Despite promises of eye watering tax rises and public sector cuts, the Chancellor’s budget today feels like it was a pivot to stabilisation and reassurance with a hint to kick the can further down the road.
We are certainly moving into a period that can be painted as Austerity 2.0. Not because the Chancellor has swung an axe, however, but rather because he has pegged public sector spending to just below the rate of annual growth and frozen tax thresholds.
The problem for the Chancellor is, of course, that a general election is now only two years away and people will ask themselves the question of whether they feel better off now than they did in 2010 when David Cameron promised to fix the roof.
Lowering the tax thresholds for the upper rate taxpayers from £150,000 to £125,000 will generate headlines along with increases in the Energy Profits Levy (Windfall Tax) from 25% to 35% with a new 45% tax for electricity generators and £6bn for insulation and energy efficiency (but not until 2025).
The uprating of welfare payments and pension credits linked to inflation and further cost of living payments, along with extra money for the NHS will be welcomed. However, getting into the detail of what it all means for households, and we see the headline cap for energy bills has been increased from £2,500 to £3,000 and this will apply only until October 2023. This means the Chancellor may well have to revisit this in his March statement if the promised deal with Biden on the purchase of cheap Liquid Natural Gas doesn’t drive town energy prices.
Businesses will be pleased that the Chancellor is looking apply a £14bn tax cut on business rates, but that will be offset by the freezing of the national insurance threshold for employer contributions, which will raise £5.8bn by 2028. There was nothing in the speech that spoke to support for energy costs for businesses, other than the promise that the Treasury will lead a review of the Energy Bill Relief Scheme (EBRS) which will determine the support for non-domestic energy consumers beyond March 2023. It will be December 31st before businesses know if they will receive any help or not. So good news for pubs and restaurants, but not so good for energy intensive industries.
Overall, the budget feels mature if a little tepid. Treasury press officers had spent a couple of weeks briefing out the worst-case scenario and the Chancellor judged what went down well and what went down badly, and cut is cloth accordingly. It was more about freezing things than cutting things with a lot of measures forecast forward until after the general election. The statement had two competing objectives – to be seen as fair and targeted in the eyes in the voting public and to reassure the financial markets that the Government can stabilise the economy in the wake of its last fiscal statement two just two months ago.
Truss and Kwarteng gave us Growth, Growth, Growth and Sunak and above all else, Hunt have given us Tax, Cut, Hope, in the face of the storm.