Conservative Members of Parliament are worried that Jeremy Hunt’s UK budget may yet unravel.
(Bloomberg) — Conservative Members of Parliament are worried that Jeremy Hunt’s UK budget may yet unravel.
Some Tories suggested there may be less to the Chancellor of the Exchequer’s headline child care and pensions announcements than the government’s positive spin suggested. Others warned that for all its billing as a “budget for growth,” official projections still had the economy shrinking this year. There were also criticisms about a lack of ambition and a dearth of personal and business tax cuts.
With a general election less than two years away and a backdrop of soaring inflation, a stagnant economy and a record cost-of-living squeeze, Tory MPs are increasingly concerned about their prospects in a vote. Their party trailed Labour by 22 points in YouGov’s most recent poll last week, though recent surveys by other companies have put the deficit in the teens.
Budget giveaways included £9 billion ($10.9 billion) a year for companies making investments and more than £5 billion a year to help parents with child care costs.
Bloomberg spoke to a dozen Tory MPs, some of whom requested anonymity expressing opinions about the budget. Some Tories hailed Hunt’s expansion of free child care, freezing of fuel duty and cut to tax on beer served in pubs as much-needed vote winners.
But a former Cabinet minister said they were concerned some of Hunt’s rhetoric may collide with reality as the details of his fiscal plans are pored over.
Having relaxed his fiscal rules in November, Hunt met them with just £6.5 billion to spare on Wednesday, the smallest margin in the 13 years that the Office for Budget Responsibility, which assess government tax and spending plans, has existed. The average has been £25.6 billion over that time.
Slim Margins
That leaves the chancellor with the thinnest of cushions against a crisis, just as global financial markets recoil from two bank failures in the US and a perilous outlook for Credit Suisse.
“This is a very small amount relative to the impact of the shocks we have faced, each of which have added over 10% of GDP to debt,” the OBR said.
The former cabinet minister said that while Hunt had boasted the UK would avoid recession this year, he’d glossed over an OBR projection that Britons face the largest fall in living standards on record ahead of the next election, due in January 2025 at the latest.
Revised GDP forecast of -0.2% in 2023 and 1.8% in 2024 was still anemic, even if Hunt was billing his budget as promoting growth, they added.
Tax Cut Demands
Former Home Secretary Priti Patel welcomed measures to get people back into work and incentives for business investment, but said Hunt should have “gone further” in cutting taxes. She urged him to reverse a six percentage-point rise in corporation tax.
Saqib Bhatti, a party vice-chairman, praised Hunt’s expansion of free child care to one and two year-olds, arguing it would combat efforts by the Labour opposition to paint Prime Minister Rishi Sunak as weak on family.
But several Tory MPs said they feared the policy was not as attractive as it first seemed.
One said it would be difficult to implement as it required a massive expansion of nurseries and the sector hiring thousands more people. Another said it was only due to come into full effect by September 2025, so many parents wouldn’t necessarily benefit before the next election.
Pensions Overhaul
Conservative lawmakers were divided on Hunt’s overhaul of pensions, which abolished the tax-free lifetime allowance to encourage older workers not to retire early.
Several MPs defended the policy, with one saying it would be popular in their south-east England constituency. However, one said that while Hunt had presented the policy as an effort to keep doctors working longer, it risked being attacked by Labour as a tax break for the rich. Another complained that it cemented the Tory party’s reputation as having little to offer young voters.
Tory MPs on the right of the party condemned stealth tax rises caused by so-called fiscal drag. Freezing income tax and National Insurance thresholds will raise an extra £29 billion a year in taxes by 2027/28, relative to if the thresholds had not been frozen, according to OBR calculations.
Ranil Jayawardena, an ally of former Prime Minister Liz Truss and proponent of her failed tax-cutting agenda, said it was “an effective income tax rise for workers across Britain.” He called for a review of family taxation.
Douglas Ross, leader of the Scottish Conservatives, blasted a rise in whisky duty, telling Bloomberg it was a “blow to the industry.” While Hunt had sought to portray his budget as cutting alcohol taxes, instead it saw duties “largely going up across the board,” Ross said.
A backbench Tory MP said Hunt would have to offer more generous giveaways at his next budget — likely to be the last before the election. That should include income tax cuts, as Sunak promised in his Tory leadership campaign last summer, they said.
Another Tory MP said they hoped the headlines from the budget would help the party fare better in May’s local elections. The pace of tax cuts and growth reforms was slower than many MPs wanted, but was nonetheless a step in the right direction, they said. Still, the party needed to go further and faster, the former minister said.
Summing up the muted response among many, one Tory MP described the budget simply as “fine.”
–With assistance from Emily Ashton, Leonora Campbell, Philip Aldrick and Andrew Atkinson.
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