SWBG blog

The cost of funding tax giveaways. Reflections ahead of the UK Spring Budget 2024

Blog by Heather Williams, SWBG Training Lead

With a general election on the horizon, the newspapers and TV are full of the potential tax cuts being considered as the Chancellor comes under increasing pressure from MPs worried about their re-election chances. The hope is that tax giveaways in the 2024 Spring Budget can have a similar effect to those in Norman Lamont’s Budget in 1992.[1]

Doing the news rounds yesterday, Jeremey Hunt promised to embark on the ‘long path’ to lower taxation,[2] which suggests that the Chancellor hasn’t paid much attention to the recent YouGov poll. This showed that 3/4s of those polled were not supportive of personal tax cuts and would rather see the money used to prop up already crumbling public services.[3]

Due to the self-imposed fiscal rules the Chancellor is choosing to adhere to, the outlook for UK public services is potentially bleak. The decisions made this week could have worrying long term consequences for the UK economy, which has already slipped into a technical recession after being stagnant for a long period of time.[4] The impact of the cost-of-living crisis on the back of the pandemic and austerity has squeezed households’ disposable income, affecting their spending decisions. Our Women’s Surveys for the last two years have shown that households have been rapidly cutting back on what they see as unnecessary expenditure such as meals out, haircuts or clothes, all of which has had a knock-on effect on the High St.[5] While the Chancellor may hope further tax cuts could reverse this trend, with interest rates high, inflation still high, income tax personal allowance thresholds remaining static (pushing more into paying tax or into higher tax bands), and cuts to public spending including a punitive social security system, this short-term approach is unlikely to provide sufficient stimulus.

According to the OBR, the impact of the Chancellor's decisions in the Autumn to prioritise tax cuts at the expense of further investment in public services along with inflation has meant that departmental spending is facing a £19bn real term loss by 2027-28.[6] Many believe that current public spending plans for both revenue and investment are illusory and cannot be sustained, with 3 councils in England having already issued bankruptcy notices and another 9 requesting further financial support.  If the Chancellor chooses to cut personal taxes on the back of announcing further cuts to public spending, then this will be based on nothing more than ‘fantasy.’[7]

Additionally, if the Chancellor sticks to his current spending plans for public services, this will mean no further consequentials for the Scottish Government.  In Scotland this has meant that in this year's budget the Scottish Government has cut back on planned capital expenditure (due to a reduction in the grant funding in this area and the impact of inflation). As a result of decisions taken by the Scottish Government to prioritise investment in roads, namely the A9, they have had to make substantial cuts to investment in social housing and hospitals[8]

Women’s Groups across the UK (including SWBG) are warning the Chancellor that his decisions risk putting ‘gender equality into reverse’ due to the disproportionate impact that cuts to public spending, needed to balance any reductions in tax, have on women.[9]

Ahead of Wednesday, the Chancellor needs to decide if he is going to prioritise the UK’s long term financial and social stability or roll the dice on pre-election giveaways in the hope that this Budget can do what Norman Lamont’s did for the Conservative Party in 1992.

[1] https://www.theguardian.com/uk/1999/mar/03/budget1999.budget7 

[2] https://www.bbc.co.uk/news/uk-politics-68461581 

[3] https://twitter.com/YouGov/status/1758539234733076563 

[4] https://www.ft.com/content/94ecda75-35de-4d09-bda6-f3a7c71dc3c6 

[5] https://www.swbg.org.uk/content/publications/SWBG-Cost-of-Living-report-proof-06.pdf 

[6] https://www.civilserviceworld.com/professions/article/obr-autumn-statement-measures-will-cause-19bn-fall-in-public-spending-power#:~:text=Speaking%20in%20a%20press%20briefing,eroded%20by%20around%20%C2%A319bn 

[7] https://www.instituteforgovernment.org.uk/comment/five-things-look-out-spring-budget-2024 

[8] https://www.gov.scot/publications/scottish-budget-2024-25/pages/2/#:~:text=Our%20%C2%A36.25%20billion%20capital,ambitions%20will%20not%20be%20easy 

[9] https://www.theguardian.com/society/2024/feb/29/cuts-to-public-services-in-england-will-reverse-gender-equality-unions-warn