There is a glimmer of hope - so much taxation - and so little time
16 March 2023, 06:23 | Updated: 16 March 2023, 06:55
In his first Budget since becoming Chancellor, Jeremy Hunt superficially offered hope for the future, but it remains to be seen if it can be delivered in a relatively short time frame.
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As the OBR confirmed yesterday, the tax burden was likely to reach levels not seen since World War II. Stealth taxes are likely to raise £120 billion for the Government in the next 5 years, affecting 6 million people.
It is taken as read that the damage inflicted on the UK’s public finances between 2020 and 2022, due to the toxic nature of the pandemic (cost £400 billion) and the invasion of Ukraine was gargantuan.
That proved to be an unenviable challenge to keep public borrowing requirements in check. The gravity of the situation was exacerbated by the subsequent flawed presentation of the Truss/Kwarteng underprepared ‘mini-budget’ on 23rd September 2022, which was devoid of scrutiny and the support of the Bank of England, HM Treasury and the OBR.
Consequently, these rash, reckless and unaudited proposals decimated any semblance of financial stability, severely prejudicing the Government’s credibility on the international bond markets.
Bond yields bounced like grils, reaching 6%, whilst the official bank rate remained at 2.25% - up from 1.75% to 2.25% on 22nd September 2022.
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Read more: Jeremy Hunt's 'back to work' Budget boost for old and young - as UK to avoid recession this year
For the foreseeable future, any tax-cut planning or stimulation for growth had to be shelved.
The public finances, in the Chancellor’s and PM Sunak’s opinion, just did not warrant taking a gamble with growth initiatives, which is what the country needed, but could not afford.
However, following the reintroduction of financial prudence, the UK slowly started to regain some lost respect from international governments and the markets. UK Gilt yields started to fall to between 3.5% and 4%, which was much more in line with official rates at 4%.
It was generally thought that ‘few rabbits would be pulled out of the hat’ from yesterday’s Budget, Chancellor Hunt having little room to manoeuvre. Eager observers were not disappointed.
The Chancellor gleefully expressed his pleasure that there would be no recession in 2023 -0.2% and that the economy would grow by 1.8% in 2024, 2.4% in 2025 and 1.9% in 2026. The Government was fully supportive of the Bank of England in its quest to get inflation down from 10.7% to 2.9% by the end of 2023 – very ambitious.
Unemployment in the ensuing period was not expected to breach 4.1%. He also told us with uncharacteristic gusto that the UK was the 3rd most important country in the world to invest in. He further confirmed that the defence budget would increase by £5 billion in the next 2 years and by £11 billion in the next 5 years – 2.25% of GDP.
There was good news on the energy cap of £2,500, which was extended for another three months and news that there would be similar benefits for those who paid their energy costs by metre readings to those who used direct debit.
There was modest help for charities, leisure centres and mental health.
He also implemented a few nips and tucks here and there such as no increase in fuel duty, an 11p cut for a pint of beer.
The Chancellor introduced his budget as one for growth and business, emphasising the importance of Enterprise, Employment and Education, with special emphasis in getting people back’ into work. 600,000 people had left the workforce during Covid and encouragement was offered by abolishing the cap for pension contributions, originally set at £1.07 million.
A 60% cut in the cost of ‘Child Care’ was very significant and most welcome – however not until 2024.
One of the main thrusts of the Budget was to deal with ‘Levelling Up’ by creating twelve investment and enterprise zones, offering significant tax relief to companies involved in AI, life sciences, research, and technology at a cost of £9 billion, with a view to attracting major investment from abroad.
For the City of London to maintain its prowess, a softening of regulation to attract business will be introduced – probably the only pro-Brexit piece of legislation to be introduced yesterday.
It remains to be seen if the measures taken in this Budget will bring forth sufficient fruit in the next year. Messrs Hunt and Sunak will need luck on their side, as this effort seemed to lack vision. Tax cutting Conservatives? Not now folks!
