| For a sense of the economic backdrop to Hunt’s announcements today, start with Richard Partington’s guide to the budget in five charts – and take particular note of the one showing how predictions of GDP growth have been revised down. As Phillip Inman’s analysis notes, “With economic growth flatlining, there is not much spare cash to fund Hunt’s budget giveaways.” Here’s how he’ll try to do it, and what it means for public services, the opposition, and for you. How much money does Hunt have to play with? The measure the government uses for this is “fiscal headroom”: the amount of money that the chancellor can use as he wishes before he breaks the government’s self-imposed “fiscal rules”. If you’ve allowed yourself 1,500 calories for the day and gone for a fried breakfast on the basis that you’re definitely going to have a salad for dinner, you’ll know roughly how this works. (Richard Partington has more detail on the fiscal rules in this useful explainer.) Assessing where those limits lie is the responsibility of the OBR. Ahead of the autumn statement last November, they said Hunt had about £30bn to play with; he used £17bn of it. The problem now is that while the government was hoping that an improving outlook for economic growth would give Hunt more room for manoeuvre, the reality is that worsening OBR projections have instead tied his hands. At best, he will have the same £13bn left from last time to make use of. The crucial caveat to all of this is that many critics see the measure of fiscal headroom as a bit of a con: in this FT piece, Diane Coyle argues that treating it as a static measure misses the way that public investment can create growth. “Investment spending can raise growth and raise the ceiling, while cutting investment spending is likely to reduce growth and lower the ceiling,” she argues. For more on shortcomings with the reliance on fiscal rules, see the explanation Aditya Chakrabortty gave us in December. How will he raise more? Regardless, Hunt is using the fiscal rules to define his initial pot. To do anything attention-grabbing today, he needs to find other ways to increase the size of it. One widely reported suggestion is that he will steal Labour’s idea of scrapping the non-dom tax system, which lets foreign nationals living in the UK avoid paying tax on their overseas income or capital gains. That could be worth a handy £3bn a year, even if Hunt will have awkward questions to answer about his previous view that axing the scheme could “damage the long-term attractiveness of the UK”. Other revenue-raising moves on the cards include a £500m tax on vapes, a one-year extension of the windfall tax on energy firms’ profits that the OBR estimates is worth £1.9bn a year, and the removal of tax relief on properties being rented to holidaymakers, worth a relatively paltry £300m. What other tricks might he use? The Treasury is also promising a “public sector productivity drive”, which it says will deliver £1.8bn in savings by 2029 in return for an £800m investment. You’ve probably heard that one before, but everyone likes efficiency. Hunt’s other trick is a much more controversial one: promising to cut government spending in the next parliament, so that he can theoretically obey his rule of ensuring that public sector debt is on course to fall as a share of national income in five years’ time. If Hunt reduces projected departmental rises from 1% to 0.75% a year, he will give himself an extra £5bn to £6bn to play with today without having to change a single thing this side of the election. With areas like health and defence ringfenced, unprotected departments like justice and local government would face cuts of up to 20% over the course of the next parliament. Most economists view these far-off projections as nonsensical – he’s already tried it, and nobody believed him the first time. Still, the government can pencil the cuts in now, and then pop the task of enacting them into a time capsule for their successors. Because Labour has previously suggested it will not reverse any tax cuts announced by the government and accepts the fiscal rules, Hunt’s opponent Rachel Reeves has very little room to promise a reversal of those spending reductions. As Rafael Behr writes: “This is the dirty paradox of a budget drafted in anticipation of defeat. The Tories write an oath of fiscal responsibility for the opposition to recite, which no one expects the government itself to honour.” What will he spend it on? A lovely election-year tax cut. The key debate playing out in the newspapers in recent weeks has been whether that will be done through national insurance or income tax. Rishi Sunak is said to have favoured a 2p cut to the basic rate of income tax, at a cost of £14bn, on the grounds that voters can get their heads round it more easily, and it benefits more people. The argument for a national insurance cut (NIC) – which is applied only to people who are in work, rather than retirees and shareholders – is that it is cheaper, at £10bn for a 2p cut, and that it is better for the economy because it creates less inflation. In the end, the national insurance option – worth about £450 a year to the average voter - appears to have won. Unsurprisingly, the Tories will also extend the current “temporary” 5p cut in fuel duty, maintaining a freeze that began in 2011 at a cost of £5bn in the next fiscal year. Will that be enough to appease Conservative backbenchers desperate for something to tell their constituents? Sarah Coles, an analyst at Hargreaves Lansdown, alighted on a memorable and only slightly overworked metaphor for the national insurance cut: “[Not] so much a rabbit pulled out of a hat as a slightly tatty-looking ferret dragged from a box labelled ‘rabbit’.” What will voters make of it? While any tax cut is likely to be popular among the government’s supporters in the press, most voters are less sure: £37 extra each month may seem less attractive when you’re struggling to get a GP appointment or seeing your local council go bust. And overall, freezes to tax thresholds plus council tax rises in many areas mean that many will still be worse off. In February, two YouGov polls found that most people would rather the government prioritised public spending over tax cuts: even when the question about cuts is narrowed to taxes “that everyday people pay”, public sector investment still comes out on top. It is also worth noting, though, that if tax cuts are framed as “measures to reduce the cost of living”, the polling reverses. So expect to hear the Conservatives talk a lot about what they’re doing to ease the pressure on working people – and rather less about the cuts to public spending that they’re promising to pay for it, and which Labour are likely to end up carrying the can for. | 