Turn to p98 of the Office for Budget Responsibility’s latest economic and fiscal outlook, and you’ll find a chart that perfectly sums up the current position of the British economy. It’s a projection of how much each government department will be allocated to spend over the next five years: this year and next year are multi-coloured columns, each band of colour showing how much will go to education, defence, transport and so on. Both columns are capped by a thin line of grey, which is the unallocated spending. The four years after that are entirely grey: four solid concrete monoliths of unknowing.
And yet, when Jeremy Hunt delivered his Autumn Statement on Wednesday (22 November), he acted as if the next five years had all been planned and costs measured – and that he could therefore say with confidence that the UK can afford large tax cuts for people and businesses.
The truth is we have no idea if that money exists. Whatever happens in the general election next year, the next government will either have to reverse Hunt’s tax cuts or commit to the huge cuts in public spending (£19.1bn by 2027-28) that they imply. These fictions are employed by all chancellors, especially in the run-up to an election, to sweeten voters and lay a few traps for the opposition if things don’t go their way. But they are fictions that Britain can no longer afford.
It is worth asking if the current government is doing the normal pre-election giveaway, or if it has given up on governing and begun a project of making sure that the five years after the next election will be as difficult as possible for their successors, perhaps reducing the Conservatives’ time in opposition. Are Hunt and Rishi Sunak making long-term decisions for the good of the country – or are they planning for chaos?
Between Birmingham and Leeds are 954 properties that suggest where the government’s real priorities lie. These houses and fields were all bought by the government-owned HS2 Ltd for phase two of the high-speed railway, for a total of £564m. But after Sunak cancelled the northern arm of the line at the Conservative Party conference in October, civil servants at the Department for Transport were told to prepare these properties for sale “within weeks”. A quick sale could lead to a loss of more than a hundred million pounds by current values; there is no better explanation for this costly haste than that it would force any future government that reversed the Prime Minister’s decision to spend even more buying the land back.
At the ports, too, a surprise awaits the next government. The true cost of Brexit is being delayed until the next parliament. British farmers and fishermen have experienced the extra time and cost of exporting to Europe since 2021, but food imports from the EU have been unaffected because the government has delayed the imposition of new customs checks five times in a row. This helped to reduce inflation (the new checks will make imported food more expensive) but it also means that a considerable new cost to thousands of UK businesses will not fully arrive until October 2024.
Such delays can also be found in public health legislation. This summer, a new policy banning multi-buy deals for unhealthy food was quietly pushed from October 2023 to October 2025, so the Conservatives can take credit for having addressed the obesity crisis – which costs the NHS £6.5bn a year – while pushing the actual cost of doing so into another parliament.
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Everywhere, it seems policy is being made by one government on behalf of another. The reform of adult social care funding has been put back to October 2025; the overhaul of the student loans system will happen in 2025, as will the imposition of new housing standards; the most expensive part of the Conservatives’ childcare reforms (the 30 hours free entitlement for children aged nine months to four years) will take full effect in, you guessed it, 2025.
Nowhere is this more evident than in the Treasury, where the real economics of running the country seem to have been set aside to game the results of the upcoming election. This is something all chancellors do, to a certain extent – but in a time of high economic uncertainty, it seems uniquely irresponsible.
Ben Zaranko is a senior research economist at the Institute for Fiscal Studies and editor of the organisation’s Green Budget, the detailed analysis of economic policy that it releases annually. The state of the public finances is now highly uncertain, Zaranko told me.
“We have a five-year OBR forecast,” Zaranko told me, “but for only one of those years do we have detailed, line-by-line departmental plans. Four years are just these provisional headline numbers, which nobody really believes… If the government says, we’re still going to spend exactly the same amount in three or four years’ time, then the OBR doesn’t have to score an increase in public services spending.”
But the greater problem is that so much of public spending is now out of the Chancellor’s hands. The UK has the highest debt interest costs of any major economy, according to Fitch Ratings, at over 10 per cent of government revenues. Last month the government spent £7.5bn on debt interest, the highest level for October since records began in 1997.
The OBR’s prediction for the government’s future spending on debt is based on market expectations, but as Zaranko explains, “market expectations are moving around a lot. They’ve been much more volatile in recent months and years.”
In the House of Commons Hunt claimed that “because of the difficult decisions we have taken in the last year… our fiscal headroom has doubled”. But this £13bn headroom is an “uncertain windfall”, Zaranko told me; it only exists if you accept a rather limited prediction of where the economy will be in four years’ time.
“It repeats a tendency that chancellors have shown since 2010 – whenever there’s bad news they say, too bad, I’ll have to let borrowing increase, or abandon my fiscal targets. And when there’s good news, they say great, let’s spend it, let’s top up the NHS budget or announce a tax cut. And if you do that consistently, you ratchet up over time the national debt and the level of borrowing.”
To announce £20bn of tax cuts on the basis of uncertainty is, says Zaranko, “a gamble”, but for Hunt personally, it’s the best kind of bet: one made with someone else’s money. The only way to make the tax cuts affordable is to impose huge real-terms cuts on departmental spending – that £19.1bn by 2027-28, according to the OBR – but Hunt did not have to explain how that would happen; it is hidden in the grey bars. It will be for the next government to either retract Hunt’s tax cut, or impose a new period of austerity on our enfeebled public services.
Hunt knows this, of course, and he knows that Labour has the same target to reduce Britain’s debt as a proportion of GDP. This gave him two options. He could have been clear that we do not know how much we will have to spend on debt interest, and that we do not really know how much headroom there is, if any. A genuinely conservative policy would have been to accept that, and to concentrate on ensuring that the UK’s debt begins to fall earlier (it is forecast to peak at 93.2 per cent of GDP and fall to 92.8 per cent in 2028-29). But for Hunt himself, this would have come with the risk that the headroom might become real, years into the future, giving Rachel Reeves an easier job.
His other option was to do the reverse: spend the money now, even though it might not exist, at the risk that the country might have even higher debt costs later, and therefore impose on Reeves an even greater requirement to raise taxes or cut services (or both). The first option was conservative economics, the second was Conservative politics.
Obviously, he chose politics.
The period around an election is always marked by a certain amount of fiscal dishonesty. Aeron Davis, a professor of political communication and the author of a history of the Treasury, told me it is “a classic tactic to store up your tax cuts and your public sector pay rises in the last year before the election”. This can backfire: Nigel Lawson’s tax cuts of 1986 helped the Conservatives to win the 1987 election, but stoked a period of inflation for which his party was then held responsible.
A smart opposition sees such manoeuvres coming, and pre-empts them, as Gordon Brown did in January 1997 when he told a business conference in London that if he became chancellor that May, he would not raise the basic or higher rate of income tax, and would maintain the Tories’ eye-wateringly tight public spending plans for two years. It worked as an electoral strategy, but it narrowed New Labour’s scope for change. “All of their big plans, from infrastructure to resuscitating the NHS, came after that delay. And it seems to me that that’s going to be repeated,” said Davis.
This was part of the reason the OBR was established by George Osborne in 2010 – “because chancellors and their teams were manipulating the figures,” as Davis puts it – but it hasn’t been able to stop the practice. For decades, tens of billions in public spending has been kept “off-book” in the form of private finance initiative contracts, student loans, finance guarantees for banks and other “contingent liabilities” that now hover, like a great shadow, behind the national accounts.
That is the cost of a system in which two parties feel compelled to offer the electorate nothing but good news: without long-term, cross-party agreement, things change too much, businesses lack the confidence to invest, and the economy continues to stagnate.
“Can we at least commit to certain things that we know are in the broad national interest?” asks Adrian Pabst, deputy director at the National Institute of Economic and Social Research. “It’s a shame that the political parties are not capable of rising to that challenge. We have a kind of void at the heart of British economic policy. Where are the credible commitments, beyond electoral calculation?”
[See also: The Tories’ secret workforce: record immigration]
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