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Herald View: The 'budget for growth' is likely to fail its own tests

Chancellor of the Exchequer Jeremy Hunt delivering his Budget to the House of Commons.
Chancellor of the Exchequer Jeremy Hunt delivering his Budget to the House of Commons.

CHANCELLORS often like to leave the best til last when delivering their budgets and end with a flourish or a bit of magic trick, the old rabbit out of the hat: often a tax cut. But there was none of that from Jeremy Hunt this week. Having glanced at the recent polls, perhaps he was tempted to do something dramatic to try and help his party, but the truth is his room for manoeuvre was severely limited, partly because of the self-inflicted wound of Brexit: growth is weak, debt is high, and GDP is expected to fall this year. The best Mr Hunt could hope for was to demonstrate that the corner the economy needs to turn is somewhere up ahead.

On the face of it, there were some good signs around. For a start, the forecasters are no longer predicting recession this year after the economy narrowly avoided two consecutive quarters of negative growth, but the growth that is happening is perilously close to zero. Some might say the inflation rate is also a sign of hope: the Office for Budget Responsibility expects it will more than halve by the end of the year. But it still means prices will be rising, albeit not as alarmingly as they were a few weeks ago. The cost-of-living crisis is far from over.

It was against this backdrop that Mr Hunt made his announcements. His was a budget for long-term growth that would pay for public services, he said; a number of the measures were also specifically aimed at boosting business investment and encouraging employment for various groups including older workers. But taken as a whole, there are serious questions about whether it can achieve these aims and get the UK economy going again.

On the business front, the decision to raise duty on Scotch whisky by 10.1% is particularly concerning. Not only is it one the largest increases in recent decades, the industry has rightly pointed out that it will further increase the competitive disadvantage faced by spirits and is a breach of the UK Government’s promise to review alcohol duty to ensure the tax system is supporting whisky. The danger is it will damage one of Scotland’s biggest food and drink exports – one that supports hundreds of rural jobs in distilleries and its associated industries such as haulage, farming, and tourism. By further increasing costs, the Treasury is playing a dangerous game.

The strategy on pensions is also questionable for different reasons. Many pensioners, particularly those who have worked in the private sector or in small firms, retire with modest pension pots, but the measures in the Budget were concentrated instead on pensioners at the other end of the scale entirely. There were two changes announced: the annual tax-free allowance will rise from £40,000 to £60,000 and the £1m lifetime tax-free allowance will be scrapped, the stated intention being to stop highly-paid workers, including NHS staff, from retiring early. But while those on the lowest incomes continue to struggle, instead we are given a blatant and blunt transfer of wealth from average earners to the rich. The Labour leader Keir Starmer says it shows the wrong priorities. He’s right.

The measures on childcare look much more promising. Again aimed at encouraging people into work, the announcement means free childcare for working parents in England will be expanded to children aged nine months and above and it’s a welcome move, although the delay to 2025 isn’t. Nicola Sturgeon says Scotland’s package of measures is already superior but many parents in Scotland will expect her successor to ensure the Barnett consequentials arising from the UK Government’s spending in this devolved area to be focused on childcare rather than other distractions.

Another welcome move in this Budget was the extension of the Government’s energy price guarantee, which will keep the average household bill at £2,500 until the end of June – it was due to rise to £3,000 from the start of April. However, consumers will still have to adjust to the end of the energy rebate scheme, which was worth at least £66 a month. Businesses, particularly small firms with high energy costs, are also asking, perfectly fairly, what will happen when the current energy support package ends. The freeze on fuel duty for the next 12 months will be welcomed by some, especially exporters who have also been dealing with rising haulage prices allied to Brexit, but it’s fair to say the picture for Scottish businesses, large and small, is uncertain.

Mr Hunt insists his budget is good for businesses in other ways. Those that invest in IT equipment and machinery, for example, will be able to claim back the cost by writing it off against their tax – the measure is designed to encourage investment. But at the same time corporation tax on profits over £250,000 is due to rise from 19% to 25% in April. It’s the kind of measure that divides opinion, but as many of the staff who work for Britain’s businesses face a continuing squeeze on their living standards, something had to give.

Elsewhere, the Budget looks more traditionally Tory than increasing tax on businesses. Apparently also a part of the drive to get more people back into work, the Chancellor said there would be tougher sanctions for benefit claimants who fail to meet the requirement to look for work or choose not to take up a reasonable job offer. This could mean additional training for Jobcentre staff to ensure they apply sanctions effectively, or sending out automated messages to claimants who fail to meet with their work coach. But the concern must be that vulnerable people will lose their financial support or be forced into work that is not right for them. At a time of record low unemployment in Scotland, it is a wrong-headed move that appears to be aimed at pleasing Tory voters rather than offering practical solutions on employment.

But let’s end on one of the undoubted positives of the Budget. The Edinburgh festivals are to receive a £8.6million boost, some of which will go towards a permanent headquarters for the Fringe. Not only is this welcome investment in a sector that contributes more than £300m a year to the UK, it’s also to be hoped that after, in the eyes of many, turning our backs on Europe with Brexit, we are once again welcoming the world and recognising the pivotal role that arts and culture can play in economic recovery.

Mr Hunt says it’s right to support the festivals and help them grow – and £8.6m is a good start – but like every Chancellor before him, he’s also eyeing several targets here. Firstly, he will be hoping for payback on policies he says will be good for growth, but on balance the boost, if any, it is likely to deliver is small. The economy may defy expectations and rebound quickly, but it is still much more likely to flatline.

Whether Mr Hunt’s second target is achieved will be tested just as quickly. Like every Chancellor, he has one eye on whether his policies can have an effect on his party’s fortunes and give the Tories a fighting chance at the next election – to that extent, this was a political budget, as they all are in the end. But Mr Hunt will have seen the polls. He will have seen how far Labour is ahead. This Budget may help, in a small way, to deliver the growth the economy needs, but any growth in support for the Conservatives looks, deservedly, out of reach.