To grasp the nettle, or wait in the hope that things somehow miraculously improve. This is the choice Rishi Sunak will be weighing for the next general election, as the Conservatives limp towards the finishing line of another challenging year.
After Jeremy Hunt announced the government would hold an earlier than anticipated budget, with a date set for 6 March, the possibility of a poll in May, in the afterglow of some electioneering tax cuts, is clearly being given considerable thought.
On the face of it there are few good reasons why Sunak would fire the starting gun on an election he is widely tipped to lose. Households remain gripped by the cost of living crisis, while the UK economy is edging closer towards a possible recession.
The prime minister does, however, have one advantage over his rivals: the ability to change government policy to make the political weather. With his party trailing a commanding Labour lead in the opinion polls, an agenda-setting budget will offer another roll of the dice.
Hunt is expected to use what could be the last big fiscal event before the election to announce a sweeping package of tax cuts, with an early March date helping to leave as much time as possible for voters to feel the benefit.
Less than five weeks on from November’s autumn statement, Treasury insiders say no formal meetings have yet taken place to discuss the spring budget. Speculation is, however, already rife, with Downing Street reportedly interested in slashing or even abolishing inheritance tax, a policy Hunt shied away from last month.
However, divisions are emerging within the Tory party over which policies to prioritise, with some prominent backbenchers calling for income tax cuts instead of giveaways that would largely benefit the richest individuals.
The government will also face accusations that, regardless of any tax cuts announced in the spring budget, living standards are only getting worse after 14 years of Tory rule, while public services are crumbling.
Hunt is highly unlikely to announce giveaways large enough to overcome a six-year freeze on income tax thresholds first introduced by Sunak in 2021. Expected to rake in more than £50bn, the policy will drag millions of workers into higher income tax brackets – helping to push overall tax revenue to the highest level as a share of the economy since the late 1940s.
He will be constrained by self-imposed rules for the national debt to fall as a percentage of GDP within five years’ time – a requirement met with about £13bn to spare at the autumn statement. However, this was predicated on £20bn of real-terms cuts to public spending for after the next election – branded as unrealistic by leading economists.
The chancellor will be keen to stress that Sunak’s primary target of halving inflation in 2023 has been met, from more than 10% at the start of the year to 3.9% in November. Annual pay growth has also risen back above inflation in recent months, helping to ease the pressure on struggling households.
However, most of the prime minister’s other targets risk being missed. And even as inflation falls back, living costs remain elevated after the sharpest increase in decades.
With near flatlining economic growth, persistent inflation, and higher taxes, the Resolution Foundation expects the current parliament will be the first in modern history where living standards have gone backwards – with the average household expected to be £1,900 worse off.
In 2024, the economy looks set for at best minimal growth, with the Bank of England forecasting a 50-50 chance of a recession. Although inflation has fallen back in recent months, the central bank argues that interest rates will need to remain high – keeping the pressure on households and businesses from high borrowing costs.
Going for an early spring budget could limit the amount of time before any further worsening in the economic outlook, handing Hunt wriggle room with the public finances to offer tax cuts. But with such a challenging backdrop, even an electioneering budget could struggle to line up Sunak for electoral success.
