A 'steady as she goes' budget - Good or bad?

Budget day is always an important date in the political calendar. While it doesn’t have the pomp and ceremony of a King’s Speech, the combative back-and-forth of Prime Minister’s Questions, or the swagger of a party conference, it fulfils a vital role. It sets out what the government can afford to do, and how it is going to pay for it. It is very much where the rubber hits the road for political promises.

There is rarely much ‘news’ in budgets these days, as most of the headlines are leaked and released in the days beforehand. This budget was no exception, setting the expectation of a plan that was very much “steady as she goes”. Big changes were not anticipated, and big changes were not delivered. Instead the Chancellor of the Exchequer, John Healey, in his first budget in the role, outlined almost a hundred small measures intended to give “breathing space” to the people of Britain. Some journalists have categorised the raft of smaller changes a budget of ‘picky bits’ like a supermarket deli range (perhaps appropriately given the ‘4p off the price of gherkins’ included in the measures).

All of which leaves most of us wondering: so what? It’s difficult to get excited (or upset) about a selection of tiny changes, some of which may not affect us, while others might not affect us very much. It might be tempting to shrug our shoulders, decide it’s simply ‘business as usual’, and forget about Mr Healey’s report. But bland though the budget was, it might not be as insignificant as it first appears…

There is one main criteria to assess a budget: does it make the people of this country better off? That doesn’t necessarily mean more cash in everyone’s pocket immediately (although that can help). It asks if we will be better off with better national security, a well-funded health service, more people in work, economic growth, and other measures for the health and well-being of the nation.

Some of Healey’s 98 policies will certainly make things better. Increasing the duty on Adult Gaming Centres from 20% to 25% will not only raise revenue for the government, but will also clamp down on dangerous gambling that often preys on the poorest and most vulnerable. Extending the push to end homelessness and rough sleeping is also a welcome move, as is the extension of paternity leave to self-employed fathers.

Other measures might appear to make an immediate difference. The promise to give £100 to every household in council tax bands A to D will give an obvious boost to many. When the money magically appears in the bank account in January, it will certainly be a welcome help for what will no doubt be a significant energy bill this winter.

£100 cash in hand would seem to be the clearest takeaway from this week’s budget. But it might not be as helpful as it first appears. Council tax bands are based on the cost of a home in 1991, and things have changed quite a bit since then. It’s possible for someone who is relatively well-off to be living in a band D house, while a large family who are struggling are in band E. 80% of homes will get the £100 payment, but the Resolution Foundation point out that 1.4 million poor families will miss out. Anna Leach from the Institute of Directors said that the money “would have been better used to reduce the cost of employing young people or reducing business energy bills”.

The minimum wage will be going up (but not until April), which will be welcomed by those on the lowest levels of pay. But there is a catch: the income tax thresholds are not changing; in fact they have been frozen since 2021 through the last three chancellors (Sunak, Hunt, and Reeves) and will continue to be set at the same level until 2031. This means an increased wage can more easily push you into a higher rate of tax.

There were relatively few tax rises announced during John Healey’s hour long speech on Wednesday. But the freezing of income tax thresholds, which did not get a mention, are a tax increase by stealth. The effect of the freeze is estimated to raise another £44 billion for the Treasury this year, rising to £75 billion a year by 2030-31.

Even where tax hikes were applied to others, the result will likely mean increased costs for ordinary people. The £100 rebate is to be funded by a 3% increase on the business tax for banks. This was actually less than expected leading to bank share prices rising following the budget. But it would be naive to think that the banks (who are profit-making businesses after all) won’t pass those costs on to the customer.

Property income tax is also increasing, upping the tax burden on landlords. However, it is easy to see how this tax rise will be passed on to tenants via increased rents. Alternatively, it could make many landlords choose to get out of the rental market altogether and sell up, leaving people who cannot afford to buy a house without anywhere to rent either.

Budgets aren’t always good news in the short term. Sometimes difficult decisions need to be made to encourage growth and enable people to be better off in the long term. So will this budget do that?

Healey is up against some tough obstacles. The war between the US and Iran has increased fuel prices and deepened global instability. The threat from Russia means a commitment to funding for the armed forces. The race for artificial intelligence risks the UK being left behind or dependent on foreign technology without sufficient government support. All of which leaves much less headroom available with which to stimulate growth and support the most vulnerable.

The Office for Budget Responsibility (OBR) releases its own report alongside the budget, which makes for sober reading. Back in March, the OBR expected household disposable income to grow by 0.4% a year; it now expects it to fall by the same amount. Simply put, people are going to have less money available to spend over the coming year. The typical disposable income is set to fall by over £1,000 between now and the end of the Parliament in 2028-29.

There is not a great deal of optimism from business either. Raising the threshold for small business rate relief will mean 70,000 more businesses will no longer need to pay rates. However, the Confederation of British Industry (CBI) said that the budget gave “nothing concrete to provide breathing space for the vast majority of businesses” while the Federation of Small Businesses said it did “nothing to ease sky-high energy bills and nothing to make hiring someone more affordable”. The Institute of Directors called the budget a “missed opportunity” and the Institute of Fiscal Studies said that “a raft of fiddly measures” contained “very little that will move the dial on growth”.

The UK’s borrowing is also a source of concern. This financial year the government will borrow £133 billion, which is up £18 billion from the forecast in March. The Chancellor’s announcements this week will add another £8 billion to that borrowing this year, and £4 billion next year. National debt is forecast to peak at over 97% of GDP in 2028-29, and paying interest on this debt will cost the country £124 billion this year alone.

Both the Chancellor and Prime Minister acknowledge that the UK cannot keep borrowing and spending money indefinitely. In particular, they recognise that the welfare bill needs to come down significantly. The cost of working-age benefits is expected to be £142 billion by the next election. They have pledged to do this before the next Parliament, but have not given details of exactly when, and how, this will be achieved.

The changes to the pension triple lock will ensure some savings, which Healey said in his speech would be £15 billion a year. This is the amount the government expect to save on funding the state pension in 2039/40. But that figure could change significantly over the next 10 years as national and international situations change. On the other hand, the OBR say that the Chancellor will need to find another £11 billion next year to pay for his commitments to defence, schools, and the NHS.

The Chancellor said that he wanted to create some “breathing space” with his budget announcements. But much of the substantial change will come later, with the budget containing a great deal of “wait and see” measures – breathing space for the government’s long-term strategy to be revealed.

Alan Milburn’s report on NEETs (young people Not in Education, Employment, or Training) is due out before the end of the year. It will surely contain recommendations that will aim to increase employment and boost growth, but whether the Chancellor has left himself room to implement them remains to be seen. We also await Prime Minister Andy Burnham’s ‘10 Year Plan’ which outlines his long-term vision for government.

Defence spending is a point of contention, with John Healey himself having resigned from Keir Starmer’s cabinet over the Prime Minister’s lack of support for 3% of GDP committed to defence. Now that he is Chancellor, his principled stand has come back to haunt him as he is now the one who has to find the money. He has said that he will do this by 2030, but we have to wait and see what the details might be.

Both the Chancellor and Prime Minister have made a commitment to reduce the welfare bill, but it will also be “wait and see” as to when and how this will happen. The Prime Minister said following the budget: “We want to get the welfare bill down as quickly as possible, and we’re working flat out to that end.” However, the government is not setting a “target or timetable” according to Downing Street. At present the OBR estimates that welfare spending will actually increase by £19 billion this year.

There are some measures that are good and helpful in the raft of policies announced this week. However, the small short-term effects of the budget are not as helpful as they first appear, and the long-term measures do not seem to be as strong as they need to be in the face of volatile global situations. Many details of the government’s plans and spending are still yet to be revealed.

What is fascinating is that most UK newspapers have been unimpressed with Healey’s budget. The Telegraph categorised it as ‘pitiful bungs and massive tax rises’, the iPaper said it “made no sense”, while The Times said the budget was an “exercise in low-level tweaking with no plan for growth”. Even the left-leaning Guardian newspaper, who are generally more positive about the announcements, said: “The problem, however, is not that Mr Healey’s budget lacks ambition, but that it lacks firepower.” John Crace, writing in the same newspaper called it “the miserabilist’s dream” where “many of the really big decisions had been kicked into the long grass”.

For most of us, budgets are rarely seen as a good thing. We might get some positive news, but mostly we are focused on the ways things will be more expensive, and how much more money we have to give to the government. The Bible, however, tells us that money is given for our enjoyment, but also should be used for the good of others. As Paul tells Timothy:

We might not see ourselves as ‘rich’, but from a global perspective we certainly are! Even when we are not as rich as some, putting our hope in wealth instead of God is a temptation that can befall any of us. Paul reminds us that generosity and sharing is a good and godly part of living in society. This includes paying taxes (Romans 13:6) which we should not begrudge but give willingly to those in authority (Romans 13:1).

But those in authority also need to be good stewards of the finances entrusted to them (see Matthew 25:14–30). Being wise and prudent in the use of money is a key part of that. There is nothing wrong with making small, incremental changes if they produce helpful, long-lasting results: “Dishonest money dwindles away, but whoever gathers money little by little makes it grow” (Proverbs 13:11).

Proverbs 21:20 tells us that “The wise store up choice food and olive oil, but fools gulp theirs down.” Storing up resources instead of making big changes can be a wise course of action. But at the same time, spending more and more is akin to the fool who ‘gulps down’ their food. Without a spending review, and without an idea of how to reduce the welfare bill, a prudent ‘steady’ budget risks being paired with a voracious appetite for spending as well as saving.

When it comes to the level of national debt, we also need to heed the wisdom of Proverbs: “The rich rule over the poor, and the borrower is slave to the lender” (Proverbs 22:7). Biblical wisdom calls us to be wary of getting into debt. Sometimes it is necessary, as anyone who has bought a home will attest, and hardly any countries in the world have no national debt. But it is good to minimise that debt (and the interest it earns) rather than increase it. This is not a budget that achieves that aim.

“Steady as she goes” seems like a wise and laudable goal, and in lots of ways it is. As Christians we are to “run with perseverance the race marked out for us” (Hebrews 12:1), not being tempted to “turn aside to the right or to the left” (Deuteronomy 5:32). Treading a set course with steadiness can be a virtue. But we also need to heed the words of Proverbs 27:12, which says: “The prudent see danger and take refuge, but the simple keep going and pay the penalty.” Prudence is not ‘steady as she goes’ if that steady course runs into danger. Over-spending, increasing debt, lack of growth, and less support for those who need it, are all dangers that need to be avoided.

It is a tough job being in government and a tough job making decisions as Chancellor. I trust that John Healey has made the choices he has because he is trying to do the best he can for the country. I pray that the economic outcome will be better than forecast so that more people will benefit from the announcements in this budget. But I fear that the small measures in Healey’s budget do not do enough to give the short-term relief or long-term growth that the country needs.

Chancellor John Healey certainly sees this as a successful budget, celebrating by going to the pub at the end of the day with his Treasury colleagues.(He downed his pint in only twelve seconds – only John Prescott could have done better.) I am certain that being Chancellor is extremely hard work, and I will not begrudge him a drink at the end of a long day. However, no matter how hard preparing a budget must be, this was a budget that failed to make any hard choices, and instead kicked the can down the road.

Why is that? Around the half-way point between scheduled general elections is the time to make difficult decisions. Labour is up in the polls, and they have a couple of years before the next election. They have time to make changes that might be painful at first, but will bear fruit before Britain goes to the ballot box once again.

Unless we might be going to the polls sooner than expected? A “steady as she goes” budget with a £100 boost for most households in January would be the ideal approach if you were planning to call an early election in the new year. A bold and challenging budget would not help your re-election campaign and would be left until after the election had been decided.

Prime Minister Andy Burnham has admitted that the budget was not as radical as he would have liked. “In the times that we’re currently in,” he said, “I feel that the volatility of things means you just can’t necessarily deliver the budget that in an ideal world you would want to deliver.” One of the constraints he is under is the 2024 Labour manifesto. “Obviously, when the time comes, I would seek my own mandate,” he said. “If you’re asking me a very direct question, if I had held the pen on the current Labour manifesto, would I have written it exactly like it is? Well, no is the answer to that question.”

To be fair, Burnham has been clear about not planning to call a snap election. However, he wouldn’t be the first politician to say one thing, and then change their mind a little later. Could this budget have paved the way for that? It is difficult to see why Burnham and Healey’s budget ducked the hard choices, and was not as bold as it needed to be otherwise.