A Budget where less might actually be more

With the first Budget of the Burnham era upon us, Jim McClelland flags the fiscal policy hits and misses in Chancellor Healey’s opening salvo, and charts the way ahead.

Judging by the fate of the previous two incumbents, it is fair to say that, after the role of Prime Minister, Chancellor of the Exchequer is now the hardest job in Parliament.

When John Healey stepped up to the despatch box for the first time as Chancellor last week, the spectre of recent disaster and disappointment loomed large.

Number 11 Downing Street had not been a happy home for politicians of late.

The notorious ‘mini-Budget’ of Kwasi Kwarteng in September 2022 not only ended his career in Cabinet but also precipitated the fall of PM Liz Truss after just 44 days in office.

All of this led to a General Election the following July and a changing of the guard in Westminster. Some 14 years of Conservative power duly ended in brutal fashion, as the Labour Party led by Keir Starmer secured a landslide win at the polls. Bagging 411 seats in total, of which 209 were gains, the new Government boasted a massive majority of 172.

However, the underwhelming first outing for new Chancellor Rachel Reeves arguably began the slow death of the Starmer administration right from the kickoff. That initial Autumn Statement seemed to burst the bubble of voter hope and market confidence.

Somehow Starmer and Reeves contrived to snatch defeat from the jaws of crushing victory and were soon facing a must-win scenario the following Autumn, which they lost.

As a result, July saw the arrival of Andy Burnham as Labour Prime Minister – remarkably, the 7th person in post since the Brexit referendum as recently as 2016. Afforded even less job security, John Healey is actually the 8th Chancellor in that same short period of time.

So, with the revolving door at his back, what is the way forward for our new Red Box recruit?

Oil, unrest, and rising debt

Well, wherever Healey might plan to go, he probably wouldn’t want to start from here.

To make a difficult job even tougher, Healey sets out under a whole sky-full of storm clouds that includes: an oil crisis driving up prices at the pump; gas shortages fuelling the cost of living; conflicts dragging on in Ukraine and the Middle East; riots and political insecurity spreading like contagion across Europe; inflation and interest rates creeping up; plus a jittery stock market itching to press the panic button on AI. 

Oh, and there is no money.

Passing £800bn in total already, UK national debt is monstrously high and rising, incurring a whopping £14bn a year just in interest, according to the Office of Budget Responsibility (OBR). This equates to the Government spending £1 in every £13 on interest levied on borrowing alone. Fear not, though, as Labour argues we are finally nearing peak debt.

In October, the International Monetary Fund (IMF) upgraded UK growth forecasts and praised the country’s performance on debt reduction. In fact, the UK now boasts the lowest level of extra borrowing for six years, as Treasury Minister Dan Tomlinson MP explained with multiple charts and refreshing transparency for a TV audience on Budget Day.

For all the promises of better prospects, though, the reality at present remains painfully clear: Government coffers are all but empty. The only choices will be hard ones.

So, faced with an almost thankless first task, how and what did Chancellor Healey do? 

98 measures; 2 of them major

Well, he did a lot; a lot of little things. Despite its low-level spend, the Autumn Statement contained no fewer than 98 measures, which was something of a record in itself.

As ever, several simply recycled and reworked existing schemes and investments, tweaking deliverables and dates, changing labels, rebranding for impact and effect.

For instance, the new Young Entrepreneurs Allowance, which covers a year of living costs for young founders, just looks set to replace their current access to Universal Credit. It does though now sit within a broader new pro-entrepreneurship prospectus.

Even the framework to protect pensioners from paying income tax on their state monies had already been announced in the previous Labour budget – no surprises there either.

However, given the desperate lack of headroom available to Healey, it is especially important to take note of where he actually flashed what little cash he had to spend.

Energy is priority Number One

He set a course for investment aligned with Government priorities; and this matters.

First and foremost on the list of Government objectives, according to Healey, will be cheaper energy, with a key role for clean power. Crucially, this statement of intent is being made by the Treasury, not the Department of Energy Security and Net Zero.

In other words, energy policy is now intrinsically linked to economic and fiscal policy – not just by way of ad-hoc carrots and sticks, but in a deeper, much more strategic fashion.

Having said all that, the £100 rebate for householders in council tax bands A-D, coupled with removal of standing charges from their gas bills (not electric), are modest handouts.

Whilst welcome to homeowners under financial pressure this winter, this package of relief measures really only applies a band-aid, treating the symptom not the cause.

In truth, the Chancellor simply had to do something in the name of his new Number One priority; plus, making the banks pay for it via a surcharge was good for the optics.

Radical rethink for the tax system

The second big announcement concerns devolution, and not just in respect of Scotland, Wales and Northern Ireland. Healy has announced what he dubs “the most radical act of devolution in a generation”; the devolution of tax revenues.

The aim here is for 100% of business rates receipts to be retained locally by the end of the decade, starting with 20% from next year. On top of that, there will also be a share of income tax revenue swimming back upstream to source, from 2028 onwards.

With 10 more devolution deals in the final stages of enactment across England, plus still more to come, the total number of Mayoral Strategic Authorities will soon exceed 30.

As recent Mayor of Greater Manchester, Andy Burnham has first-hand experience of what it means and needs to be a local leader. These moves would have been music to his ears.

For regional investment programmes, local and community initiatives, this not only marks a major shift in tax policy, but also a watershed moment in central-government thinking.

Tax devolution opens the door to a whole new world of economic independence. 

Local growth and prosperity can be incentivised and supported, knowing a return on successful investment becomes directly available for reuse, without ring-fencing. This big-bucks cashback could reenergise regional funding programmes and procurement.

There will be no more need to go cap-in-hand to Westminster for everything, holding out the begging bowl more in hope than expectation. It will literally pay for regions to do well and better; and this virtuous spiral then supports sustainable development over time.

Breathing space, or pre-Election ploy?

All of this is designed to deliver what Healey describes as “breathing space” for families and businesses. It must though come with a caveat, or two.

What the commentators are calling a ‘do no harm Budget’ lacks detail in a number of areas, leaving specifics TBC, kicking some cans down the road. Such is politics.

More interestingly, though, Healey’s tactic of keeping his powder dry leaves Andy Burnham room for manoeuvre should he fancy his chances and opt to call an early General Election.

Going to the country for a new mandate, Labour could truly set out a manifesto for change. 

This may not be the plan. Avoiding the pitfalls and pratfalls of his predecessors could have been enough for Healey, this time around. However, with two big cards played in the form of his energy-first strategy and tax devolution, less might just turn out to be more, for once.

Jim McClelland is a sustainable futurist, editor, journalist and speaker