This Budget should be one that aids the nation – not a sop to Tory voters

Chancellors of the Exchequer sometimes find themselves short of money, low on luck and rarely running a surplus of thanks from the taxpayers – but they are never, ever lacking advice.

Sometimes, such “advice” is thinly disguised special pleading; often it is pure ideological wishful thinking – and Jeremy Hunt has been subject to as much of it as any chancellor, and recently has succumbed to the attractions of pushing his luck with tax cuts. That said, he has, at least in technical terms, run the Treasury with a welcome degree of professionalism after the chaos of the brief Truss-Kwarteng experiment. Now, though, comes the greatest challenge of his chancellorship.

As the election approaches – it is only a matter of months now, whatever the speculation – Mr Hunt faces a dilemma familiar to many of his predecessors. He can put the economy first; or he can be forced by the electoral cycle into putting the survival of his party first. All the signs are that he will be veering heavily towards a highly political Budget. He may, as a result, save a few marginal seats (including his own) in the process when the seemingly inevitable Labour landslide arrives; but there should be no doubt that it is against the national interest.

Whatever “fiscal headroom” the chancellor has engineered for himself, and got duly sanctioned by the Office for Budget Responsibility (OBR), he should surely put paying down the national debt ahead of all other priorities. Because of the global financial crisis, the pandemic and the energy crisis caused by the Ukraine war, Britain’s debt is at near-record post-war levels, at around 100 per cent of one year’s national income.

Optimists argue that it stood at 262 per cent of GDP immediately after the Second World War – but that burden, coupled with attempting to maintain sterling as a reserve currency, helped to hold back British growth for decades, and left the economy with an endemic tendency to inflation.

Borrowing to invest is also certainly a fine and necessary idea. However, much of the British debt pile wasn’t created to fund productive infrastructure and the like, but simply to keep the banks going in the global financial crisis, the economy afloat during the Covid crisis, and saving consumers from bankruptcy because of their energy bills. All were necessary, but none provided a flow of future income to the nation.

Given that interest rates are likely to remain relatively high, it also makes no sense to be spending the equivalent of the schools or the defence budget on servicing the UK’s debt. If there is an opportunity now to chip away at it, then it ought to be taken. It is itself a sort of investment for the future.

As things stand, the national debt as a proportion of GDP is still forecast to rise over the next four years, only dipping in the last, fifth, year of the forecast. It is not true, as Rishi Sunak, Mr Hunt and their colleagues say habitually, that “debt is falling”. It is not – and the assumption it will towards the end of the 2020s is based on some highly unrealistic assumptions about trends in public expenditure.

Even if Mr Hunt was inclined to think that the future will look after itself, and opt to be a more “political” chancellor, he is wrong to put so much emphasis on tax cuts, as the speculation suggests. He needs to examine again what his plans for public spending will actually entail, and which services will need to be cut in order to accommodate them.

The latest ruse – that local authorities can cope with yet another dose of austerity – is especially reckless. Too many councils, not entirely through their own foolishness, have gone bust, and too many more stand on the brink for Mr Hunt to be contemplating squeezing them harder. Unlike most businesses, central government cannot simply stand aside and allow services beyond a statutory core to be left to collapse. The same goes for our overworked hospitals and crumbling schools.

Politically, the priority given to tax cuts is also curious. Polling suggests that the voters would much rather be seen by a hospital consultant and be sure that their children will be taught science than have a modest cut in their national insurance or income tax, welcome as it is. The nation also needs to be better defended, and to make sustainable provision for the mounting cost of social care for an ageing population.

Mr Hunt may hope that the electorate will repay him for his “generosity” with their own money at the ballot box; but they didn’t display much gratitude for the relaxation in national insurance implemented in January, and they’re liable to discount the latest cuts with a similar air of contempt. The voters know full well that these are only small discounts to the hikes in tax bills from long-term, frozen tax thresholds, and suspect that they’ll only be temporary in any case, and most likely wiped out by emergency hikes in council tax.

Perhaps Mr Hunt will steal some of Labour’s clothes and restrict the tax privileges enjoyed by super-rich non-dom residents, which will be fully justified if it can be shown to increase tax revenues in the round. Yet the one tax that Mr Hunt should increase is the one that has been frozen since 2011 – an index-linked increase in fuel duty.

It is an obviously environmentally sound measure, and it would raise about £6bn, probably double the amount of reform of non-dom status. A few extra pence on a litre of petrol – after a decade-long tax holiday – seems a small price to pay to protect our local services from mayhem, for example.

One day, a chancellor will have to face up to such tough decisions. But that day will not be one this election year.