Paul Johnson, Director of the IFS, said:
“Once again can be grateful that the Office
for Budget Responsibility is more optimistic than the Bank of
England. It handed him some room for manoeuvre. On the other hand
his own poorly designed fiscal rule, which requires debt to be
falling in the last year of the forecast, hemmed him in. He’s now
meeting that target by an even smaller margin than previously -
and even that requires the government to claim it will stick to
an extremely tight set of post-election spending plans.
Looking for growth Mr Hunt pulled a whole range of policy levers.
Overall these look like a sensible set of changes which could
have the sort of marginal, but positive, impact which is perhaps
as much as we can expect from measures in a single Budget.
The big expansion in the childcare offer to families with younger
children, likely doubling spending on childcare, looks like it
will take us close to completing a 25 year long journey during
which a new arm of the welfare state has been created. It should
help tens, but not hundreds, of thousands of parents into work –
provided that it is appropriately funded.
In addition, the White Paper published alongside the Budget
proposed some quite fundamental changes to the disability benefit
system, in part to encourage work. Poorly designed pensions tax
allowances were increased or scrapped in an effort to encourage a
relatively small number of better-off workers to stay in the
workforce a bit longer. These pension tax changes are unlikely to
have a big effect on overall employment.
There are many benefits to allowing full expensing of investment
against corporation tax, though it is not without drawbacks. But
the fact that this change is temporary and was only announced now
is most definitely not welcome. Today’s announcement is just the
latest in a long line of changes and temporary tweaks. There’s no
stability, no certainty, and no sense of a wider plan.
As expected, the energy price cap will remain at its current
level for the next 3 months, so that an average bill will stay at
£2,500 rather than rising to £3,000. There was some extra money
to shore up the defence budget, alongside the extra cash for
childcare. And surprise surprise, he found £6 billion to freeze
fuel duties and maintain the supposedly temporary 5p-a-litre cut
announced last year, despite a fall of around 40p a litre in the
price of petrol over the last year. Yet we’re supposed to
believe, wink wink nudge nudge, that the 5p cut will be reversed
next year. Forgive me if I harbour some doubts.
Just as notable was what Mr Hunt didn’t announce. There was no
funding to be found to improve the pay offer to striking public
sector workers, where £6 billion might have been enough to make
an inflation-matching pay offer possible this coming year. That’s
a political choice. Money for motorists, but not for nurses,
doctors and teachers. And the big personal tax rises planned for
next month, via the freezing of income tax thresholds, will still
go ahead. That will mean an extra £500 in tax for basic rate
taxpayers in 2023–24, and an extra £1,000 for higher rate
taxpayers. These tax rises may be necessary from a fiscal point
of view, but they are an important part of the reason why
household incomes are still expected to fall more over the
current two year period than at any point in living memory.
The bigger fiscal picture hasn’t changed enormously since the
autumn. The OBR expects the economy to grow a bit faster in the
short-term, and a bit slower in the medium-term, combining to
produce an economy 0.6% larger in real-terms in 2027–28 than
under the autumn forecast. The government remains on track to
meet its relatively loose fiscal targets by only the barest of
margins, despite a historically high tax burden and some
extremely tight post-election numbers for spending on public
services. Debt interest spending is forecast to remain well above
what was forecast a year ago. And we are still in the midst of an
enormously difficult period for households. We’re by no means out
of the woods yet.”
ENDS
Read our full response
with new analysis here.
