Hunt has twice sabotaged this strategy with successive cuts to national insurance

Mike Buckley is the director of the Independent Commission on UK-EU Relations and a former Labour Party adviser 

Britain is a country with taxes rising and incomes stagnant. When the election is finally held later this year or just possibly in January 2025 it will be the first time on record that voters will enter the polling booth with incomes lower than at the previous election.

It’s not just the last 5 years. The whole Tory period in office from 2010 to now has been a growth and wage disaster. Real GDP per capita growth over the period will be a mere 0.8%, far below New Labour’s 1.4% and the above 2% norms seen throughout the last half of the 20^th century.

Real wage growth is worse still – a paltry 0.2% over 14 years, compared to New Labour’s 1.9% and, again, at least 2% from 1951 to 1997.

Only on unemployment do the Tories come close to pre-2010 norms. Their 5.5% average is below New Labour’s 5.7% and far below Thatcher/Major’s 9.3%.

The combination of stagnant growth and wages, high inflation, hollowed out public services and council budgets due to ongoing austerity, the self-inflicted wound of a needlessly hard Brexit and the failure of levelling up have together made Britain a poorer, less optimistic nation that is consistently falling behind our peers.

We are increasingly unequal. While the richest Britons have kept pace with European and US peers the rest of us are falling behind. In 2007 the average UK household was 8% worse off than its peers in north-western Europe, but the deficit has since ballooned to a record 20%.

In 2021 the lowest-earning bracket of British households had a standard of living that was 20% weaker than their counterparts in Slovenia. The average Slovenian household will be better off than its British counterpart by 2024, and the average Polish family will move ahead before the end of the decade.

This matters because of the relative decline of British standards of living. It matters too for the long term health of the economy – we are and will remain in desperate need of migrant labour, but that labour will only come if the financial rewards are worthwhile.

This was the context for Jeremy Hunt’s spring budget – trailed as needing not only to set a course to greater economic prosperity and growth but also to do something to win back support to the Conservatives ahead of the coming election.

Politically the budget was a failure. Post-budget polls have not moved – the Tories remain around 20 points behind Labour, a position they’ve held consistently since Liz Truss’ disastrous ‘mini budget’ of 2022.

Twice as many voters believe – correctly – that despite Hunt’s cut to national insurance taxes overall are set to rise. Indeed UK tax as a share of GDP is forecast rise to 37.1% of GDP in 2028-29, the highest level since 1948.

The only glimmer of realisation from Hunt that a change of strategy is needed if his party is ever to recover politically was his choice of beneficiaries.

Conservative governments have favoured pensioners since 2010, a big reason why pensioners remain the last demographic still to give them a poll lead.

While pensioners will continue to benefit from policies announced in previous parliaments this budget, and to a degree other post 2019 budgets, the Tories have shifted the emphasis from benefits to pensioners to people of working age.

This means that over the course of this parliament the Tories have boosted the incomes of people under 45 by £590 a year, while cutting pensioner incomes by £770 a year. Hunt’s national insurance cuts are part of this: for people of working age they partially offset the rise in tax paid due to frozen thresholds, but there is no offset for pensioners who pay income tax but not national insurance.

The same can be said of Hunt’s change to child benefit – a policy which benefits wealthy parents of working age.

Yet the Tories remain less popular than Labour among every age group other than pensioners. Hunt’s help for people of working age, such as it is, is far too little, far too late.

The budget will similarly do little to change the economic outlook. Rishi Sunak as Chancellor chose to raise taxes to – by the end of the decade – a post war high in order to pay down the huge amount of government debt built up under successive Tory governments.

Hunt has twice sabotaged this strategy with successive cuts to national insurance. In contrast to Theresa May and Boris Johnson, who both sought to stimulate the economy through investment, albeit to little effect, Hunt aims to return the David Cameron / George Osborne model of cuts to state spending and taxes in an attempt to stimulate the economy.

It didn’t work for Cameron and cannot work without immigration, which Hunt spent much of his speech arguing against, repeatedly stating the need to grow our own workforce. Yet again his strategy made no sense – many out of work Britons are restricted by physical or mental ill health, or the need to care for family members with such needs. Hunt’s budget had nothing for these groups.

Indeed the basic premise of Hunt’s tax cut – that lower taxes inevitably leads to changed behaviour, higher growth and government tax receipts – is false. A Financial Times investigation found that real world instances of this happening are “vanishingly rare”.

The OBR predicts that while Hunt is right that lower national insurance will make work pay better and boost hours worked, generating a £1.7bn boost in government revenues by 2028-29, this is far offset by the ongoing £10.7bn cost.

Meanwhile Hunt’s projected spending plans are widely seen as farcical by outside experts, promising cuts to unprotected government departments which in the real world are simply unachievable.

All of this creates space for Labour. Where the Tories have no reliable answers to stagnant growth and wages, run down public services, inequality and the large number of economically inactive Britons, Labour are in the enviable position of holding a consistent poll lead and as a result public permission to offer change.

This makes the next – unknown in number – period of months before an election a key time for Labour to set out not just tax and spend decisions, but also a narrative of national decline under the Tories and the promise of renewal under Labour.

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