Getty ImagesWhat we’ve just seen was like two Budgets in one, or, with the World Cup approaching, what a football fan might call “a Budget of two halves”.
In the first half, covering the next couple of years before the next general election, there is support for households, in the form of government spending and further support with energy bills. Extra cash has been found for schools, hospitals and social care, and the chief secretary to the Treasury John Glen hinted to me that some of this could be used for higher wage rises for public sector workers.
The second half, after 2025, is a different matter. That’s where the eye-watering decisions the chancellor warned us about come in: the spending cuts and higher taxes for all. They’re needed if the chancellor is to hit his target of getting debt to shrink as a proportion of economic output in five years.
Whether or not this two-pronged plan works isn’t just a question of the score after the final whistle in five years time though – and remember the Conservative Party might not even be on the pitch any more by then – it’s also about the verdict over the next few days.
Immediate tax rises, on energy companies and the wealthy, mean that tax as a proportion of economic output will rise to levels not seen since the end of World War Two, which some in his party will no doubt view as anti-growth, but the government defends as necessary in a situation where rising energy prices have pushed up our national energy bills by the equivalent of paying for a second NHS and household incomes are falling by the largest amount since records began in 1956.
In such circumstances Mr Hunt’s first priority is to avoid worsening the recession the government’s independent forecaster the Office for Budget Responsibility (OBR) says has already started. That’s the reason he can’t go in hard now with a plan to balance the Budget.
The grim consolidation planned for after 2025 – worth £55bn or 2% of the size of the economy – is a downpayment to the markets. It’s Mr Hunt aiming to prove he is serious about fixing the public finances.
That’s just as vital as protecting growth if his plan is to work. The recent sharp increase in interest rates means the government is facing a bill for its own borrowing that’s going to top £100bn a year over the next few years. But that bill could come down if investors are satisfied that the right plan is in place.
Unusually, the position of the opposition, really matters here too. And Labour’s shadow Treasury number two Pat McFadden, confirmed to me that his party’s current baseline for its economic plans, should it win the next election, is the £54bn fiscal consolidation revealed by the OBR numbers.
Privately the Labour team suggests if they win the next election, it will be left to them to clean up the Conservative party mess. Publicly they are stressing that they need to show they are serious about financial stability. This suggests we may be heading for a 1997-style situation, when Labour in opposition accepted the very tight spending plans that the outgoing government put in place but might themselves never have enacted at all.
All these big economic numbers may well evolve before the election; the OBR is certainly due to give several more forecasts before then. But the tramlines for the next half-decade of politics are in place.
For now the markets seem sufficiently assured that this new team will deal with the deficit. The prime minister and chancellor managed to tell lenders they would immediately be needing £24bn less in funds than thought at the time of the mini-Budget. Labour’s broad acceptance helps with the credibility. But the really tough stuff has been pushed out ’til after the election. The unspoken hope here might be that events prove to be far more positive in the coming months – perhaps an end to the war in Ukraine, and the post-pandemic supply bottlenecks. If that does not happen, risks remain here.
