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View on the Spring Statement - David Laws, GK Adviser

Budget preview: One week to go

In his first budget, to be delivered to the Commons next Wednesday, the Chancellor John Healey will repeat his defining messages: money and power moved out of Westminster and a budget built on fiscal discipline and stability. The detail of the Budget itself is widely expected to focus on families and business – building on the Burnham government’s early theme of ‘breathing space’ for those struggling.

With a week to go, and in striking contrast to the last two budgets delivered by Rachel Reeves, we have so far seen little of the usual speculation or Treasury leaks on policies expected to feature in the headline Statement. The government will want to position this as a ‘no drama’ budget, not least because large spending decisions on welfare, defence, and social care appear delayed until after the budget.

The fiscal inheritance remains rather similar to past budgets, but with higher public sector pay demands, and higher than expected inflation together with in-year spending pressures, departmental spending will need to be addressed with little ‘headroom’ for manoeuvre.

The prime minister has said that he wants to run the most ‘pro-growth and pro-business country in the world’ and the FT has reported that both PM and Chancellor have reassured business leaders there will be no significant tax increases, sticking to the Starmer government’s self-imposed fiscal rules. This therefore means the government is likely to seek short-term measures to alleviate cost of living pressures. Further measures expected in the budget include:

  • Financial and Professional Services: It is now understood that rises to Capital Gains Tax have been ruled out; a move clearly designed to signal that this government is neither anti-business nor anti-wealth. Instead. we expect the chancellor to look to the banking sector as his primary revenue raising source. Whilst this may be consistent with the government’s overall positioning as a government for ‘working people’, protestations from the financial services sector that the government is undermining its international competitiveness will inevitably follow.
  • Education and skills: Reducing the number of young people not in education, employment or training (NEET) is a priority of this government. The budget is likely to feature further advance payments that pre-empt the recommendations of the Milburn Review, building on the Chancellor’s announcement of a £100 million expansion of apprenticeship brokerage services across mayoral strategic authorities. It will also offer an opportunity to put some funding behind Burnham’s commitment to expanding vocational and technical pathways in schools for students aged 14-16.
  • Health: The health sector will be keen to see further funding for integrated neighbourhood health services, building on plans to bring NHS, council and community services closer together. The budget could also clarify how devolution may give mayors and local leaders greater flexibility over health and social care priorities.
  • Energy: We expect an energy package for low-income households and a further freeze to Fuel Duty. The energy secretary has reportedly been tasked with finding more than £2bn of savings from the department’s budget, with reform of the Boiler Upgrade Scheme expected to contribute to those reductions. While the scheme is expected to remain in place, cuts to its £2.7bn five-year budget could reduce the level of support available for heat pump installations and slow the uptake of low-carbon heating technologies.

While Burnham remains personally popular in the polls, many think the budget will be the end of his honeymoon period. With the prospect of a Spring 2027 election, we should keep watch for policies that not only consolidate support from the so-called progressive left but also measures aimed at winning back Labour voters who have shifted support away from the party since 2024. With so many of the major reforms that Burnham has committed to – from the National Care Service to electoral reform – deferred until the next parliament, the public will become increasingly restless for progress and change as we hit the halfway point of this parliament. Questions are already being asked what the prime minister plans to do with the landslide majority he currently has in the House of Commons, which polls suggest would be significantly cut or even lost in a general election. The budget will be the government’s chance to set a clear course for the coming months and indeed years, and it will be important that the chancellor and prime minister seize it.

GK Point of View - Tory and Labour Priorities in 2024

GK Point of View – David Laws on the Prime Minister’s survival

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Perspective by David Laws, GK Adviser

The issue of whether Boris Johnson can remain as PM is firmly back on the agenda. The Prime Minister faces multiple risks over the six months ahead, which include: the local election results; possible additional “partygate” fines; the release of the Sue Gray report; and now an investigation by the Privileges Committee. Any one of these could trigger events that would end the PM’s time in Downing Street.

But the ever-resilient Mr. Johnson will still feel that he is in with a chance of recovering, and in a much better position than he was, just a few months ago. His predicament previously looked terminal, and Rishi Sunak was heavily tipped to take over. What changed? Well, three things. The police intervention scuppered the Gray report, and led to a “drip,drip” of problems rather than a cascade. Then, the invasion of Ukraine intervened – dominating the news agenda and causing Conservative MPs to think twice about the timing of any attempt to topple their leader. And, finally, Rishi Sunak’s star has faded dramatically: his wife’s non dom status, his failure to address the cost of living crisis, and his own partygate fine appear to have hugely diminished his appeal and his prospects. His odds of becoming PM have collapsed

So, Boris is still in place, and after each piece of bad news he will be able to argue that his MPs should defer judgement until some later occasion – the Gray report or perhaps now the Privileges Committee investigation, whose results could now be months away.

Johnson still faces considerable risks, but the odds of him surviving as PM into 2023 are perhaps now 60:40 in his favour. Not long ago, he looked overwhelmingly likely to lose office, so his circumstances are still much improved.

The PM’s predicament – still in power but widely discredited – and the collapse of support for the Chancellor, is all extremely good news for the Labour opposition. They have not, of course, secured the Johnson “scalp”, but they have avoided the situation in which the Conservative Party simply switched Boris for another election winner. A discredited PM and damaged Chancellor is a gift to an opposition which now looks capable of winning an election against an imploding government, but not strong enough perhaps to win on the basis of its own programme alone.

The odds in the bookies, where Rachel Reeves is tipped as the next Chancellor and Keir Starmer is well rated to be the next PM, indicates that Labour’s programme for government needs to be taken more seriously by the business and investor community than for perhaps a decade.

Although Starmer’s Labour Party is far more moderate than that of Corbyn’s, it would still likely make major changes to taxation, business and labour market regulation, public spending, and relations with the EU.

We will want to look in detail at this programme over the months ahead. An election does not need to be held until mid 2024, but investors will increasingly factor this into their calculations.