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Good morning. Better than expected economic numbers have left Jeremy Hunt with more wriggle room for tax cuts or spending increases. But how should he spend it? That’s the question for the chancellor ahead of next week’s Autumn Statement. Some more thoughts on that below.
Don’t lose your headroom
Jeremy Hunt has room to spend money — whether on tax cuts or spending increases. The chancellor will today receive final forecasts from the Office for Budget Responsibility, showing that strong tax receipts have increased his leeway to spend money.
In terms of internal Conservative politics, the only debate that matters is how to split the tax-cutting cake, between measures that help to stimulate economic activity (such as making full expensing, the government’s flagship tax break for businesses, permanent) and “retail” offers, like reductions in inheritance tax.
It’s a good example of how Hunt, like all of his recent predecessors, has never quite been able to get out from under the shadow of Margaret Thatcher’s chancellors. Although Geoffrey Howe raised taxes in most of his budgets, his final pre-election budget in 1983 included hefty tax cuts for both businesses and individuals.
Hunt (and his boss Rishi Sunak) are a lot like Howe in some important aspects, in that both the decisions that Hunt has taken and the manner in which he has conducted himself have brought the UK breathing space and market credibility. And, as with Howe, we have seen taxes raised a great deal under the current chancellor Hunt and Sunak even more so.
But the UK is some way from where it was in 1983, when Howe could cut taxes without having to deepen the pressures on public services that Conservative voters relied upon. The modern Tory party essentially wants to be able to skip ahead to the giveaway budget of 1983, but without the very painful budgets of 1980, 1981 and 1982.
In the present day, the Conservative party has two problems. The first, yes, is that Sunak’s various tax rises have eaten into the Tory party’s popularity. But the second is that the Conservatives are some way away from meeting their 2019 promises to turn around the public services. As Laura Hughes reports, the government’s commitment to building 40 new hospitals is nowhere close to being kept.
In 1983, what helped re-elect the Conservatives was a combination of business-friendly tax cuts and “retail” tax cuts. In 2023, the best hope for the Tory party would be to have business-friendly tax cuts, including making the full expensing capital allowance scheme — due to expire in 2026 — permanent. Then, with the government’s remaining headroom, it should try to settle lingering disputes in the public sector, such as the ones helping to aggravate the problems in the NHS.
Anyone who actually looks back at what Thatcher’s government did would reach that conclusion. The former prime minister settled generously with the miners in order to come back for a second term and take them on from a position of greater strength in 1984-5. So today, the sensible move politically would be to use much of the Treasury’s wriggle room to settle the various health strikes and staff shortages, in order to come back after the election in a position of greater strength. (I’m halfway through Norman Fowler’s diaries, which were just published on Tuesday and demonstrate all this very neatly.)
The big problem remains that much of the Conservative party wants to recreate exactly what successful Tory governments did in the past — without also recreating the hard work to get there or the pragmatic expediencies they had to adopt along the way. While that remains the case the Tory party is going to struggle to govern effectively.
Now try this
I was at the Baillie Gifford prize last night. (They invite previous judges, so I got an invite having been one of the judges back in 2018, though I am not sure if there is some policy to control numbers by shuffling us oldsters off or whether they are relying on natural wastage to thin the herd.)
The chair this year was the FT’s own Fred Studemann, so you know the winner (Fire Weather: A True Story from a Hotter World) must be good. I haven’t read it myself, but I have read and very much enjoyed Tania Branigan’s Red Memory and Christopher Clark’s Revolutionary Spring, both of which were shortlisted, so I am looking forward to buying and starting work on Fire Weather this weekend.
However you spend it, have a wonderful weekend.