Richard Balfe told me last week, it appears to involve pay deals for the current financial year as well as the new one starting in April.

Back to work

The other big theme of the Budget will be trying to push policies aimed at getting Britain back to work. Hunt wants more over-50s who have taken early retirement to return to the workforce to help close gaps. But he’ll probably use some carrot and stick. We could see more favorable tax breaks for, for example, pension funds, but also an extension of the official retirement age being brought forward

Also expect to see an effort around work benefits and more of a push on childcare, which will be a central theme in the budget.

Increases investments

Although we will get some warm words on tax cuts, the Chancellor’s strategy indicates a preference to address this in his Autumn Statement later this year. His priority right now seems to be helping with the business investment issue, but only after the borrowing and financial situation is more certain.

And then there is the big plan for the future of the economy. Sir. Sunak would love for Britain to be a science superpower implementing post-Brexit freedom to return to high growth after a bumpy decade. The Northern Ireland Brexit agreement has also paved the way for smoother economic relations with the EU.

Chief researcher Sir Patrick Vallance has looked at growth-promoting legislative changes in key sectors such as artificial intelligence, pharmaceuticals and green technology. Whether that will be enough to help the UK compete with big plans pushed by the US and the EU remains to be seen.

The prospect of strategy will certainly be welcomed by many in business. Notably, Labor leader Sir Keir Starmer has been increasingly public about talks with top foreign investors, who he says have been put off by political instability.

Getting to actually deliver an official budget shouldn’t really qualify as an achievement for a chancellor. But it shows why next Wednesday will still be primarily about economic, financial, fiscal and household stability.

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