Rishi Sunak and his Chancellor Jeremy Hunt have made it clear they want to balance the books through tax rises and spending cuts. Hunt attributed the UK’s economic woes to global factors including the fallout from the pandemic and the Ukraine war. He set out his three priorities: stability, growth and public services. He stated that difficult choices are necessary to keep borrowing costs low and public finances sustainable.
The government will hope the public will be forgiving as market confidence is restored after the former Prime Minister Liz Truss's mini budget debacle. With two years until the next general election, they face a difficult battle with their Party to get the package through. There were certainly few positive policy measures in this budget to give it a feel-good factor.
Low poll ratings destroy party discipline, and the Conservatives are polling below 30% (compared to around 50% for Labour). The Autumn Statement is unlikely to improve the situation. Rebellion could be in the air, with former Conservative Party leader Iain Duncan Smith warning that tax rises could deepen the recession. Former Minister Simon Clarke (Truss administration) has stated he wants to see spending cuts, not tax rises. Former Minister Esther McVey said HS2 (a planned high speed train line from London to Birmingham) should be cancelled rather than raise taxes.
Prior to the budget, 28 Conservative MPs wrote asking the Government to protect education spending - and the Chancellor confirmed this would happen. Defence spending is not increasing to 3% as Truss planned but the Defence Secretary appears reconciled to this. The Conservatives’ working majority of 69 means just 35 rebels could defeat these plans.
The economic backdrop to this statement could not be worse for the government:
Taxes are at a 70-year high and inflation in October hit 11.1%, a 41-year high.
NHS backlogs show around 7 million people are waiting for routine treatment and increasing numbers are on long term sickness benefits.
There are around 600,000 fewer workers currently than the Bank of England expected as early retirement and long-term sickness increase inflation.
The six- month cost to the government for energy bill support is £60 billion, just less than the cost of a second NHS, as Hunt has noted.
Teachers, nurses, train drivers, civil servants and lecturers are either undertaking strike action or look set to.
UK economic growth next year could be poor (the IMF predicts 0.3%, the Bank of England predicts a recession).