It’s a question taxing Jeremy Hunt - cut back on what we all pay to the government, or use his small surplus to prop up schools, hospitals and other neglected public services? Is his budget intended to rescue the UK economy, or to try to lessen an imminent Tory election defeat? Frances Coppola, the economist and author of “The Case For People’s QE”, takes Phil and Roger through the chancellor’s choices and the likely consequences
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[00:00:00] The Y-curve with Phil Dobby and Roger Hearing.
[00:00:03] Tax cuts or better services?
[00:00:06] The Chancellor's being pushed hard by his party,
[00:00:08] reduced the tax burden to stimulate the economy
[00:00:11] and maybe saved some seats in the election.
[00:00:14] There are plenty of cautious voices too.
[00:00:15] After a decade and a half of austerity,
[00:00:18] the system is creaking and the roof's falling in.
[00:00:21] Spend anything you can on schools, hospitals and transport.
[00:00:25] But maybe there's too little in the necessary to get the economy going again. Well, yeah, and if you do sort of give people more money, all you're doing actually is giving them bank money that's been taken away. So I mean, the one thing they could do straight away is they say, we've got this freeze on the tax threshold till 2027. They could say,
[00:01:40] well, let's give it to them, first of all. And then people might say, because then there'd
[00:01:44] be less money immediately, but people would know that's not the case. No, no, but what we know is that the problem remains what money is available for doing anything, and whether that, in that balance, you could put in tax cuts that might in some way stimulate, whether it's changing the threshold or God knows what else. Or you put money into schools and hospitals and all the things that we know from our previous
[00:03:02] podcast, in fact, are falling apart.
[00:03:04] Yeah, and do we accept that perhaps the polls. They need to do something to improve their standing. And I guess that, you know, tax giveaways is the way they've done it before. So presumably they're going to do it again in the hopes of persuading people to vote
[00:04:22] for them.
[00:04:23] But the problem, if they do anything like that, the track. But it seems like that's the obvious thing to do because people are having to adjust their future spending because they will have less money progressively year on year, supposedly until 2027. Well, that's the other thing. There's a huge amount of smoke and mirrors about this. So here is Hunt talking about to be in office for more than another few months. So, how can they make long-term spending or investment decisions? It's not going to happen, is it? Mason- In reality, if you know you're going to lose, you would actually say, well, okay, how can we make it difficult for the next government so that they have to make the difficult
[00:07:00] call so that we can come back after one term? That's how you'd use this budget. I wonder
[00:07:04] whether that's actually what they'll do. though, I have to say, though, that I am old enough to remember when the
[00:08:22] Conservatives were banging on and on and on and on how international markets view us. And the UK is still an economy and a country in very good standing internationally. We aren't going to default. We aren't going to get shut out of markets. We aren't going to have a fiscal crisis.
[00:09:43] All of this is nonsense. It's not going to happen. But we do have to pay attention to the fact that
[00:10:45] a lot of work on that and I imagine that continue in the next budget. And that's good and important. But public sector investments as well, because it primes the pump, it's almost like a statement of
[00:10:50] confidence. We are confident in our economy. These are the growth areas. This is what we need to
[00:10:55] invest in. You need to invest not just in physical infrastructure. There's a lot of talk about roads
[00:11:00] and potholes, you know, but also in people, they're saying it's what's happening now. But isn't it a danger that if you give too much money for people to spend, but you're not encouraging businesses to grow, then you've got a surplus of demand and you haven't got the supply there, which is inflationary, which is sort of like the question, if you have tax cuts right now, isn't this the worst time to be doing it? That was a lot of what was wrong with Liz Truss's budget, was it was the right budget
[00:12:22] at the wrong time. It was the right budget, yeah, yeah. But also what about growth in industry growth as well? I mean, if, because it seems like, well, that's, you know, it is the whole supply and demand argument, isn't it? We say we talk about it, we say we've created too much demand and there's not the
[00:13:41] supply there, then that's inflationary. So then you say, well, okay, well, let's try
[00:13:46] and increase supply. So is that so that you aren't suffering this awful drain of skilled women from the workforce in their 40s and 50s never to return,
[00:15:00] which is happening and never gets talked about,
[00:15:05] where people aren't stuck on waiting lists
[00:15:07] for months and months and months and months enormous number of people who are just not able to work. So our productivity is down. Yeah, I think the mental health crisis needs to be looked at in the round and not just as a health problem, because it's a lot to do with circumstances. If you look at the pressures on young people, I'm actually not that surprised that many of them are really struggling mentally. I mean, look at the pressure. Look, I mean, I would have to look again,
[00:16:21] government policy over the last 14 years, which has hammered young people repeatedly. next week. Invest in, well it might be, but it will just be piecemeal, invest in public services so we get over that problem where there's so many people out of the workforce because of illness. If we can get them back into the workforce in jobs that they enjoy, then we start to see growth within the economy. And it would be worth, it seems like you're saying, I don't want to put words in your mouth, but it would be worth carrying the
[00:17:41] deficit for a few years to be, in my view. We might find that the risk premium on government debt might come down. So we might see more reduction in...
[00:19:02] And we've got the Institute for Fiscal capital gains, dividends, all taxed at a much lower rate than earned income. Yeah, it's interesting. Doing something like that, we're addressing that balance, could go a long way. No, we might also want to recall that higher rate tax is also at a lower rate now than
[00:20:21] it was doing Mrs. Thatcher. Quite considerably lower encourage investment in that sort of way. Yeah, absolutely. Hasn't been notably successful, but it exists. Yeah, no, and it was the full expensing thing was welcomed by everybody. It was originally introduced as a temporary measure and then everybody went, you need to end this permanently.
[00:21:41] And I'm not quite sure if they quite have done yet, but they really need to. It's ridiculous.
[00:22:43] of end income isn't going to increase the speed. He's never going to increase the size of the economy, is he?
[00:22:44] Well, there's a little bit of a trade-off here as well. They want to bring down the
[00:22:48] government deficit and they do that by means of tax rises and spending cuts, which as you
[00:22:53] point out drains money from the economy. What does the Bank of England do?
[00:22:56] Yeah. Well, they're fighting it. It's the Bank of England only in a way.
[00:23:00] Well, that's right. There's pressure on the Bank of England to cut interest rates.
[00:23:05] When you have that kind of fiscal tightness, so there is that, they can credibly claim we have brought, through our policies, we have brought interest rates down so you can afford your mortgages. You know, that might bother them a few votes. That's a real danger though for them, isn't it? That actually it might not happen before the election. And it could be very late in the year for the election.
[00:24:21] And that's the other thing is that because of the way enterprising works in this country. So in April, there's going to be a shortfall in inflation just because of the shift in base effect. Yeah, the entry price cap shift, it's going to come down and base effects.
[00:25:44] So and it's always going to make a difference.
[00:27:03] Wouldn't the sensible thing then be to start talking process. So rather than having a, this is our budgeting process within our fiscal strategy, we're now using the budgeting process to reset the fiscal strategy. And we're doing that twice a year, which understandably means everybody's going, what? Yeah. What is the strategy? Well, his point was there's been however many industrial-
[00:28:20] How do we plan?
[00:28:21] Yeah. How do they plan in how many industrial strategies have we had in the UK? If you look We want him to come out next week. But he can't be strategic when he knows he's not going to be there for any long time. Well, he can say it's a gift to the next government. Well, I mean, he might do it, but you would have thought you'd be there saying, well, OK, here's my chance for us to save the election. Let's give a strategy that everyone gets behind. Absolutely. It would be nice to think, firstly, that they might start planning on the basis on the assumption that they are going to be there,
[00:29:40] which is what any normal political party would do.
[00:29:43] We expect to win the next election, therefore putting our plans in for the next five years, can reduce government spending, you can grow the economy so you get a broader base and hope that that's going to bring in more of you. Or you can just have high inflation. Yeah. Well, that too. Yeah, you can inflate your way out of it. Okay, there's five then. Five things. I'd four, you've given five. What have the Romans ever done for us? Or you could just accept a high. My fourth one was just accept the higher budget deficit. So what do you think is the tack they're going to take next week?
[00:31:02] They're going to have to accept the higher They could maybe address the cliff edge withdrawal of the personal allowance. I mean, there are these things fund a state pension. Because as it stands, state pension is funded from national insurance. Fully isn't. So it's ring fenced, is it? Yes, it is. It's fully, fully funded. The only time it hasn't been in the last 15 years, in 2014 to
[00:33:40] 2016, the government topped it up from general No, because they'll... Thank you. But they also vote to rematch them, so that's another issue. Well, I actually think we should tax them if they... I'm not saying anything at this point. It's all too dangerous for words. I'm saying two. But anyway, it is that massive reform, which, you know,
[00:35:00] the whole government is going to tackle, and, you know,
[00:35:02] the six months before the next.
[00:35:03] No, but tax reform is another issue, isn't it?
[00:35:05] We'll come on to on this podcast.
[00:35:06] But we're drawing to So yeah, next week, when the budget is on, we won't be talking about the budget. We've done that now. We know it's not gonna be particularly interesting or particularly relevant to our lives. What is more relevant to our lives strangely? In a terrible way is something that's been happening now
[00:36:21] for five months, about 2,000 miles away.
[00:36:24] And I'm talking about the Gaza war,
[00:36:25] which is considering what it is, because you do worry about saying stuff which can be easily misinterpreted and then you get branded with something you'd like to think that you're not. Well yeah but what we're going to be trying to do is look at the effect that it has had on British politics which I don't think anyone can deny whatever the rights and wrongs of it all it has had an effect and it looks like an effect that's gonna last. Yeah and why this war out of all wars you know why are we so
[00:37:42] concerned about this war when there's so much worse that's been happening in other
