Spring Budget 2024: A straitjacket for Labour


Everything announced in the Chancellor’s budget has one eye on the 2024 Election. But, it also drastically shapes what the next Government can do. This was a highly political, electioneering budget for the Conservatives and a straitjacket for Labour.

 

Woolf Thomson Jones

The Chancellor cut National Insurance by a further 2 percent, reduced capital gains tax on properties, raised child benefits thresholds, raised VAT registration thresholds, and froze alcohol and fuel duty again. This all costs money and the Government have chosen to pay with a mix of niche or popular tax rises – Air Passenger Duty, Energy Windfall Tax staying, a new Vape Duty, Tobacco Duty rises and Non-Dom tax status reform (more later) – while deferring decisions on public spending freezes until after the General election. The message was focussed on growth and recovery, imploring voters not to throw it away and “go back to square one”.

It also shot Labour’s fox. Whilst aiming to persuade voters that under the Conservatives you will be better off, with lower taxes and a growing economy, it squarely aimed at constraining Labour’s plans for Government. The policies above eschewed the traditional conservative generational politics and targeted working voters. Labour have been somewhat boxed in: In committing to maintain personal tax cuts as well as adhering to the Conservative’s fiscal rules, they need to find new sources of capital for their planned investment in the NHS and other such capital heavy policies. They previously had the Non-Dom Tax reform as a key plank providing them £3bn but that too has been stolen by a Conservative Chancellor, no less. Public sector reform to drive efficiencies has also been pinched by the Chancellor.

This might be considered politically smart, but the reality remains stark. Public spending will have to fall in real terms unless the economy can grow consistently above 2%. The OBR has not forecast growth near that, other than in 2026. With all the existing departmental spending protections, based on the Chancellor’s current plans, a new Government would need to find £20bn of cuts per annum to maintain the new tax levels. It is now a problem for the next Government.

How and when will that come? At the Autumn Statement, the Conservatives pushed a similar message on lowering taxes and growth, and they have since fallen a further five points in the polls to an historic low. Recent polling also suggests that over two thirds of voters (64%) would prioritise stronger public services over lower taxes. The jury is certainly out on whether this Budget alone is enough to be an election winner and whether voters really buy the Conservative growth message.

Put in the context of the wider economic indicators, the signs, despite Labour’s protestations to the contrary, still point to an election later in the year. If you are really hoping that people feel better off under the Conservatives – interest rate cuts expected in May/June, inflation going under the Bank of England’s 2% target in May, the potential to hit 2% growth in December and the impact of tax cuts slowly feeding in – later seems better.

Where does this leave Labour? They have accused the Government of “maxing out the nation’s credit card” and “giving with one hand and taking with another” (a reference to fiscal drag), which you can expect to hear more and more of. They remain overwhelming favourites, but this Budget makes their life difficult. The Government is eating their manifesto, stealing policies, using up cash. It is getting harder to differentiate Labour’s economic plan from the Government’s.

 

If you would like any further information on the measures outlined or would like to speak to the public affairs team, please do not hesitate to get in touch at publicaffairs@montfort.london

 

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