Keeping it real?

Yesterday was Jeremy Hunt's first Budget, and he was on message. Staying close to the Prime Minister's "five priorities", and regurgitating his "4 E's" of Enterprise, Education, Employment, and Everywhere from his Bloomberg speech in January.

16 March 2023 - Luke Morris

The Office for Budgetary Responsibility was back on board, no doubt a relief to mandarins in Whitehall, given the spectacle of last year’s Autumn Statement. The OBR basically said that “technical recession” has been avoided and that inflation is expected to fall to 2.9% from its “peak” of 10.7% at the end of last year. The OBR also forecast growth of 1.8% for next year, and 2.5% for the year after that.

What these numbers conceal is the real-terms drop in living standards for all of us, which is a crucial KPI for the Tories in a year ahead of an election.

The Chancellor kept talking about “declinists” in his speech.

I think there is a difference between being a “declinist” and being a “realist”.

On the OBR points, the careful phrase “technical recession” needs to be approached with caution. This means two consecutive quarters of negative growth in real GDP. The problem  with the UK right now is that there is no margin for error. Things like the King’s coronation, or a good run for the national football team, or some teachers striking, can make a material difference to whether this definition is met or not. So this is more luck than judgement, and if it’s not technical recession it is at least bumpy recession.

Inflation has been 2% for the last 25 years on average, that’s why the Bank of England has 2% as its target. But what this forecast of falling inflation doesn’t account for is the fact that the costs from last year’s spike are now baked into the system, hence the aforementioned feeling of being worse off.

And as for GDP growth, the fabled new industries that were mentioned as contributing, such as tech, life sciences, film and television, new nuclear, and wind, will be doing a lot of “heavy lifting” to meet these targets in what is fairly short order.

The Chancellor also said “today’s priority was growth”.

I’m still struggling to square that with a 32% increase in corporation tax.

Big corporates will pass this on to customers and shareholders. This will damage dividend income for individuals and pension funds.

Many smaller private companies have directors who have a huge influence on profits declared, and thus the amount of corporation tax actually paid.

The abolition of the lifetime allowance for pensions was another headline. I will not be hanging out the bunting on this one just yet. Will it open the door for future consultation, and pension pots being taxable to inheritance tax on death? Be careful what you wish for.

I’m not sure if I’m a declinist or a realist!



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