This was billed in advance as a “do no harm, steady as she goes” Budget. That was certainly what the markets wanted. And on that front, at least, new Chancellor John Healey has probably succeeded.
The all-important fiscal headroom – the spare spending capacity the government retains in case of unforeseen events or emergencies – has been reduced by a combination of the Iran war and rising inflation from £23 billion to £15 billion. This should be just enough to prevent bond investors having a fit of the jitters and punishing Britain through a further rise in yields. It helps, of course, that the IMF recently said that the UK “stands out” as a country where “action to reduce debt and deficit has been taken decisively”. Healey said this would continue to be the case, despite “global economic storms, trade tensions, the Ukraine invasion and war in the Middle East”.
Beyond this essential piece of macro-economic good hygiene, the Chancellor repeatedly promised families and business “breathing space now, fresh hope for the future.” This would be funded by a raid on the banks and the gambling industry, with the Bank Surcharge rising by 3 percentage points and tax on gaming machines going up from 20 per cent to 25 per cent.
High energy costs will be tackled, with standing charges removed from household gas bills and a pledge to do something similar for electricity bills next year. One of the few real surprises in a Budget that had been heavily briefed in advance was a promise to pay 20 million households in council tax bands A to D £100 to help with energy costs over the winter, at the price of £2.6 billion. Scotland, Wales and Northern Ireland will receive their share of this new spending, and the Chancellor called on the devolved administrations to use the money to the same ends. There would also be longer-term radical reform of the energy market.
Addressing the cost-of-living crisis was of course a key theme. Healey said he was suspending tariffs on more than 100 supermarket products, which should reduce food prices. The national minimum wage and the living wage would both rise by 3.9 per cent. Fuel duty will be frozen until next July. A new tax allowance is being introduced to prevent low-income pensioners being dragged into paying income tax.
Given the fiscal constraints under which this Budget was prepared there were, understandably, a lot of smaller, fiddly measures, which may nevertheless be helpful to companies (as long as you’re not in banking or gambling). Around 70,000 high street businesses will be exempted from paying business rates. Various regulations will be cut, and new medicines and drone technology will be trialled faster, allowing them to be hastened to market. The National Wealth Fund and the British Business Bank will receive an extra £20.4 billion to support jobs and invest in British companies, and public procurement will be redesigned to invest more often in native businesses. A “founders relief” will be introduced, which will cut capital gains tax for those who set up fast-growing firms.
Andy Burnham’s passion for “growth in every postcode” was most radically backed
through a promise that mayors in England will be allowed to keep business rates raised locally and that some income tax receipts would be devolved in 2028. This would provide long-term funding streams that could be used to back investment into major local infrastructure projects. Let’s hope John Swinney was listening closely to this bit.
Critics will point out that many of the harder choices have been delayed until next year’s spending review, particularly when it comes to cutting welfare spending and on how increased defence spending will be funded. Healey did promise a “fundamental rewiring of government… efficiencies… reprioritisation across departments… a streamlining of the state” and a review of NHS productivity and its use of technology.
With growth forecasts low, there will need to be significant spending cuts to important departments, or tax rises in areas such as income tax that were explicitly ruled out by the manifesto on which this government was elected. None of that will be easy or make for political plain-sailing. No wonder many believe an early general election is a rising possibility.
Make no mistake, there is pain and trouble ahead. Borrowing and debt levels will remain eye-wateringly high. Let’s hope there isn’t a war before our military receives the bulk of its additional funding in the 2030s. Let’s hope the Strait of Hormuz crisis is resolved sooner rather than later. Let’s hope there are no more unexpected global shocks in the next few years (Taiwan, anyone? The ongoing unpredictability of Donald Trump?).
In his first Budget, John Healey undoubtedly kicked the can down the road. However, he can probably, maybe, just about get away with it, for now at least.