Short-Term Politics, Long-Term Costs

Today’s Autumn Budget can be read through two different prisms, and together they reveal a government taking significant political and economic risks.
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The first prism is short-term political expediency. The combination of threshold freezes, tighter pension tax reliefs and higher taxes on property, savings, dividends and rental income allows ministers to claim they have avoided headline income tax rises. The decision to scrap the two-child benefit cap may also help shore up the positions of the Prime Minister and Chancellor at a moment when internal pressures matter. In that sense, the political equation for today may well have been met.
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Yet, the second prism is longer-term and far less certain. Several of the measures take effect close to a likely election. The Office for Budget Responsibility (OBR) has already downgraded its long-term productivity and growth forecasts, which undermines confidence that this package will stimulate growth - the OBR thinks it will not. For a government that presents itself as an engine of growth, the gap between expectations and likely outcomes could become stark. Some measures also appear to cut across other stated priorities. Higher taxes on savings and dividends may weaken incentives for pension building. Added pressure on landlords and property investors could complicate efforts to boost housing supply. The introduction of mileage-based taxes on electric and plug-in vehicles sends mixed signals for EV uptake. Entrepreneurs, savers, and investors may receive mixed or conflicting policy signals at a time when clarity and certainty are crucial.
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The political reaction underlines the scale of the gamble. Reform UK has called the Budget “an assault on aspiration.” Critics, such as Unite, argue that wealthy individuals remain relatively unscathed.  These responses show how finely the government is now trying to balance competing pressures. The fact that the OBR forecast was published prematurely has added a further layer of institutional and reputational risk to what was already a high-stakes fiscal and political gamble.
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If economic conditions improve, then ministers may retain some option to ease parts of the burden before an election. If, instead, conditions deteriorate or households feel the costs before any benefits are realised, the political consequences could become much more severe. The Budget may have secured short-term stability for the leadership. However, it is less certain whether this builds long-term credibility, and ultimately, facing that judgment may fall to a new occupant of No. 11. However, it is less certain whether this builds long-term credibility, and ultimately, facing that judgment may fall to a new occupant of No. 11.