On Wednesday, the UK held the fourth fiscal event of Jeremy Hunt’s sixteen-month Chancellorship. A few days on, we have taken a step back to look at the budget process and what we have learned over the last two budgets. 

1. There will probably be another fiscal event before an election

I know, I know. It feels like we are in an election campaign already. But, technically, we aren’t, and we might not be for quite some time. 

This did not feel like a pre-election budget. A second 2p cut on National Insurance Contributions, reforming non-dom status, and some productivity funding for the NHS, while all potentially decent policies, were hardly the kind of sand-shifting announcements that Conservative MPs were looking for. 

As a result, the Chancellor will likely again wait to see if the OBR’s forecast changes within its own margin of error to give him some potential wiggle room for some more punchy tax cuts, such as income tax, in the Autumn.

While the thought of another budget may cause every political professional to stare blankly into the middle distance, perhaps even more depressing (and remarkably uncommented upon) is that we are, in theory at least, due a Comprehensive Spending Review by the end of the year, and if Labour wins, we could have three fiscal events this calendar year.

2. Current spending plans imply a new era of austerity – but there’s no plan for one

One of the major talking points in the wake of the previous budget was the “fiscal fiction” of large cuts to public spending to meet the fiscal rule of getting debt as a percentage of GDP five years from any given forecast.

The size of the cuts would also have to be substantial for the so-called ‘non-protected departments’. The Resolution Foundation notes that: ‘Real per-capita day-to-day spending for unprotected departments (think prisons, courts, FE colleges and local government) is set to fall by 13 per cent between 2024-25 and 2028-29 – equivalent to cuts of £19 billion and three-quarters (71 per cent) of the cuts inflicted on these departments in the first austerity parliament (2010-2015).’

No plan for this level of cuts currently exists, no report you can read. Unlike the previous round of austerity, we are not aware of any SpAds pouring over Excel spreadsheets highlighting programmes that they are going to eliminate in each Department by 2029. And, conveniently, the Chancellor will leave the next Spending Review until after the General Election — by which time it may not be his problem.

Ultimately, the Chancellor did nothing in this budget to change that projection and nothing to reduce the size of the expected cuts. In principle this should raise massive scepticism about the nature of this set of fiscal rules and whether they serve any real purpose at all. All eyes on the CSR to tell you whether any of the projected numbers we have seen so far turn out to be real or not.

3. Treating capital spending and day-to-day spending the same is mad

Broadly speaking, the Government splits the way it spends money on its departments in a couple of different ways: day-to-day spending, and capital spending. 

Day-to-day spending is what it sounds like – it is what gets the Civil Service through the day. It is the ongoing costs of salaries and office rents and all the tea and coffee provided at meetings with Government officials. It even includes the subsidised House of Commons canteens and bars.

Capital spending is investment spending. It includes building new infrastructure, maintaining buildings and assets, and commissioning those big computer systems that Government departments need. Basically, it facilitates the ongoing improvement of society and encourages long-term growth. 

The current fiscal rules do not discriminate between these types of spending. If the Chancellor had, for example, announced the funding for an underground system in the Liverpool City Region, an undoubtedly excellent policy idea, this would have made it impossible to meet his fiscal rules.

This skews how we both think and talk about any type of policy which requires a large amount of investment upfront with a slow pay-off. London’s tube network, for example, would not make it through these fiscal rules if it took 20 years to pay itself off. It is the reason that HS2 was initially planned to be completed in 2032 when given the green light in 2012.

Even if Conservatives were to look to the private sector as its model for how it should operate, no private sector business thinks like this. Capital expenditure (CAPEX) does not sit on annual Profit and Loss statements, but is treated as an investment that is amortised over the duration of the utility of the asset. We need to think about public capital spending in the same way if we are to ever break to cycle of decaying infrastructure in this country.

4. Big tent parties that change leaders often lead to incoherent economic policy

One of the most notable features of the four Hunt fiscal events is how different they are from his predecessors’. 

Every Hunt budget stands in implicit opposition to the Kwasi Kwarteng mini-budget which effectively ended Liz Truss’s premiership. The regular references to how policies will be paid for, and the at least rhetorical commitment to “fiscal responsibility”

They also do not share the politics of May’s industrial strategy or Johnson’s levelling-up strategy. Gone are the rhetorical flourishes around rebalancing the economy, or investing in forgotten places. There does remain some commitment to economic clustering as a form of regional growth strategy, but it certainly is no longer central. 

In theory, this iteration of the Conservative Party is most similar to the Cameron-Osborne era. Yet, there are some very notable differences. 

In tax, for example, Hunt has reversed a lot of Osborne’s achievements. Osborne primarily chose to increase income tax thresholds as his means of cutting taxes. This disproportionately favoured pensioners and the self-employed. Hunt did the opposite by freezing most tax thresholds in November. By choosing NICs and stating his desire to eliminate them entirely, he has clearly prioritised workers over pensioners and landlords. 

Currently, the way we do budgets doesn’t make sense. Realistically, we need long-term funding and long-term planning, and we promise that isn’t just an impassioned plea from two very tired Public Affairs consultants…