Decent report card for Jeremy Hunt who skirts cynical electioneering
The Autumn Statement was delivered against the backdrop of more upbeat economic forecasts from the Office for Budget Responsibility (OBR). The UK economy is now expected to be more than 2% larger at the start of 2024 than the OBR had expected back in the Spring. This is good news. Whilst this outcome is largely the result of new estimates from statisticians about the resilience of the UK economy during the COVID-19 pandemic, it also illustrates that an obsession with small forecasting margins at these political set pieces is a fool’s errand. It serves no-one – not least Times readers – to look at a few billion pounds here, a few percentage points there, in an economy producing output worth £2.3tn a year. It is better in the aftermath to step back and ask whether the Chancellor’s efforts were commensurate to longer term economic trends, or cynical electioneering.
On this Jeremy Hunt deserves a decent report card. Firstly, the focus on stimulating business investment through permanent full expensing of new plant and machinery is reacting to a UK economy that has chronically underinvested in its capital stock for thirty years. This cannot continue if the UK is to escape its moribund productivity performance. Secondly, tax cuts for the self-employed also were an acknowledgement that after two decades of growth in self-employment this has gone into reverse since 2020. Unaddressed this decline in self-employment risks making the labour market less flexible to big changes in the economy. Thirdly, with a potentially stubborn rise in inactivity amongst working age Britons – up by almost half a million since late 2019 – then increasing work incentives through a 2p cut in National Insurance helps grow differentials between in and out-of-work income. This reflects the fact that the easiest – albeit by no means easy – path to economic growth is to get more working age Britons seeking and finding employment.
There were however big picture areas where the Chancellor was silent. The most salient was on public sector productivity – an arena that has been a weeping sore at the heart of the public finances for a quarter of a century. Many commentators rightly point to a looming cash crunch for public services that has been teed up for the other side of the General Election. This is widely interpreted as unsustainable. This crunch becomes self-fulfilling if greater productivity can’t be squeezed out of the 5.7 million public sector workers. New Chief Secretary to the Treasury, and Mr Hunt’s deputy, Laura Trott has an enormous challenge in delivering better outcomes from the hundreds of billions of pounds poured into public services each year. Warm words by the Prime Minister on the role of Artificial Intelligence in achieving new efficiencies, and recent back-to-the-office edicts are no substitute for a plan for skills, operational efficiencies and rewarding capability. And this takes us to the biggest and most striking data point of all – the UK tax burden remains on track to rise to a post-war high of 38% by 2028. An older population – and that population’s propensity to vote – has made age-related spending on public services a political necessity. Higher taxes are the other side of that coin. Without significant transformations in how public services are delivered. Hunt, nor his likely successor, Rachel Reeves will escape this arithmetic. No amount of good fortune or political elegance in Autumn Statements will avoid it. Come the March Budget that often-peripheral act needs to take centre stage.
Published: The Times 23/11/2023
Managing Director, Head of Research