A general election in 2023? Now we have a short-term roadmap out of lockdown and the chancellor has begun to flesh out a longer-term economic pathway, 2023 is starting to look like a compelling time for the Conservative’s to go to the polls.
With an infrastructure investment bank in Leeds, Treasury campus in Darlington and eight new freeports across England, yesterday’s budget was keen to stress that the levelling-up agenda was still on the table. It comes at the same time as a £4bn Levelling Up Fund for infrastructure, town centres and high streets.
The housing bubble is also set to continue in the short-term, with an extension of the stamp duty holiday until the end of June for properties under £500k and end of September for those under £250k.
The Chancellor also unveiled more than £1bn for new town redevelopment deals and a mortgage guarantee scheme to incentivise lenders to boost riskier mortgages of up to 95% LTV. The latter is quite important given that many lenders had withdrawn these deals recently and there is concern that this will raise house prices as a result.
Hospitality also saw welcome support, with a £5bn Restart Grant scheme offering up to £18k to help bars and restaurants, along with business rate relief and an extension of VAT cuts for the sector. This is coupled with an extension of the furlough scheme until September.
Despite the headlines about increases to Corporation Tax and a freeze on personal allowances, the Chancellor also announced a “super deduction” to allow firms to reduce their tax bill by 130% for business investment in new equipment.
Last year Rishi Sunak delivered what can only be described as a Keynesian budget, with over £600bn of infrastructure spending and £30bn for Coronavirus support. Fast forward a year and the Chancellor is still spending considerably to get us out of the crisis. But there are also measures planned to tackle the looming increased cost of borrowing.
The measures planned by the Chancellor recognise that it is going to be the work of ‘many governments over many decades to pay back [the debt]’. It is in this context that the plans for personal allowances and Corporation Tax are aimed simply at covering the risk of Government borrowing costs going up – they are currently at historic lows but each 1% increase costs £25bn. To put that in context, that’s half the school budget or twice England’s policing budget.
You might think that the measures are not going fast enough when you consider that the furlough scheme on its own cost £47bn by October last year and is set to be in operation for 18 months by Sep 2021. However, when you have spent this much money keeping unemployment down, it would be a bit pointless to turbo charge spending cuts now, and effectively see all that support go to waste. It is why the tax raising measures are due to come in 2023 as the OBR predicts a swift recovery before then.
This was a critical budget for the Chancellor and it is interesting to see that the public is largely supportive of the tax raising measures planned, with many describing the measure as ‘fair’. The Labour Party has a serious problem when it comes to Rishi Sunak. It is one thing to like a Chancellor when he is turning on the spending taps. But quite another if he remains popular when he is overseeing the delivery of the highest tax burden since Roy Jenkins was Chancellor in the late 1960s.
As a result, I would not be surprised if the Conservatives call an election in 2023, timing it after the recovery is in full swing but before any further tax rises are necessary.
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