16 March 2023
Cogito Ergo Non Serviam
Chancellor of the Exchequer Jeremy Hunt announced his budget for Britain yesterday. Despite an increase in corporate taxes (from a Conservative government no less), the budget favors the rich and well-off. There is not much in the budget that is grounded in economic reality. Britain is short of workers, but the two obvious solutions are ignored. Immigration is going to be restricted, and higher salaries and wages are not government policy matters save for a minimum wage. The cap on pension saving, currently a million quid, is lifted. Not many people on minimum wage will ever have to worry about that. Free child care is a great idea, but the offer is only for 30 hours a week maximum while most full-time jobs require 40 hours a week. In the end, this budget is steady as it goes, at best.
The budget is setting the stage for the next general election. There are two dimensions to this that deserve separate analysis. The first is what impact the budget has on the economic performance of the UK. The second is the old electoral question of cui bono, who benefits?
The UK economy is set to perform the worst among the G7 nations. While the country will probably avoid a recession in the technical sense (2 consecutive quarters of economic shrinkage), the situation is most likely going to feel like a recession to the average Briton. The economy will shrink 0.2% year over year according to the Office of Budget Responsibility.
Of course, things will probably look better next year than they do today simply because inflation caused by supply chain issues has almost run its course. The BBC reports that the OBR has stated, "Growth of 1.8% predicted for next year, with 2.5% in 2025 and 2.1% in 2026. UK\'s inflation rate predicted to fall to 2.9% by the end of this year, down from 10.7% in the last three months of 2022."
That said, the nation faces a grim economic future. "If even the slow growth of the past decade had continued, incomes would still be £1,800 higher than currently projected for 2027-28," the think-tank Resolution Foundation said.
Against that back drop, the details of the budget look like smoke and mirrors designed to make it look like the government is tackling the issues of the day while not really doing it. For instance, the corporate tax rate will rise from 19% to 25% after the first quarter million pounds in profit. However, firms will be allowed to lower their rates with deductions for new machinery and technology. Some analysts suggest this will be a wash for many companies. What the Treasury takes with one hand, it gives with the other.
A good economic story always helps the government of the day. In electoral terms, those who benefit most are usually those most likely to vote for continuity. The trouble with the budget the Chancellor has proposed is that it does little to appeal to the floating voter who may or may not vote for the government. After 13 years in power, the Conservative Party needs to overcome the simple fatigue the electorate has with it. This budget does not really have much for them.
Most damning is the lower standard of living in the UK. The Guardian cited the OBR in reporting, “it will take until the summer of 2024 before the economy regains the same level of activity seen in 2019.” The paper adds, "Wage rises are expected to continue to ease, leaving living standards 5.7% lower at the end of the next financial year, the largest two-year fall since records began in 1956-57."
Any friend of the British, regardless of politics, will want the budget to usher in a boom. Only the naive would believe that it will.
© Copyright 2023 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.