Apologise or Proselytise?
In contrast to the Tony Blair government, this group of ministers has undoubtedly inherited a difficult fiscal position. Until now the Government has apologised rather than proselytised for many of its spending choices.
Rather than advocating for those choices they have contextualised them by reminding us of Liz Truss. That’s to be expected; in 1997 the Conservatives were still talking about the Winter of Discontent from 20 years earlier. Today, it will be fascinating to see just how many of the difficult choices are positioned as a legacy of the Truss interregnum. It certainly would be bolder if the Chancellor simply stated: “These are my choices; these are Labour choices” and then challenged others.
The Conundrum of Labour’s next Coalition
The Budget is the best insight we have until the next King’s Speech into how Labour sees the politics of the next General Election. Since securing the most efficient and second largest election win in their history, many in Labour worry about the ‘stickability’ of their new, and unlikely, electoral coalition.
How do they maintain the affections of Green-curious metropolitan liberals and many of the Reform-leaning disgruntled urban working class? Their tough talk on immigration points one way, as does their necessary hike in defence spending; at the other end of their tentative coalition let’s see how far they go on curtailing climate related subsidies.
A Second Social Democratic Budget?
Last year’s Budget was arguably the most significant Chancellor’s speech since that of Nigel Lawson’s of the late 1980s and Gordon Brown’s third Budget in 1999. This time last year the Chancellor sought to signal a clean break with the recent past, identifying a social democratic fiscal orthodoxy around investment, reform, and redistribution, while at the same time reassuring the markets that the UK debt and investment environment would remain benign. The Chancellor appears to have opted against a manifesto-busting income tax increase this year. Will she again be able to make a social democratic case for a Budget that is likely to recommit to savings-creating welfare reform?
Signals on the OBR
Like any forecaster, the OBR gets many of its projections wrong. They have often overestimated UK economic growth, particularly after the 2008 crash. They have also been wide of the mark by overestimating productivity forecasts and underestimating government borrowing.
This has become a higher profile issue in the body politic since the mini-Budget of 2022. Since then, markets and others have conferred on the OBR an infallibility that their record doesn’t fully merit. It will be fascinating if there are any noises-off today from Labour backbenchers about the OBR. Arguably, it’s harder to kick the forecaster when things are difficult; much easier to ‘shoot the messenger’ when the economy is sustainably growing.
Which of the Bs will take priority?
At Arden, we’ve long been sharing with clients that the Government’s agenda is a collection of Bs. These are:
Bonds (preserving global market sentiment); Bills (cutting the cost of living – particularly on energy); Boats (public confidence on migration); Beds (NHS waiting lists); Bombs (increased defence spending) – probably in that order. Let’s see how that prioritisation shifts as a consequence of the Chancellor’s hour at the despatch box later today.
