Archive for: Political Database

This is a post from Michael Kane, Henry Welch, and Helen Stott on the Vuelio Political team.

Years before he became Chancellor of the Exchequer, Jeremy Hunt advocated cutting corporation tax by nearly a third in the 2019 Conservative Leadership Election. For a politician viewed primarily as a safe pair of hands- particularly significant given he has been a frontline political figure since 2005 – this leadership campaign perhaps represents the best read into Hunt’s personal and moral priorities. Fast forward to 2024, and Hunt has delivered his second Spring Budget – a year and a half on from his initial appointment as Chancellor to be that safe pair of hands.

While the Government’s focus on tax cuts in the Spring Budget might be intuitive given Hunt’s policy platform in 2019, it’s also borne out of external factors, with the Conservative’s needing something to overturn a 20-plus poll gap to Labour. It could be a move to differentiate the Conservatives and expose Labour’s perceived weakness on tax and spend – a defensively reactive and politicalised budget given the impending General Election. Testament to this, the Civil Service transcript of Hunt’s address to Parliament removed ‘political content’ 27 times.

Nevertheless, while Hunt’s Budget may set up some attack lines for a future General Election, it leaves the Conservatives exposed due to its apparent failure to energise their base and its implications for struggling Local Government and wider public services. Altogether, there is some reasonable doubt over whether this actually changes anything.

A General Election budget?

With a General Election looming, it might be expected that the Government’s Budget will focus on pre-empting moves from the Opposition. Significantly, the Conservatives moved to adopt several of Labour’s tax raising policies, such as reforming the non-dom status and extending the Windfall tax on oil and gas. The Conservatives may have joked that Labour were using the ‘non-dom tax’ to fund all of its new public spending, but now the party will not have a chance and has been forced to fund reforms through ‘future savings’. Instead, this money was used to cut National Insurance (NI). This could be seen as a progressive move, with NI only affecting working people, moreover, this focus on cutting personal taxes is in sharp contrast to Conservative Governments of recent years. Labour has so far said it will keep the reduction in NI, and any attempt to increase it within its first term of government would likely be deeply unpopular. But this leaves Labour with the problem of how to improve public services (or at least stop them from continually declining) while having decreased tax revenues.

However, the Government did not stop there as through the Spring Budget, the Conservatives established NI as a clear dividing line against Labour. With a pledge to scrap the ‘double taxation’ of NI and income tax, the Conservatives put the ball firmly in Labour’s court. Labour may have supported the move to cut the tax last week, but is not willing to be drawn into the Government’s plan to abolish it completely. Labour has instead accused Sunak of parroting his predecessor Liz Truss with an unfunded commitment that would cost £46bn a year. Labour’s point may prove an

economically prudent position with Paul Johnson, Director of the Institute for Fiscal Studies (IFS), saying Hunt’s pledge is ‘not worth the paper it’s written on’ while it is not funded. However, a key question could be, will the Government’s message of tax cuts speak to voters during the election campaign – especially given that Labour’s financial policies receive a significant amount more scrutiny than the Conservative’s during an election period.

When speaking about the economy, it is important to remember that Government finances do not work the same way as household finances (an analogy that Labour was criticised for earlier this week) – and the way that politicians talk about money should not always be interpreted literally. For example, conversations about tax and spend – particularly over the past six months – have been dominated by the notion of ‘fiscal headroom’, but in reality this is quite an abstract and complicated idea. Headroom is the amount the Government is able to spend and still theoretically meet its fiscal rule – to have debt falling as a percentage of GDP by the end of five years – according to OBR forecasts. Nonetheless, the Government’s fiscal rules are not concrete economic laws, but are self-imposed and somewhat arbitrary. Much like prior to 1997, Labour have decided to follow these arbitrary rules in an appeal to be seen as the stable party of business. This leaves the Conservatives in the position where they can almost dictate aspects of Labour policy by using as much of the ‘headroom’ as possible.

Failing to energise the base

The last fiscal event prior to a General Election is normally seen as a way to rally the supporter base and ensure core voters get out knocking doors. There is no guarantee that this Spring Budget will constitute the last fiscal event before the election but everything the Government does now will be scrutinised with a future GE in sight. With this in mind, at this Budget the Government had to juggle sound economical and political moves. This is due to the precarious economic position of the country, with the Office for Budget Responsibility forecasting 0.8% growth for 2024 and growth not set to surpass 2% in the next five years.

This meant that Hunt and the Conservatives have been constrained in their attempt to vitalise their base, with Labour, the Liberal Democrats, and Reform UK all lurking. Some in the Conservative Party were upset that there was not more done to target core Conservative voters, with tax cuts aimed at workers rather than pensioners – for instance, this is best encapsulated by the lack of focus on income tax or inheritance tax. Additionally, the move to abolish the preferential tax regime for Furnished Holiday Lets may also be unpopular with richer Conservative voters in the South West and South East of England. This may lead to future issues with members and supporters out door knocking and the Conservative’s will be keeping a keen eye on this at May’s local elections.

Public services and Local Government

A major question at the election will be a simple one: do people feel better off after 14 years of Conservative rule? The decline of British public services over the last decade, from overcrowded prisons to record NHS waiting lists, may give a simple answer. The importance of public sector improvements was hammered home by pre-Budget polling with YouGov finding that 57% to 27% of respondents prioritise public spending over cutting taxes

Many will be disappointed that the Chancellor has effectively paid for tax cuts in the present by pencilling in public spending cuts for after a General Election, as pointed out by economists. The IFS estimates that sticking to current spending plans would require cuts of around 3.3% a year to unprotected services (such as courts, prisons, and Local Government), which will be extremely difficult after over a decade of austerity. This has left a future Government in a very difficult position with these planned cuts prompting IFS director Paul Johnson to accuse both the Conservatives and Labour of a ‘conspiracy of silence’ around the scale of challenges facing the country after the election.

One area that is particularly struggling is Local Government, which provides some of the most vital frontline services; such as social care, housing, and education. This past year has seen a slew of local councils declaring effective bankruptcy, and analysis shows that over a third of local councils could go bankrupt in the next five years unless they make serious cuts. Last week saw Birmingham City Council make the unprecedented decision to raise council tax by 21% over the next two years – which is normally not permitted without a public referendum. The Government has, to a certain extent, been able to shift blame for the crisis in Local Government, as analysis shows that cuts have hit Labour-run councils the hardest. The Conservatives have been able to point to other other factors such as corruption and financial incompetence. Nonetheless, Labour will be unable to position itself this way, and will have to reach a sustainable funding settlement for Local Government, or risk serious disillusionment from voters forced to pay higher taxes for declining public services. In this regard, the challenges faced by Local Government and wider public services are challenges that cannot be avoided by both parties either.

Political implications

With a General Election at most ten months away, the important question is has this actually made any difference for the Conservatives? One of the takeaways may be clarity around the date of the election. Prior to the Budget, in a move that was probably more politicking rather than sincere, Labour Shadow Minister Jonathan Ashworth bet on live TV that there would be a Spring election. Nonetheless, following a disappointing reaction to measures announced, and no significant positive movement in the polling, many Conservative MPs now believe that there will be an Autumn election.

The immediate reaction to the Budget has been very bad for the Government. An Opinium poll has found that the Conservatives have dropped two points since the Budget, while 31% of respondents said they believed taxes had gone up despite the NI cut, with just 17% believing they had gone down. While perhaps less scientific, a huge 93% of respondents on the Daily Express’ post Budget poll have said they do not believe it will leave them better off. YouGov highlights that although many are in favour of the big announcements at the Budget, more people believe that it was unfair, unaffordable, and will leave the country and families worse off. Significantly, the public preferred Labour’s policy on the non-dom status by 52% to 21%, indicating the population’s concerns around public services.

This is where there may be a disconnect between current Government policy and voter’s priorities. When the Conservatives were elected in 2010 and in 2015, the country was arguably willing to stomach a period of austerity in the belief that a previous Government had overspent. The election of Boris Johnson and his big spending, levelling-up agenda signified the end of this period and therefore, there is some doubt over whether Hunt’s moves to cut spending to fund tax cuts will speak to the concerns of voters.

With this the ‘greatest tax-raising Parliament since the Second World War’ and 75% of councils expecting to introduce the maximum increase of Council Tax, Westminster might be forgiven for thinking that the Conservatives are shuffling the deckchairs on the Titanic.

Download Vuelio’s Spring Budget Summary and Stakeholder Reaction report for more, and sign up to the Vuelio General Election Bulletin for updates.