UK Chancellor of the Exchequer Jeremy Hunt would have failed the fiscal rules of the three longest serving Tory chancellors since 2010 despite lifting Britain’s tax burden to its highest level in 70 years, according to analysis of the budget by the Resolution Foundation.
(Bloomberg) — UK Chancellor of the Exchequer Jeremy Hunt would have failed the fiscal rules of the three longest serving Tory chancellors since 2010 despite lifting Britain’s tax burden to its highest level in 70 years, according to analysis of the budget by the Resolution Foundation.
Hunt hit his own rule for debt to be falling as a share of GDP in 2027-28 with just £6.5 billion ($7.9 billion) to spare, the smallest margin since the UK’s fiscal framework was established with the creation of the Office for Budget responsibility in 2010.
The lack of headroom combined with the looser rules he introduced in November mean that he wouldn’t meet the fiscal targets set by former chancellors Philip Hammond, George Osborne or Rishi Sunak, who is now prime minister, the think tank said.
The weak outlook for the public finances is partly because “Britain’s economy remains stuck in a deep funk,” with real household living standards stuck in rut, Resolution said. Those living standards will remain below pre-pandemic levels at the end of the forecast horizon in the 2027-28 fiscal year.
The government began using fiscal rules in 2010 to demonstrate the government’s commitment to fiscal prudence and reassure finance markets that borrowing and debt would be kept under control. The UK’s weak growth and rising debt interest costs mean that Britons are “paying more tax but seeing public services cut,” Resolution said.
Hunt’s decision to maintain the cash size of spending for government departments in the face of rising inflation will leave several departments facing 10% cuts to real day-to-day spending per capita by 2027-28. Core departments like health, defense and education will be protected.
Resolution welcomed efforts to boost growth through increasing investment tax breaks for business and introducing the “biggest increase in childcare support in record” to bring parents back into the workforce.
A single parent of a one-year-old earning the National Living Wage would see their income fall after childcare costs by £370 if they moved from 25 to 35 hours of work a week under the old system. Under the new system, the same single parent would receive an income boost of £700, Resolution pointed out.
However, pension tax breaks to deter retirement for older workers are poorly targeted, costing almost £80,000 for every extra worker. They give someone with a £2 million pension pot a tax cut of almost £250,000.
“Jeremy Hunt’s first budget was a much bigger affair than many expected, combining improvements to the dire economic and fiscal outlook with a significant policy package aimed at boosting longer-term growth in general, and the size of the workforce in particular,” said Torsten Bell, chief executive of Resolution. “A step change in childcare support stands out.”
“But stepping back the UK’s underlying challenges remain largely unchanged. We are investing too little and growing too slowly. Our citizens’ living standards are stagnant. We ask them to pay higher taxes, while cutting public services.”
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–With assistance from Andrew Atkinson.
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