Monday, 27 March 2023

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Jeremy Hunt accused of gaming his fiscal rules

Harriett Baldwin, Conservative chair of the treasury select committee

Chancellor Jeremy Hunt was accused on Thursday of gaming his fiscal rules in a way that suggests the public finances could be in a worse shape than figures contained in his Budget.

Harriett Baldwin, the Conservative chair of the House of Commons Treasury select committee, said Hunt was engaged in “fuel duty fiction” and “business investment allowance fiction” to flatter the public finances in the official forecasts that accompanied the Budget on Wednesday.

Her complaints were echoed by Paul Johnson, director of the Institute for Fiscal Studies, a think-tank, and Richard Hughes, chair of the Office for Budget Responsibility, the independent fiscal watchdog. The Treasury declined to comment.

Hunt’s main fiscal rule is to have underlying public sector net debt falling as a share of gross domestic product by the fifth year of the OBR forecasts in 2027-28.

In his Budget, Hunt achieved this with only £6.5bn of fiscal headroom to spare. “The overall outlook for the public finances still looks difficult,” said Johnson.

Hughes, referring to Hunt’s fiscal rules, said “governments are finding new ways of gaming these rules”.

Harriett Baldwin said Hunt was engaged in ‘fuel duty fiction’ and ‘business investment allowance fiction’ to flatter the public finances © Charlie Bibby/FT

“The new game is to announce an aspiration, but then say ‘I’ll only get there when my resources allow’. Well, your resources don’t allow [it], so why are you announcing this thing?” he added.

Part of the way Hunt met his main fiscal rule was to tell the OBR that the government would raise petrol and diesel duties in line with inflation every year, and would scrap his proposed new capital allowances for companies costing about £9bn per annum after three years.

But in the Budget, Hunt followed the practice of every Conservative chancellor since 2011 by freezing fuel duties for 2023-24, saying that because inflation was high “now is not the right time to uprate fuel duty with inflation”.

He also extended a temporary 5p a litre reduction, costing him in total £4.9bn in the next financial year. But in future years, the OBR forecasts assume fuel duty rises in line with inflation.

The forecasts also assume the expiry of investment incentives under which companies can write off 100 per cent of their capital spending against taxable profits at the end of 2025-26, although Hunt said he would like to make the arrangements permanent “as soon as we can…

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