|Chancellor Jeremy Hunt bet the farm on tax cuts of £20bn at the expense of public spending in this year’s Autumn Statement. There were measures to boost business and growth, but the impact of public spending cuts and the inevitable fiscal drag may impact adversely in the long run.
Against a backdrop of flatlining growth, businesses were watching keenly for announcements that could boost their fortunes. The chancellor answered their calls with no fewer than 110 measures to promote growth in the economy, which he said represented an investment of more than £20bn. It is in these ideas that the government is hoping its new strategy of “taking long-term decisions for a brighter future” will bear electoral fruit.
Emboldened by fulfilling its commitment to halve inflation earlier than expected, the government also chose to cut national insurance by 2p in January, with the headline rate falling from 12p to 10p. Its optimism is not currently shared by the Bank of England, which explains why Hunt has to tread carefully by reducing national insurance contributions, rather than income or inheritance tax.
Prime minister Rishi Sunak wants us to focus on headline tax cuts, but it is clear his party’s focus is on next year’s Spring budget and the impending general election. Yesterday was a gateway event, which allows Sunak and Hunt to lay the groundwork for the campaign to come.
For Labour, shadow chancellor Rachel Reeves is determined to maintain focus on the cost-of-living crisis. Before yesterday’s statement, she told her parliamentary colleagues: “The question people will all be asking themselves on Wednesday is the same question they will be asking at the election: do me and my family feel better off than we did 13 years ago? We know the answer to that is ‘no’. Nothing the chancellor does this week will change this or distract from their appalling record.”
Reeves followed this up today by highlighting the enduring tax burden, but confirming that Labour will support the cut in national insurance in the name of encouraging business investment.
By appealing to both business and households struggling with the cost of living, Labour is drawing its own battle lines ahead of the general election. For the Conservatives, yesterday’s Autumn Statement – and the several days of pre-briefing beforehand – was about changing the economic narrative from one of uncertainty and difficulty to one of hope on the horizon.
Come the Spring, Sunak and Hunt will look to pull out all the fiscal stops to show an economy in recovery in the hope they can persuade voters to give the Conservatives more time to finish the job. For Labour, the argument will be for change, with an appeal to the electorate that, after 13 years, it’s time for them to give someone else a try.