For the British Conservative Party, the politics of Wednesday’s “tax-cutting” budget, the last before an election, are deeply challenging and counter-intuitive. The imperative of big tax cuts, of supposedly giving voters back their hard-earned cash to spend as they see fit, is hard-wired into the party rank and file and backbenches. So Chancellor Jeremy Hunt opened his budget speech with the pious mantra: “Lower taxes mean higher growth”. Yet recent polling from YouGov finds 55 per cent of voters saying spare cash should go to public services, against only 30 per cent wanting tax cuts.
Squaring that circle to reconcile such contradictory aspirations is impossible. And simply insisting that it is a “tax-cutting budget” when it isn’t will convince few. The tax burden has increased massively under the Tories, despite some rate cuts, to its highest level in 70 years because of “fiscal drag”, the failure to raise income tax thresholds in line with inflation. Hunt has again failed to do so, and the overall burden of tax will rise again.
The chancellor was told by the Office for Budget Responsibility that he had a relatively modest £10-15 billion of leeway, “fiscal space”, if he was to meet his key target of seeing debt falling as a share of GDP within five years. His cut yesterday of a further two percentage points in national insurance – at a cost of £10 billion –has eaten that leeway up. His revenue raising, including £2.7 billion from the reform of the deeply unpopular “non-dom” tax loopholes for non-resident millionaires, some taxation of vaping and tobacco, and the retention of a measure of windfall taxation of oil and gas profits, will come nowhere near paying for the national insurance cuts.
Hunt has promised to keep overall real increases in public spending at one per cent. But with ring-fenced health, education and defence spending increases well in excess of that, the prospect is for major, unspecified cuts across wide ranges of other public services. Few are going to feel richer or reassured about the country’s direction. It does not look like an election-winning budget.