Chamber UK sat down with David Gauke to discuss the anticipated autumn budget and wider economic picture.
On Thursday 17th November, Jeremy Hunt announced the government’s Autumn Budget, where the Conservatives fiscal plans for the short and long-term were revealed. Alongside Hunt’s speech to the House of Commons, the Office for Budget Responsibility (OBR) released a report detailing their projections for the pound and inflation.
Some key takeaways from the budget include the fact that the threshold for the higher rate of tax has been lowered by £25,000 per year and an increase in taxes for energy companies. Many political analysts have had their say, with the plans being met with mixed reviews across the political spectrum.
In the immediate aftermath, Chamber UK sat down with David Gauke, the former Conservative Member of Parliament for Southwest Hertfordshire and Secretary of State for Justice, to find out what he thought of it and his thoughts on Britain’s economic future.
Overall thoughts on the budget
While Mr Gauke concedes that the country faces a significant uphill battle to restore economic security, he is pleased that the government is being “sensible and serious” in regard to addressing the problems. This is in contrast to the previous Prime Minister and Chancellor, Liz Truss and Kwasi Kwarteng, who were perceived as far more reckless with their infamous “mini-budget”. Mr Gauke said:
“My key takeaway from the budget and the OBR report is that we have got some real problems as a country. The way in which household disposable income is going to fall over the next few years is unprecedented and means it’s going to be a very tough time for many families.
“The combination of slow growth and higher interest rates means the government’s debt interest bill has gone up which has left us in this difficult position. However, I would say that the government has taken some important steps to get us back on the right path.
“There will be challenges ahead because I don’t think the spending cuts they have planned will be easy to deliver. As a result, I’m not sure that this is the end of tax increases.”
Cuts in household income
Mr Gauke rightfully mentions the fact that, on average, households are going to experience a seven percent cut to their income over the next two years as a result of soaring bills and tax increases. While many people are happy to pin the blame on the Conservative Party, Mr Gauke is a little more sympathetic. He said:
“It’s going to be pretty grim for many households. This is taking us back to the living standards of 2013 so that is a decade’s worth of progress wiped out.”
“It’s only fair to say that not all of this is the fault of the government. The Russian invasion of Ukraine has seen energy prices soar and the consequences of covid and recent supply chain difficulties are completely out of their control.
“All of these things have contributed to the difficult set of circumstances that we now face. However, we’ve not always made everything as easy as we could have done.”
Political motivations
Some critics have claimed that Jeremy Hunt and the Conservatives are playing political games with their Autumn budget. By failing to raise tax thresholds with inflation, the Conservatives are effectively enforcing “stealth taxes” on the United Kingdom.
These thresholds are now frozen until 2028, long after the next planned General Election. This means that should Labour win the next election they’ll have big decisions to make in relation to these thresholds.
Mr Gauke doesn’t believe the budget was made with political games in mind, but rather with economic stability:
“The economy is going to struggle over the next couple of years. We’re in a recession and growth is going to be sluggish, at best. Therefore, it makes economic sense to do most of your fiscal tightening in a couple of years’ time when economic growth is more likely to be stronger.
“However, at the same time, this does raise difficult questions for the opposition with a general election on the horizon. There is a fair chance that whoever wins the next general election will have to raise taxes further unless economic growth outperforms what the OBR is predicting over the next two years.”
Elephant in the room
With Putin’s invasion of Ukraine and the Coronavirus pandemic masking the impact of Brexit over the past two years, the economic damage of leaving the European Union (EU) is only just coming to light.
There has been a 15 percent downturn in trade since the United Kingdom parted ways with the EU and public opinion is starting to shift on whether the right decision was made. He said:
“Brexit is doing economic damage and this is no longer being masked by covid. The OBR believes that Brexit is ultimately going to lower GDP by 4% which is pretty significant. Jeremy Hunt spoke about trying to remove trade barriers with the EU and that’s one of the most encouraging things we’ve heard from a minister in a long time.”
The issue of Brexit is going to become even more significant over the next two years while living standards are falling, particularly as the UK looks like it’ll be an outlier compared to the countries in the EU. It’s going to look like we’re falling behind, which hasn’t been the case until now because of Covid.
Final thought
It was fascinating to hear the views of a recent Conservative MP who is still very much engaged in political debate. As he is no longer bound by loyalty to anyone, David was able to provide some much-appreciated and well-thought-out musings in relation to Jeremy Hunt’s budget. Like all of us, he is concerned for the most vulnerable and hopes the government’s latest plans can get the country back on track – even if it is going to take some time.
Photo credit: The Times