Investment not tax cuts is the way to stimulate growth

There were taxation giveaways to announce but the OBR rained on the Chancellor’s pre-election parade

Chancellor of the Exchequer Jeremy Hunt delivered his Autumn Statement in the House of Commons on Wednesday. PA
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If David Cameron was haunted by his legacy as prime minister, the Autumn Statement unveiled on Wednesday would have been a fresh source of pain.

The new Foreign Secretary was not in the Commons chamber when Jeremy Hunt spoke on Wednesday afternoon. He’s not allowed to be, of course, as he’s now safely ensconced across the way as the new Lord Chipping Norton.

Which is just as well, because he would have had to withstand much barracking and finger-pointing from the opposition benches as they revelled in the Office for Budget Responsibility raining on the Chancellor’s pre-election parade. It was Lord Dave who invented the independent OBR watchdog in the first place.

In truth, it was not much of a display by Mr Hunt – think a carnival procession in a dowdy old town that can’t muster much of a crowd and the floats all seem the same, lacking pizzazz. The OBR only went and stole his carefully orchestrated attempt at whipping up euphoria.

Recently, the OBR has been relatively optimistic about the UK economy and inflation. Instead, it’s been that other objective Eeyore, the Bank England, that has dished out the gloom. Not any more, not for Jeremy’s set-piece moment. In March, the OBR said inflation would be down to 0.9 per cent by the end of 2024, now the forecast is for 2.8 per cent. Inflation will not dip below 2 per cent until 2025, which means interest rates are going to remain higher for longer.

In political terms that means those millions of mortgage-holders, homeowners, who could be counted on to lend the Tories their support, will be continuing to suffer as we head for the poll, probably next autumn.

The economy will still be growing, but here the predictions have also dropped, from 4.1 per cent between 2023 and 2025 back in the spring to 2.7 per cent as of today. Higher interest rates are having an impact, as they are intended to, but trying telling that to Hunt and his colleagues.

It was the OBR or the lack of it, that did for Rishi Sunak’s predecessor. Liz Truss and her chancellor Kwasi Kwarteng were all for putting a rocket under the economy, slashing taxes and aiming for "growth, growth, growth". They were doing it without the imprimatur of the OBR, just going for it, hell for leather, regardless.

The more cautious Sunak and Hunt – and to be fair they’re in their jobs precisely because they present themselves as responsible and to be trusted – want growth as well, but with the OBR, not without it.

UK Chancellor Jeremy Hunt unveils Autumn Statement with cut in National Insurance

UK Chancellor Jeremy Hunt unveils Autumn Statement with cut in National Insurance

How’s this for a downer, from the OBR’s detailed supporting material: “Real GDP per person remains 0.6 per cent below its pre-pandemic peak and in the central forecast only recovers that peak at the start of 2025.”

Gulp, swallow hard Jeremy. Still, there were his tax cuts to trumpet, notably the trimming of National Insurance.

Oh dear, the OBR is also not impressed. The actual tax burden, the percentage of the nation’s income going to the Exchequer, is set to rise to the highest level since the Second World War. That’s because Hunt froze income tax thresholds, meaning they do not rise with inflation.

That creates fiscal drag as greater numbers of people are literally dragged into the higher tax brackets. The NI reduction will cost the Treasury £10 billion, but it stands to make, wait for it, an extra £45 billion by 2029, having created 4 million new income tax payers. Truly, Hunt giveth and he taketh away.

Similarly, he’s pared back business taxes, but he’s also increased the minimum wage by almost 10 per cent. That’s a welcome and correct development for the lowly paid struggling to meet their bills. But businesses don’t like it – because the inflation leads to wage inflation right across the workforce. Those at the bottom receive more, so those above them want an equivalent uplift and on it goes.

Some of the measures were hyped to the heavens. The City of London is suffering from an absence of new stock market listings, losing out to New York and other international financial centres. What does Hunt do? Resurrect dear old Sid, that Thatcher-era invention designed to promote the share-owning economy by taking stakes in the great privatisation sell-off. Sid, we’re told, will be able to buy shares in NatWest, the bank bailed out by the taxpayer in the 2008 crisis.

It’s not banks that should be providing the action the traders so desperately crave but the tech unicorns, the supercharged start-ups that are opting for other exchanges and more tech-minded jurisdictions.

But hey, Sid has been brought out of retirement, presumably in a bungalow on the south coast somewhere. The slippers are cast off and he’s marching forth, bowler hat and umbrella to the ready, back into the Square Mile.

There is a certain symmetry to his return. After all, it was after the banking crash when the reeling public were anxiously wanting certainty and the shoring up of trust that the OBR was invented.

What comes around, comes around.

Published: November 22, 2023, 6:21 PM