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UK Spring Budget 2023

Political analysis

Overview A Budget to demonstrate steady incremental progress

This budget is about preparing for a General Election by January 2025. Conservatives see the path to victory as steady incremental progress. Whilst they are currently 20 points behind in the polls, they believe there is a path to victory if they can retain three key blocs of voters: former Labour voters in the North and Midlands (the Red Wall), disillusioned Conservatives in Con/Liberal Democrat marginals (the Blue Wall) and encouraging older voters to turnout.

With his borrowing lower than expected, the Chancellor refused to cancel the increase in Corporation Tax. The Chancellor’s caution is due to the medium to long-term OBR debt and growth projections being incredibly challenging. The UK has (just) avoided a recession, but growth remains low. The Chancellor wants to build up a war chest to prepare for any unexpected events and pay for pre-election giveaways in later Budgets. Some may question whether their electoral strategy is correct but there is little doubt this Budget was well designed to reinforce the Conservatives’ overarching message:

Hunt wants to focus on the five policy promises the Prime Minister has set, namely: halving inflation, growing the economy, lowering national debt, shortening NHS waiting times and resolving the small boats issue. His economic approach is also consistent with the rules he set out in the Autumn Statement:

  • Two fiscal rules: Debt should fall as a percentage of GDP within 5 years and public sector borrowing over the same period must be under 3% of GDP.

  • Two principles on tax rises: Avoid increases that damage growth and ask those with more to contribute more.

The Chancellor branded this his 'back to work' Budget, aiming to boost the number of people in work (and their hours) through targeted incentives for early retirees and those on welfare, seeing this as the key to growth.

Some would point to the absence of a plan to reduce the UK’s economic imbalances and address its deeper competitiveness issues. The Chancellor promises that in the Autumn Statement he will bring forward measures to unlock productive investment from defined contribution pension funds, make the London Stock Exchange a more attractive place to list, and respond to the challenges created by the US Inflation Reduction Act.

Five key takeaways from the Budget:

  • Getting more people in to work.

  • A continued squeeze on personal tax thresholds.

  • Business taxes going up but changing where the burden falls.

  • Boosting energy security and providing extra support for households.

  • Levelling Up through greater devolution.

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