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The names have changed but Jeremy Hunt’s blockbuster budget is more of the same

Father working from home and taking care of baby
Father working from home and taking care of baby

Back in the 1980s, Hollywood had the habit of tacking long strings of sequels onto many of its most successful blockbusters.

Nightmare on Elm Street 3, Rocky 2, Superman IV…

Think today’s Marvel Cinematic Universe – only without the variety of a universe.

Instead these franchises were islands of familiarity in an otherwise fast-changing world.

Over time the cast varied – usually more than the plot – but you always knew what you were getting with a Raiders romp or a Beverley Hills Cop caper.

Can you see where I’m going with this?

Less 007, more doubling up at Number 11

Yes, of course I’m thinking about how there’s yet another new chancellor in Number 11 Downing Street who has been preparing yet another new Budget, ahead of its 17 November release date.

And how the man of this moment – Jeremy Hunt – is very much like the last three chancellors who came before him.

Though to be clear I mean the last three canon chancellors.

Not the unsettling departure from the format that was Kwasi Kwarteng and his Mini Budget.

(People literally got up and walked out of that one.)

And obviously I don’t mean the straight-to-streaming chancellor Nadhim Zahawi, either.

(Can anyone even remember what happened during his performance?)

No, I’m thinking of franchise favourites Rishi Sunak and Philip Hammond, as well as the brief stint by Sajid Javid – surely the Timothy Dalton of the modern Chancellor franchise.

Back to the future

To be honest, everyone – especially the markets – seem relieved that Chancellor is back on form.

And there was plenty of fan service from the dispatch box as Hunt outlined his Autumn Budget.

You know, all the one-liners: tough decisions, fair taxation, broad shoulders, hard-working nurses.

But you can’t blame Hunt for going back to basics to get the brand on track.

Arguably there hasn’t been such a tough crowd for a Budget since 2010, in the wake of the Global Financial Crisis, back when old-school favourite George Osborne had the leading role.

After the bungling misadventures of Chancellor: Kamakwazi, can critics really be surprised to see Hunt borrowing heavily from those once-original Osborne outings?

Indeed, many pundits had already nicknamed Hunt’s budget Austerity 2.0 – even before he’d arrived at the Commons – in homage to the critical story arc from the Osborne seasons.

But – perhaps in a nod to the increasing frequency with which Westminster has been churning out these sequels – Jeremy Hunt’s budget proved to be something of a two-parter.

Tax and don’t spend

It’s a bit like how Warner Bros split Harry Potter and the Deathly Hallows over two instalments, prolonging the drama.

The first half of Hunt’s show – which runs conveniently until around the date of the next General Election – is clearly meant to lull audiences into a false sense of security, before the bloody second half kicks in.

Specifically, we won’t get much of those big public spending cuts we saw touted in the trailers until 2024. Fans of fiscal gore will just have to wait!

Instead, Hunt’s first act is mostly about stealth and intrigue.

Frozen income tax thresholds until 2028 will mean ever more of us dragged inexorably into paying higher tax rates as our earnings increase – even when they just rise with inflation.

Inheritance tax allowances have been frozen until then, too. (Because like in all the best horror franchises, death is no obstacle to the tax man.)

Even where Hunt is set to get the knife out early, he’s going to do so with the precision of a Hannibal Lecter versus the mad hacking of a slasher movie.

For instance the ‘additional rate’ of tax – 45% – will now kick in at £121,140 from April, meaning a greater number of high-earners will pay the UK’s most punishing rate of tax.

But only 629,000 or so people currently do so. And dropping the threshold down from the current £150,000 isn’t expected to swell their ranks by more than another 230,000 or so.

Overall that’s big on impact, but fairly costless, politically speaking.

Textbook special effects!

Similarly – and of especial note to us Fools – the capital gains tax allowance will be more than halved to £6,000 from April. The dividend tax allowance will be similarly sliced in two to just £1,000.

It seems dramatic – and it will be annoying and cost you a bit if you haven’t been filling up your ISAs and pension every year to avoid such a raid. But in practice few people will be affected, especially compared to the zombified masses sleepwalking into higher tax brackets.

Making the cut

That tax take will be painful, no doubt – even more so when added to the toll of high inflation.

According to the Office for Budget Responsibility, real household incomes in the UK are set to decline by a whopping 7% over the next two years

And the net result of the additional £25bn expected to be collected in taxes will be that by 2027/28 the UK’s tax burden will be 37.1% of GDP.

That’s the highest share since World War 2!

Ouch, already. But the carnage really gets going in 2024.

That’s when the bulk of Hunt’s £30bn in spending cuts will begin. Even as the frozen tax thresholds start to bite, households will then find the State is also straining.

All this is necessary, the government argues, to show Britain has a grip on its public finances after former PM Liz Truss and chancellor Kwarteng’s Enemies of Growth Mini-Budget bombed at the box office.

Mortgage rates and government borrowing costs soared in the weeks that followed.

In contrast, from day one of the franchise reboot under Hunt – and later, when Sunak rejoined the cast – the aim has been to regain the market’s trust, and so keep things stable and lower rates.

Whether as investors or homeowners, we should benefit if they achieve that. As taxpayers too, if it means the interest due on the government’s vast borrowings doesn’t rise further, adding to the burden.

There are also silver linings for pensioners and those on benefits who face soaring bills of all kinds.

With the triple-lock retained, the State Pension is set to rise above £10,000 – despite inflation now at 11% making that one particularly costly uplift.

Closing credits

Mostly though, the main thrust of the plot is that some tough years lie ahead. Again.

Because after the Mini Budget failed to make the case for going for growth (and the market be damned) Britain increasingly seems stuck in a story of ever-higher taxes that can probably only further hamper growth.

Even as we enter what the Bank of England says could be a two-year recession!

It has the makings of a vicious spiral.

Of course the economic pressures of recent years have been huge. From Brexit disruption and the global pandemic to lockdowns and furlough, energy relief, and other support schemes, the costs to the nation have all piled up.

Now the bill has come due in our personal finances – higher energy costs, taxes, and increasing mortgage payments, as well as at the supermarket till – which will mean many of us will have less free cash for investing, anyway.

But strive to invest we must. Because, frankly, self-reliance could be less of a luxury and more of a necessity if this squeeze continues for another ten years.

For my part I’ll be looking for opportunities in UK shares as always, while hoping something miraculous can turn around the economy. (An end to war in Ukraine would be a good start.)

But I expect I will inevitably favour firms who do the bulk of their business overseas.

Because whatever its merits, Austerity 2.0 doesn’t look like a feel-good movie for Blighty.

The post The names have changed but Jeremy Hunt’s blockbuster budget is more of the same appeared first on The Motley Fool UK.

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