British politics is in a strange state. Since winning the 2019 general election with a substantial overall majority of some 80 seats, the Conservative Party has been tearing itself apart. It has already disposed of two Prime Ministers, Boris Johnson and Liz Truss. It is now being managed by the richest Prime Minister in history, Rishi Sunak. His main objective would appear to be to steady the ship and minimise the infighting between the various factions in his party. Apart from that, one would be hard pressed to know what he stands for other than favouring private enterprise and the market to solve all problems.
Since losing the 2019 general election, the Labour Party has also been tearing itself apart. Keir Starmer seems determined to rid the party of every trace of its previous leader, Jeremy Corbyn. Supporters of Corbyn’s radical social democratic policies are being regularly expelled on charges that would have made Joe McCarthy blush. No one has any idea what the Labour Party will do when, as seems likely, they emerge as the largest party after the next general election.
This was the context in which Sunak’s Chancellor, Jeremy Hunt, presented his first budget. As budgets go it was almost a non-event. Hunt began with a fiction. The Office for Budget Responsibility (OBR) had stated in its ‘Economic and fiscal outlook’, published on the same day, that inflation was expected to fall from 10% to 2.9% over the next year. Hunt’s budget speech began with the fiction that the Conservative government is in some way responsible for this fall
Measures of inflation often confuse people. Inflation compares the price of goods today with the price 12 months ago. A year ago the war in Ukraine had only just started and the result of sanctions against Russia had not yet affected prices. Sanctions eventually resulted in a near trebling of gas prices. That is the main reason that the inflation rate in early 2023 is some 10%. But gas prices will not continue to increase in 2023. Indeed, as winter ends, they have already fallen. That is the reason that inflation will be low in 2023. The drop in inflation has little to do with any actions that the UK government has taken though Hunt would like us to believe otherwise. The Labour Party and unions should treat such a fictitious claim with the derision it deserves.
Many people will see inflation dropping from 10% to 2.9% and think they will be better off. They will not be better off. Inflation is the rate at which your standard of living is declining. It declined by 10% in 2022. It is projected to only decline by 2.9% in 2023.
If working people want to simply maintain their standard of living they will need a 10% increase in wages in 2022 and a further 2.9% increase in 2023.
Having begun with a fiction, Hunt then announced that the main objective of his budget was growth. This was a dangerous claim to make given what the OBR had to say on the state of British living standards. The OBR pointed out in its ‘Fiscal and economic outlook’ that
“Real household disposable income (RHDI) per person – a measure of real living standards – is expected to fall by a cumulative 5.7 per cent over the two financial years 2022-23 and 2023-24.” This fall, the OBR said, would “be the largest two-year fall since records began in 1956-57. The fall in RHDI per person mainly reflects the rise in the price of energy and other tradeable goods of which the UK is a net importer, resulting in inflation being above nominal wage growth. This means that real living standards are still 0.4 per cent lower than their pre-pandemic levels in 2027-28.”
One would expect the Labour Party to seize on the projected drop in living standards with glee. But it is dangerous territory for all political parties because the drop in living standards is closely connected with the war in Ukraine and all political parties are fervent supporters of that war. Starmer had to choose his words carefully when discussing the disastrous growth projections.
“The Chancellor mentioned the war in Ukraine. Of course the Opposition stand with Ukraine, and we stand with the Government’s response to Putin’s brutality. … what we cannot accept is the use of the war as a blanket excuse for failure.”
In fact the war in Ukraine is almost entirely responsible for the drop in living standards that the OBR is referring to. But neither political party wants voters to make that connection. It might encourage them to question that war.
Politics has been dominated recently by massive strikes on the part of public sector workers, particularly the Nurses. The budget had little to say on these strikes. Indeed, it insulted the nurses by ignoring them and giving the biggest tax give-away in the budget to the highest paid workers in the NHS who are troubled by the fact that they are not allowed to have more than £1 million in their pension pots tax free. Hunt’s budget removed any limit on what could be paid into a pension pot. Hunt did make one interesting move by increasing support for child care provision for those in work. One suspects that will be very welcome to those already incurring child care charges. Whether it brings more people into the workforce remains to be seen.
In short, Hunt’s first budget had little purpose other than to give the Conservative party some time to remove the impression of chaos and instability that it gave under the premierships of Johnson and Truss. Once that has been achieved, the Conservatives may well consider calling an early general election and leaving the Labour Party to drink from the poisoned chalice of the Ukraine war. It would certainly reveal how limited is Starmer’s economic and political offering.