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The Guardian - UK
The Guardian - UK
World
Archie Bland

Wednesday briefing: What’s in Hunt’s spring budget – and how will he pay for it?

Jeremy Hunt is due to deliver the spring budget today.
Jeremy Hunt is due to deliver the spring budget today. Photograph: Anadolu Agency/Getty Images

Good morning, and strap on your Homer Simpson secret nap spectacles: it’s budget day. Coming into this one, the big question about Jeremy Hunt is this: is he, as friends of his recently told the FT, “realistic enough to know he is unlikely to be chancellor this time next year” – or does he think that his decisions today can give the Conservatives a serious chance of winning the election? Does he want to bolster his economic legacy – or give his many vulnerable backbenchers something to tell voters about?

The truth is likely to be somewhere in the middle: tax cuts to satisfy the Tory faithful, with just enough cover on affordability to keep fiscal watchdog the Office for Budget Responsibility (OBR) happy. Today’s newsletter is a simple guide to what that means: what the chancellor will do, the dubious sums that will help him afford it, and what it’ll mean for you. Here are the headlines.

Five big stories

  1. US politics | Joe Biden and Donald Trump cruised to easy victories on Super Tuesday, as both men piled up delegates on their way to their parties’ nominations for the presidency. While Nikki Haley did win the Republican primary in Vermont, that was her only success against Trump, and she came under renewed pressure to drop out of the race.

  2. Birmingham | Councillors in Birmingham have approved what are thought to be the biggest budget cuts in local authority history. 600 council jobs are under threat, with libraries closed, bin collections reduced, street lights dimmed, and arts grants scrapped. The council also approved a 10% council tax increase for the upcoming financial year.

  3. Israel-Gaza war | Negotiations aimed at brokering a ceasefire in the Israel-Gaza war appear to have stalled, days before an unofficial deadline of the beginning of Ramadan. Israel did not send a delegation to the second day of talks in Cairo as hoped, demanding that Hamas present a list of hostages who would be the first to be released.

  4. UK politics | Michelle Donelan, the science minister, has apologised and paid damages after accusing two academics of “sharing extremist views” and one of them of supporting Hamas. Donelan – whose department covered the damages and legal expenses – had faced a libel action after her allegations led to the two academics’ suspension from roles at Research England.

  5. Monarchy | The army has removed a claim on its website that the Princess of Wales will attend an event in June, after apparently publishing the information without approval from Kensington Palace. Catherine has been recovering from abdominal surgery for the past seven weeks, with no date yet given for her return to public duties.

In depth: From fiscal tricks to tax cuts, inside Hunt’s attention-grabbing plan for the public purse

For a sense of the economic backdrop to Hunt’s announcements today, start with Richard Partington’s guide to the budget in five charts – and take particular note of the one showing how predictions of GDP growth have been revised down. As Phillip Inman’s analysis notes, “With economic growth flatlining, there is not much spare cash to fund Hunt’s budget giveaways.”

Here’s how he’ll try to do it, and what it means for public services, the opposition, and for you.

***

How much money does Hunt have to play with?

The measure the government uses for this is “fiscal headroom”: the amount of money that the chancellor can use as he wishes before he breaks the government’s self-imposed “fiscal rules”. If you’ve allowed yourself 1,500 calories for the day and gone for a fried breakfast on the basis that you’re definitely going to have a salad for dinner, you’ll know roughly how this works. (Richard Partington has more detail on the fiscal rules in this useful explainer.)

Assessing where those limits lie is the responsibility of the OBR. Ahead of the autumn statement last November, they said Hunt had about £30bn to play with; he used £17bn of it. The problem now is that while the government was hoping that an improving outlook for economic growth would give Hunt more room for manoeuvre, the reality is that worsening OBR projections have instead tied his hands. At best, he will have the same £13bn left from last time to make use of.

The crucial caveat to all of this is that many critics see the measure of fiscal headroom as a bit of a con: in this FT piece, Diane Coyle argues that treating it as a static measure misses the way that public investment can create growth. “Investment spending can raise growth and raise the ceiling, while cutting investment spending is likely to reduce growth and lower the ceiling,” she argues. For more on shortcomings with the reliance on fiscal rules, see the explanation Aditya Chakrabortty gave us in December.

***

How will he raise more?

Regardless, Hunt is using the fiscal rules to define his initial pot. To do anything attention-grabbing today, he needs to find other ways to increase the size of it.

One widely reported suggestion is that he will steal Labour’s idea of scrapping the non-dom tax system, which lets foreign nationals living in the UK avoid paying tax on their overseas income or capital gains. That could be worth a handy £3bn a year, even if Hunt will have awkward questions to answer about his previous view that axing the scheme could “damage the long-term attractiveness of the UK”.

Other revenue-raising moves on the cards include a £500m tax on vapes, a one-year extension of the windfall tax on energy firms’ profits that the OBR estimates is worth £1.9bn a year, and the removal of tax relief on properties being rented to holidaymakers, worth a relatively paltry £300m.

***

What other tricks might he use?

The Treasury is also promising a “public sector productivity drive”, which it says will deliver £1.8bn in savings by 2029 in return for an £800m investment. You’ve probably heard that one before, but everyone likes efficiency.

Hunt’s other trick is a much more controversial one: promising to cut government spending in the next parliament, so that he can theoretically obey his rule of ensuring that public sector debt is on course to fall as a share of national income in five years’ time.

If Hunt reduces projected departmental rises from 1% to 0.75% a year, he will give himself an extra £5bn to £6bn to play with today without having to change a single thing this side of the election. With areas like health and defence ringfenced, unprotected departments like justice and local government would face cuts of up to 20% over the course of the next parliament.

Most economists view these far-off projections as nonsensical – he’s already tried it, and nobody believed him the first time. Still, the government can pencil the cuts in now, and then pop the task of enacting them into a time capsule for their successors.

Because Labour has previously suggested it will not reverse any tax cuts announced by the government and accepts the fiscal rules, Hunt’s opponent Rachel Reeves has very little room to promise a reversal of those spending reductions. As Rafael Behr writes: “This is the dirty paradox of a budget drafted in anticipation of defeat. The Tories write an oath of fiscal responsibility for the opposition to recite, which no one expects the government itself to honour.”

***

What will he spend it on?

A lovely election-year tax cut. The key debate playing out in the newspapers in recent weeks has been whether that will be done through national insurance or income tax. Rishi Sunak is said to have favoured a 2p cut to the basic rate of income tax, at a cost of £14bn, on the grounds that voters can get their heads round it more easily, and it benefits more people.

The argument for a national insurance cut (NIC) – which is applied only to people who are in work, rather than retirees and shareholders – is that it is cheaper, at £10bn for a 2p cut, and that it is better for the economy because it creates less inflation. In the end, the national insurance option – worth about £450 a year to the average voter - appears to have won. Unsurprisingly, the Tories will also extend the current “temporary” 5p cut in fuel duty, maintaining a freeze that began in 2011 at a cost of £5bn in the next fiscal year.

Will that be enough to appease Conservative backbenchers desperate for something to tell their constituents? Sarah Coles, an analyst at Hargreaves Lansdown, alighted on a memorable and only slightly overworked metaphor for the national insurance cut: “[Not] so much a rabbit pulled out of a hat as a slightly tatty-looking ferret dragged from a box labelled ‘rabbit’.”

***

What will voters make of it?

While any tax cut is likely to be popular among the government’s supporters in the press, most voters are less sure: £37 extra each month may seem less attractive when you’re struggling to get a GP appointment or seeing your local council go bust. And overall, freezes to tax thresholds plus council tax rises in many areas mean that many will still be worse off.

In February, two YouGov polls found that most people would rather the government prioritised public spending over tax cuts: even when the question about cuts is narrowed to taxes “that everyday people pay”, public sector investment still comes out on top.

It is also worth noting, though, that if tax cuts are framed as “measures to reduce the cost of living”, the polling reverses. So expect to hear the Conservatives talk a lot about what they’re doing to ease the pressure on working people – and rather less about the cuts to public spending that they’re promising to pay for it, and which Labour are likely to end up carrying the can for.

What else we’ve been reading

  • If like me, you have been beyond excited about the release of Dune: Part Two, you will also be devouring everything written about the franchise. This piece looks at songs and entire records inspired by Frank Herbert’s epic tale of war, colonialism and human morality. Nazia Parveen, acting deputy editor, newsletters

  • The only thing you really need to read about Christian Horner (above, with his wife Geri) is Marina Hyde: Ginger Spice’s appearance “with the 1,000-newton jaw clench of a wronged Tory wife”, Horner “forever organising cursed clay pigeon shooting events” – it’s all here. Other than the leaked messages, thank goodness. Archie

  • They are often cringeworthy, and hosts have a tendency to either fawn or ask awkward questions – Zoe Williams argues that it may be time to retire red carpet interviews. Nazia

  • Ten years after the death of 239 people aboard the MH370, Oliver Holmes and Haylena Krishnamoorthy report on the enduring mystery of the flight’s disappearance – and whether it was the result of a deliberate act or a technical failure. “It is the question I come back to once in a while with a sense of agitation, even frustration,” says one passenger’s husband. “I may never know in my lifetime.” Archie

  • As a working mother, this was quite a difficult read. The global gender gap is far wider than previously thought and no country in the world affords women the same opportunities as men in the workforce, according to a new report from the World Bank. Nazia

Sport

Football | Harry Kane (above) fired Bayern Munich into the quarter-finals of the Champions League as the German side overturned a first-leg deficit against Lazio with a 3-0 win at the Allianz Arena. Paris St Germain’s Kylian Mbappé scored twice to lead them into the quarter-finals with a comfortable 2-1 win away to Real Sociedad.

Tennis | Simona Halep is free to resume her career after her doping ban was reduced on appeal from four years to nine months. The former Wimbledon champion tested positive for the blood-boosting drug Roxadustat in 2022, but her appeal at the court of arbitration for sport upheld her defence that the substance entered her system through “consumption of a contaminated supplement”.

Cricket | Ahead of the final match of the series between England and India, Mark Ramprakash reflects on the career of Jonny Bairstow, who is playing his 100th Test. “He is probably a bit underestimated,” Ramprakash writes, but asks: “Does he still have the energy, commitment and desire to excel at Test cricket, with all its rigours and demands?”

The front pages

“Hunt defies public services alarm with pre-election budget tax cuts” says our Guardian print lead. The Financial Times splashes on “Hunt to put £10bn tax cut at core of budget as Tories eye tough election”. “Labour fears Tory budget trap as Hunt cuts NI by 2p in giveaway” says the i, while the Daily Telegraph goes with “Tax cuts spark election talk”. “Hunt’s tax cut gamble will put £900 in workers’ pockets” – that’s the Daily Express while the Times phrases that as “Hunt looks to win over voters with £900 tax cut”.

The Daily Mail leads with “Five SAS soldiers in murder probe over Jihadi death”. Wednesday’s Metro runs with “Palace’s anger at Kate date clanger” after tickets went on sale for an event for which she might not yet be back on royal duties. Royal news also in the Daily Mirror – “Meghan put ‘stick in the spokes’” – Kate’s uncle says the Duchess of Sussex busted up Kate, Wills and Harry’s bond. Where did Gerry Goldsmith say this? In the Celebrity Big Brother house, of course.

Today in Focus

Gaza’s hunger crisis

Children are reported to be starving in Gaza as insufficient aid supplies crawl into the territory. Meanwhile, as Ramadan approaches, peace talks are faltering. Patrick Wintour reports

Cartoon of the day | Martin Rowson

The Upside

A bit of good news to remind you that the world’s not all bad

Joanna Moorhead has been travelling solo, without her partner, for 15 years and has no plans of stopping. Far from being lonely, the experience, she writes, “lets her do exactly what I want, when I want”. She’s not the only one. Moorhead, who is 61, speaks with other older women who travel solo, and discover a Facebook group called Solo in Style with almost half a million members. There’s a nutritionist calling in from Málaga, an IT worker from Surrey who likes the freedom of following her own schedule, and Moorhead herself, who writes: “It helps me to recharge my batteries, it’s empowering and … it takes me out of my comfort zone in just the right way, allowing me to have the experiences, the food and the fun that I want.”

Solitude can also, a professor of psychology explains, give a sense of autonomy. As Moorhead puts it: “It’s also, I think and hope, about older women now having more autonomy and financial independence than our mothers did. If we have a partner who can’t or won’t come along, we’ll just do it anyway.”

Sign up here for a weekly roundup of The Upside, sent to you every Sunday

Bored at work?

And finally, the Guardian’s puzzles are here to keep you entertained throughout the day. Until tomorrow.

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