Jeremy Hunt will make what will likely be his last autumn statement next week before next year's election – and , perhaps the last ever.
With Labor leading by 23 points in the polls, Rachel Reeves could be the one to take office this time next year.
There are already rumors that Hunt may resign. after nearly two decades of a political career that included several senior cabinet positions. Hunt has been forced to deny he will resign before the next election as he faces possible defeat by the Liberal Democrats in his Blue Wall seat.
However, he must know his days are are probably numbered. As he looks at the Office for Budget Responsibility (OBR) forecasts, which tell him how much money he has available, the election will be at the forefront of his mind.
“I'm sure he'll do some trap-setting,” says former chancellor Philip Hammond, who admits such discussions were a focus during his time as No 11, despite leaving before the snap election in 2019.
Budget traps fall into two camps: political landmines your opposition might step on before an election, or, if the other side wins, hidden misdeeds they'll discover long after you've left Downing Street.
< p>Hammond believes Hunt will focus on the former: “There will be no Labor government after the election. Nobody cares.
If you lose the election, you don't really care.”
Although he is constrained by his own budget rule of cutting debt over five years, Hunt has Several variants. The most obvious of them is election gifts.
Despite historically having little cash to spend, Hammond believes Hunt will use his stockpile “because he will want to do everything he can to send positive signals in the lead-up to the election.”
The Conservative Party is under intense pressure to cut taxes after Britain's largest tax-raising parliament since the Second World War.
Tax cuts are seen as a vote winner that could help turn around dismal Tory poll results.
“Is he going to announce tax cuts that Labor are finding it difficult to say they are going to reverse? Because it results in Labor having some headroom in its spending plans,” says Tom Pope, deputy chief economist at the Institute of Government.
Mr Hunt has drawn up plans to cut inheritance tax, The Telegraph reported last week, after officials concluded the change would not lead to inflation.
A YouGov poll shows that inheritance tax is a close contender for the title of the most unpopular tax in the UK.
“Not many people pay inheritance tax, but many people worry about paying inheritance tax,” says Paul Johnson, head of the Institute for Fiscal Studies.
Other options the Chancellor has been considering include cutting stamp duty and raising the higher rate of income tax threshold, although Hunt may prefer to save the fireworks for the spring budget closer to the election.
If taxes are cut, Labor will have to take over a commitment to support these policies, otherwise people risk feeling like they are voting for higher taxes.
However, if they do commit to continuing tax cuts, many of Labour's election promises will look increasingly unaffordable without increased borrowing or taxes.
However, Hunt is caught in the same financial clutches, meaning that large tax breaks are extremely difficult.
The Chancellor already has the meager stash of emergency cash of any chancellor since at least 2010.
In March, the OBR reckoned it had £6.5 billion of savings to spare under with his fiscal rule requiring debt to be reduced over five years. years. Since then, the Resolution Foundation estimates the amount may have risen to around £13 billion, as high inflation and strong wage growth have strengthened public coffers and meant borrowing has fallen.
However, Johnson says: “I would be surprised if there are any major announcements.
“If inheritance tax is cut from 40% to 30%, it will be a couple of billion, but it is a very, very small announcement. . I don't think he has room for anything really very big.”
Inflation means Hunt will likely want to maintain some of his fiscal buffer to prevent the government from breaking its fiscal rules.
But Hunt has a cheaper way of setting traps: consulting on future changes.
Hammond says: “Setting traps will be about making plans or consulting on things that will force Labor to take a position on things they prefer not to take a stand.”
The former chancellor recalls using this tactic against Labour's then shadow chancellor John McDonnell while Hammond was in number 11.
“All the time I tried to expose the internal contradictions, the fundamental flaws in John McDonnell’s position.”
The most obvious issue Hunt could entice Reeves into is inheritance tax. The Chancellor could begin consultations on scrapping the tax entirely, even if the overall rate cut is only minor in the autumn announcement.
The Labor Party is drawing up plans to tighten inheritance tax plans by closing loopholes, meaning consultations on his refusal would put clear water between the two parties.
Hammond says: “I suspect he will announce some consultations on quite controversial issues and it will force the Labor Party to say where they stand on these issues before the election.”
This could lead to a loss of control over parliament. the narrative is falling into the hands of the government, forcing Labor to respond.
Johnson says: “For Labor it depends on how they see the policy going.”
It's a long way to go. A story of chancellors playing politics with their budgets. But as former Conservative chancellor Norman Lamont discovered, it's a dangerous game.
Lamont cut taxes in 1992, setting the income tax rate 20p lower, raising personal allowances and halving the levy on new car sales.
The next day, then Prime Minister John Major announced a general election. Labor was expected to win narrowly, but Major prevailed.
However, this turned out to be a short-sighted political calculation.
The following year, Lamont was forced to announce a sweeping tax. is growing, they are increasing VAT on electricity bills and freezing tax thresholds to balance the balance sheets.
Johnson says, “Before the 1992 election, Lamont—at a time when money was really tight—announced some tax cuts and spending increases. In fact, it backfired on him because he had to announce significant tax increases after the 1992 election.”
Lamont has since admitted that it was “not a very good budget.” But it did help us win the 1992 election.”
In contrast, the post-election budget “helped the Conservatives lose the 1997 election, but it was certainly my best budget,” he said. He resigned after refusing to be demoted a few months later.
Pope says: “Is Hunt going to become a political chancellor who essentially does everything to make the most of the election? Or is he some kind of hereditary chancellor who, in retrospect, will say that Hunt inherited a very difficult situation and bequeathed a much better one?
“I think [the latter] would have been a good politician, but [that] perhaps not where politics is taking you.”
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