Can we expect a surprise in Jeremy Hunt’s Budget?

Budget day is a great political set-piece, with red-box tradition and ritual mixed with a certain amount of trepidation. This year may be a little different, as Jeremy Hunt, delivering his first formal Budget, has already outlined his strategy for the public finances. Things are getting a little easier for him, as tax revenues have been healthy, but he will still have to confront some tough decisions.

Will there be any surprises?

Modern Budgets get leaked fairly extensively, and the old habit of purdah, whereby Treasury ministers refused all interviews for weeks beforehand, was abandoned some time ago. Hunt has been touring the television studios to try to dampen expectations of any giveaways.

Kwasi Kwarteng’s “fiscal event” was prepared in top secrecy, and full of rather unwelcome surprises. This time, it seems that if there were going to be any surprises, we’d know about them by now, which of course would mean that they wouldn’t be surprises.

It is most likely that all the hikes in personal and business taxation announced last year will be retained, including the move to push corporation tax up from 19 to 25 per cent. This is the focus for Tory discontent at the moment, with the band of dedicated Trussites in the Conservative Growth Group almost certain to rebel on the issue.

Rishi Sunak, of course a former chancellor and closely involved still in the economic agenda, always maintains that investment incentives work better than corporation tax rates in improving productivity and economic growth. Therefore Hunt might announce some new tax breaks to spike the guns of his internal critics.

The Trussites point to decisions such as that of AstraZeneca to relocate its HQ in Ireland, where corporation tax is 12.5 per cent. (They also find the OECD agreement on a global minimum company tax rate of 15 per cent irksome.) They seem set on making some sort of gesture during the votes on the finance bill.

So, no excitement?

Not much. Despite the pre-Budget spin, chancellors do like to pull some sort of bunny out of the hat if they can. This year a freeze in fuel duty (again) will cheer up the Tories and The Sun, even if it’s widely expected. It’s usually unveiled towards the end of the speech, all the better to tee up the cheers from the government backbenchers.

This year, all the major lines of policy were set out by Hunt even when Truss was still prime minister – putting the defeat of inflation first, and making a tight fiscal policy to support the Bank of England’s strategy of steadily raising interest rates.

Given the relatively healthy state of the public finances compared with how things were last autumn, Hunt could say something dramatic about, say, a new pay settlement for nurses. He and Sunak are anxious to bring the wave of strikes to a halt, and seem to have identified the nurses as the key to winning back public opinion.

Anything else to look out for?

Mainly the size of the Tory rebellions. As with those on the Illegal Migration Bill, they are almost a proxy indicator for confidence in Sunak. It will be interesting to watch how Truss and Boris Johnson behave, given their apparently unquenched thirst for power. If a revolt is large enough, and the opposition parties vote in unison, Hunt and Sunak could see some fairly close divisions.

Nadhim Zahawi and Kwasi Kwateng – the other two of 2022’s four chancellors of the Exchequer – might attempt to make dignified and measured interventions in a doomed attempt to rehabilitate their respective reputations.

On the other side, it will be Starmer’s traditional obligation to respond to the statement, but more attention will be on how Rachel Reeves carves out some fiscally distinctive territory for her party – and makes the numbers on green growth add up.

Will we be better or worse off?

Most people will be worse off, but Hunt may well take advantage of lower energy prices to cancel the planned £500 increase in average household energy bills, which was due to come into force next month. That would mean bills for the average household staying at around £2,500, instead of going up to £3,000 as previously announced.

Those with significant self-employed income from dividends and capital gains will be hit especially hard, which will make the measures more progressive. The tax burden will be at a multi-decade high, mortgage rates will continue to climb, and Hunt will have to acknowledge that there are still tough times ahead.

For those still struggling with gas and electricity bills, one popular change would be to outlaw the so-called “prepayment premium” and level down the cost of energy for those who have to pre-pay.

What impact will it have on politics?

It’s not going to transform Tory fortunes, but nor will it do them much harm. In image terms, it’s all about making the government look calm, competent, and determined to take the difficult decisions (even if it is reversing past Tory mistakes). The intention is to deepen the contrast with Labour, but also with the respective uncertainties, instability and chaos of the May, Johnson and Truss governments. This is a “new” government, albeit with some old-fashioned ideas.

The next big electoral test will be the local elections in May, already assumed to be a wipeout for the Conservatives. Any faint signs of improvement will be seized upon as the first stage in a recovery the government hopes will pick up with an improving economy next year.

What would success look like for Jeremy Hunt?

As much support as he can muster from his own ranks, and as little impact as possible on the financial markets. Drama is bad. Boring is good.

In the slightly longer run, Hunt will be extremely pleased if his measures to get working parents, the early-retired, and people with disabilities or long-term illnesses back into the workforce prove a success. Absent more inward migration, increasing economic participation rates is the only way to address the shortage of labour in the economy, which is pushing wages, business costs, prices and the inflation rate higher.

Therefore we may expect to see Hunt make the most of some reforms to the social security system. These will include ending the formula used to assess eligibility for sickness benefits, paying parents on universal credit childcare support up front, and increasing the amount they can claim by several hundred pounds. Parents will face formidable obstacles in paying for nurseries – but there’s to be some help at last. Some universal credit claimants will be allowed to continue to receive payments after they return to employment.