Autumn statement frenzy shows why we should only have one fiscal event a year

In a recent episode of their podcast, Ed Balls and George Osborne bemoaned the official preference (shared by IfG) for a single fiscal event a year – something that is the norm in most other countries. According to them, officials in search of a quiet life want to deny a chancellor the chance to make the political weather, by halving his opportunities to dominate the broadcast schedules and grab headlines.

This week’s autumn statement is now being touted as another chance for a reset, in an autumn of resets. An opportunity for Rishi Sunak and Jeremy Hunt to declare an economic corner has been turned, to spend the fiscal ‘headroom’ created by the combination of higher than expected inflation with the decision to freeze tax allowances (and quite possibly public service budgets) in cash terms.

Hunt should remember forecasts can go up as well as down

We have been here before. The Office for Budget Responsibility (OBR) has quite often found spare cash for a chancellor to spend – and our instant gratification chancellors tend to be unable to resist spending any margin that emerges instantly, as the IFS has pointed out. ⁴ //ifs.org.uk/publications/green-budget-2023

One risk for the chancellor is that his numbers already contain some hidden commitments. No-one believes that he will restore the fuel duty cut, nor index it to inflation from next April – but the fiscal forecast, based as it has to be on the government’s declared policy, assumes he will. No-one believes that “full expensing” will terminate as currently planned at the end of March 2026. And few think that the post-election spending numbers can hold in the light of inflation pressures, wage settlements and continuing backlogs.

There is a further risk: that the OBR is overoptimistic at a time when the world economic outlook is very uncertain. Hunt’s final risk is that lower (though still miles above target) inflation is less baked in than he and the prime minister hope. Inflation surprised on the low side in November but it is still very vulnerable to global energy price movements.

If Hunt spends all his fiscal margin now, and the numbers move against him between now and March, he risks having to raise revenue (or make even less plausible decisions on spending) to meet his fiscal rules come the spring budget. The forecast seems to have changed a lot since March. It can change again by next March.

A “politicised” approach to tax may offer electoral dividends but has economic downsides

Hunt sees himself as having two bites at setting out the Conservative offer on tax – now and in the budget. He will be tempted to make changes that may help mitigate the current feel-bad factor. The problem for him is that that requires relatively serious money (and might be most efficiently done simply by mitigating the “stealth” effects of future fiscal drag – that is, for example, by starting to uprate tax allowances and thresholds with inflation – but which would offer zero political dividend).

But Hunt will also be tempted to use the autumn statement and budget to lay political traps for Labour. In his podcast, George Osborne recommended piling spare cash into the NHS now – but leaving the longer-term numbers unchanged to leave the task of making cuts to Rachel Reeves. Osborne himself admitted that that was absolutely not what the NHS itself needed, but weighed that against the politics.

Other possibilities are setting out changes to come – Reeves is already being asked if she would reverse changes to inheritance tax, if Hunt pencils them in; she presumably would be asked the same about changes to stamp duty. That would apply in spades if Hunt promises a roadmap of income tax or NI cuts. Making these sorts of tax changes into political footballs is the reverse of the sort of certainty that taxpayers need to enable them to plan long term – and backing a future chancellor into a corner where they are forced to give commitments will simply mean they are forced to find second and third best options in the future.

Hunt should try to hang onto his reputation for competence

Jeremy Hunt has had a pretty grim time as chancellor. He came in with a mission to restore fiscal credibility after the disastrous Kwasi Kwarteng mini-budget. He did that by reversing most – but not quite all – of the unfunded tax cuts that the Truss government had announced.

It is understandable that he now feels electoral pressure to declare victory and change track. Many of the proposals being floated look designed to save Conservative seats in Surrey – like his own. But a sugar rush statement risks destroying now the reputation for competence he has tried to nurture – and damaging the UK economy longer-term.

The best autumn surprise Hunt could deliver is a “do little” autumn statement (on tax at least) and tell us all to wait until he has a more certain view of the numbers in March when he is in the best position to set the fiscal course for the next year. Not to give officials an easy life – but to make sure tax and spend policy choices are the promised “long-term decisions for a better future.”