Jeremy Hunt prepared for his first Budget last weekend with a 19-mile run, part of his training for a forthcoming marathon. Sadly for the UK chancellor, his political strategy is by necessity more of a sprint.
With a general election expected in 2024, Hunt has precious little time to turn around a sluggish economy and then create a political narrative that can help win the Conservatives a fifth consecutive term.
Hunt had four shots to get it right. The first was his Autumn Statement last November, which sought to restore stability and fiscal order after the chaos of Liz Truss’s short premiership.
The chancellor admits privately that nobody was able to discern a “growth strategy” in last year’s emergency statement, an obvious problem for a country facing the lowest growth of any G7 country this year.
Shot two was Wednesday’s “Budget for growth”. It was Hunt’s attempt to back up his boosterish rhetoric about Britain “proving the doubters wrong” by setting out some measures to bolster the economy. But it was very much a staging post for the next two “fiscal events”.
Hunt has told Tory MPs that by the time of his next Autumn Statement he expects inflation to be under control. Official forecasts say price rises will fall below 3 per cent by the end of the year; at that point he hopes to turn on the spending taps.
Then by the time he presents his second Budget in spring 2024 — stage four of the fiscal plan — Hunt hopes to be showering cash on the voters. “That’s when we’ll blow the fiscal headroom,” says one Tory strategist.
The economy may be weak — the Office for Budget Responsibility downgraded medium-term growth forecasts — but Tory election planners admit they cannot avoid fighting the election on the issue, even if they wanted to.
Hunt will hope to persuade voters that the worst is over, that collective sacrifice during the Covid-19 pandemic and the Ukraine-induced energy crisis have paid off — and the rewards are coming.
“The IMF says our approach means the UK economy is on the right track,” he told MPs on Wednesday. “We’re on the right track, don’t turn back,” is viewed by Tory insiders as the party’s core election message.
There are some problems with this strategy, not least economic stagnation this year and the fact Hunt currently only has £6.5bn of headroom against his fiscal rule, which is to cut debt as a share of GDP in five years’ time.
That does not exactly provide scope for an election-winning, tax-cutting bonanza of the kind many Tory MPs are demanding. Hunt is therefore hoping that the economy and public finances improve more quickly than expected.
The chancellor is crossing his fingers that external events work in his favour, notably a continued decline in global energy prices. An end to the war in Ukraine would be particularly good news.
The Budget growth strategy he set out on Wednesday may make a difference, but probably not on the timescale of the next election that most politicians work to.
The most obvious growth-booster in the short term is the £9bn-a-year tax break for business investment; other ideas such as investment zones or measures to coax people back to work will take longer to feed through.
Ultimately Hunt was constrained in this Budget by tight public finances and his overriding goal of pushing down on inflation. “Bringing inflation down is the biggest tax cut you can have,” Hunt tells MPs. By the autumn he hopes to have more room for manoeuvre.
But while the Budget may not yield immediate growth, it plays a second purpose of setting a political narrative of the kind of economy Rishi Sunak’s Tories will seek to build — if they win the next election against a resurgent Labour opposition currently leading the polls by a wide margin.
Hunt’s plan had a strong One Nation Tory theme, reflecting the moderate wing of the party from which he hails. The massive extension of free childcare and a further £3bn to hold down energy bills symbolised that approach.
The chancellor even uttered the phrase “industrial strategy”, a concept seldom if ever heard to pass Sunak’s lips. Indeed Sunak recently stripped the idea from the nomenclature of Whitehall — dismantling the Department of Business, Energy and Industrial Strategy.
Hunt also gave a name check to Lord Michael Heseltine, the Tory godfather of urban regeneration and state intervention, as he unveiled a new generation of 12 investment zones, hopefully dubbed “potential Canary Wharfs” after the London Docklands development Heseltine drove in the 1980s. The chancellor has not given up yet on retaining “red wall” of Labour seats won in 2019.
Labour leader Sir Keir Starmer claimed Hunt had stolen many of his ideas from the opposition party but immediately seized on the one policy that undermined the Budget’s One Nation credentials.
Starmer said the plan to abolish the lifetime tax-free pension contributions limit was “a huge giveaway to the wealthy”, calling it a £1bn tax cut for the richest 1 per cent of earners.
That attack might work in the short-term, but Starmer’s main critique of the government in a 2024 election is simple: that the Tories have presided over stagnant living standards and failing public services.
Starmer said Hunt had provided “only a sticking plaster” to the country’s economic wounds and that the chancellor was “dressing up stagnation as stability”. Hunt hopes to prove him wrong, but time is not on the chancellor’s side.