Long gone are the days of David Cameron promising to “let sunshine win the day”. Instead, when Jeremy Hunt delivered his budget, it was full of grim warnings about the country “facing into the storm” as the economy continues to slump.
The new chancellor’s decisions will mean inflicting pain on millions of households, despite some help for the poorest, with an electorally toxic mix of tax rises and spending cuts that will hit Middle England and have left Conservative MPs anxious about their political futures.
The Office for Budget Responsibility did little to improve their funereal mood, with its brutal forecast that real household disposable income per person will fall more than 7% over the next two years, taking incomes down to 2013 levels.
Even though Hunt extended the energy price guarantee to help struggling families, the average energy bill will rise from £2,500 to £3,000 a year in April, so the government will get little credit.
“What people will be asking themselves at the next general election is this: ‘Am I and my family better off with the Tories?’” shadow chancellor, Rachel Reeves, asked MPs. “And the answer is no.”
Even the Treasury’s own analysis shows half of British households will be worse off next year – with taxes hiked to the highest levels since the end of the second world war, the country in the grip of recession and inflation remaining high.
Tory MPs were dismayed by the “stealth” raids on income tax, which will drag millions into a higher rate, and the hike in fuel duty in particular. “Voters will have less money in their pocket every month, but public services aren’t getting any better. Won’t they wonder what’s the point in voting for us?”
They won’t have to wait until the next general election, expected in the next 18 to 24 months, to find out. Many Tories fear they will face a backlash in May’s local elections – Sunak’s first significant electoral test – with 95% of councils expected to raise council tax now that the government has given them permission to do so.
While they will be able to boast that the Tories have kept their pensions triple lock promise, the government has delayed plans for social care reform by two years, and councils remain strapped for cash, so the message on the doorstep will be nuanced.
In the hours after the statement, downbeat Tory MPs mostly rowed in behind the chancellor, but many felt they had little choice. “I suppose it could have been worse,” was the best one could muster. “At least it wasn’t another Kwasi mini-budget,” another added.
Former cabinet minister Jacob Rees-Mogg questioned the government’s tax rises, calling them the “easy option”, but denied he was “threatening anything”, telling Channel 4 News he was “simply making the case for Conservatism”.
Sunak is on fragile ground, and the Tory party is volatile. Just as the prime minister may struggle to hold together his party’s electoral coalition of red wall and blue wall voters – who want very different things from the budget – so he may find it difficult to unite his MPs.
Despite Hunt dressing up his speech in Osborne-style language about fiscal restraint, in some ways this was a budget that a Labour chancellor could have delivered at this point. And Tory MPs know it. Big investment in infrastructure. More money for health and schools. Tax rises on “unearned income”. On balance, fairly progressive. Support for the poorest. Stealing Labour’s big idea: a windfall tax.
So Reeves focused on where the blame lies for our economic woes. Batting away Hunt’s claim that it was all down to “unprecedented global headwinds”, she pointed out that Britain’s problems started well before the pandemic struck and Russia invaded Ukraine.
“We are the only G7 country that is still poorer than before the pandemic,” she said. The IMF forecasts the UK will have the lowest growth of any advanced economy over the next two years. Yet there was no mention of Brexit, which the former chief economist of the Bank of England said had “permanently damaged” the economy.
Hunt also kept quiet on the Liz Truss administration’s fiscal mistakes, the so-called “moron premium”. Yet the OBR did not. Rising interest rates, in part sparked by her disastrous mini-budget, meant government debt was expected to be £400bn more in 2026-27 than forecast in March, they said.
There was also more pain for government departments. Health and education will get enough to help schools and hospitals stagger on for the next two years, but other areas will have to find savings as they struggle to stretch existing budgets to cover the cost of inflation. Public sector pay is one area likely to be hit.
And there will be more pain to come, with the majority of spending cuts put off until after the next election. The government claims that the delay is because cutting public spending during a recession would choke off growth – which is true – but it also sets a trap for Labour.
Will they commit, Ken Clarke-style, to the Tories’ tight spending plans as they go into the next election, or will they open themselves to the charge of fiscal irresponsibility by promising to open the spending taps? It does, however, raise the question of whether the Tories have any intention of picking up the axe.
Tory strategists hope Hunt will have done enough to stabilise the economy and – if the international picture improves – Britain could start emerging from recession before the election. But unless he proves that his plans can also bring down inflation and cut the cost of living, then the next election is probably lost.