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UK chancellor Jeremy Hunt has announced that the 2024 Spring Budget will be held on March 6, leaving the door ajar for a possible early general election in May.
Hunt is expected to announce pre-election tax cuts at the Budget, creating what he hopes will be a dividing line with Labour and a signal that Britain is moving into better economic times.
The choice of March 6 leaves open the possibility that Prime Minister Rishi Sunak could call a general election shortly afterwards, with a polling day coinciding with local elections on May 2.
However Downing Street insiders say Sunak is most likely to call an election in the autumn. “It will give more time for lower inflation, tax cuts and — hopefully — lower interest rates to feed through,” said one.
An election takes place 25 working days after the dissolution of parliament, which means Sunak would have to announce a May 2 poll in the week starting March 25. An election must be held by January 2025.
However with opinion polls showing the Conservatives trailing Labour by an average 19 points, many Tory MPs believe Sunak will play it long and hope to persuade voters during the course of next year that the economy is moving in the right direction.
The latest gross domestic product figures showed the British economy was flatlining, but Hunt told the Financial Times last week that 2024 was the year “when we need to throw off our pessimism and declinism”.
He added: “There’s a reasonable chance that if we stick to the course we’re on, we’re able to bring down inflation, the Bank of England might decide they can start to reduce interest rates.”
On Wednesday the chancellor launched the Budget process when he commissioned the Office for Budget Responsibility, the fiscal watchdog, to prepare an economic and fiscal forecast to be published on March 6.
The forecasts will be critical because they will show how much “headroom” Hunt will have if he is to meet his fiscal rule of bringing debt down as a share of GDP in the fifth year of the forecast.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, noted last week that the chancellor had headroom of £13bn at the time of his Autumn Statement last month.
He said this could double if the recent falls in gilt yields and bank rate expectations were sustained. The rate currently stands at 5.25 per cent but markets expect it to fall sharply next year.
Tory insiders say Hunt will “max out” whatever headroom for Budget tax cuts, and that he is likely to prioritise income tax cuts as a pre-election signal to voters. A cut to the 20p basic rate and a rise in the threshold at which the 40p rate kicks in are among the options.
The overall tax burden is at present the highest since the second world war and Sunak wants to go into an election arguing that taxes are now on a downward path after the shocks of Covid-19 and the Ukraine war.
Downing Street on Wednesday played down suggestions that Hunt would target inheritance tax at the Budget, pointing out that “the vast majority” of estates — more than 96 per cent — are not hit by the tax.
A spokesperson for the prime minister pointed out that the tax was set to raise about £10bn by 2028-29 to fund public services, but it is unpopular with Tory voters and the right-wing press.
Sunak is seeking to put claims that Labour is planning a “£28bn borrowing bombshell” at the heart of his election campaign, saying the opposition’s 2021 costly commitment to tackle the climate crisis will push up government borrowing, forcing up taxes and interest rates.
Labour insists that any spending plans would fit within the party’s fiscal rules, which also target falling debt within five years.
A party spokesperson said: “Labour will ramp up investment in jobs and energy independence through our green prosperity plan to £28bn a year as planned in the second half of the parliament. All of our policies are subject to our fiscal rules.”
