Bayes academics - and friends - react to 2024 Budget

Bayes academics sorted the wheat from the chaff in Chancellor Jeremy Hunt's final Budget before the general election.

Professor Les Mayhew, Professor of Statistics at Bayes Business School, felt Hunt's Budget prioritised short-term reform over long-term reform.

He said: "Overall, the budget prioritised putting income in people's pockets ahead of the next election - hence the 2p cut in National insurance. This, however, was at the expense of much needed longer-term reforms.

"It is a pity that he did not use the same argument to allow Stamp Duty Relief for last time buyers which would have more impact on the housing market by downsizing among older homeowners, allowing younger people to get on the housing ladder.

It was also interesting that the Treasury mantra of making efficiency savings – a  euphemism for cuts – has been replaced by 'productivity plans'. This pushes the idea that investment in productivity would help offset smaller departmental budgets - what used to be called austerity.

Aiming to improve the productivity of the NHS is admirable - but not if there is no agreed definition of what it means. In this case it seems it is about investing in computerisation.  Not that this is a bad idea, but readers should be aware that the public sector is replete with examples of cost overruns on gold-plated computer systems which were managed by bureaucrats and failed to deliver savings.

Indeed, one might argue that productivity of the NHS should be measured in terms of how much it has improved health per pound of expenditure - in this regard the announcement of increased tax on tobacco and vaping is a good example of what it would save the NHS if more people cut the habit.

"If this is the case, the long run benefits would have been better served if the Chancellor had brought forward the PM's plan to ban sales of tobacco from 2027 to anyone aged fourteen now. We calculate for example that it would improve health expectancy by 2.5 years over next decades and bring millions back into work and massively increase tax revenues.

“Improving public sector productivity is part of a wider economic narrative issue which suggests that we are getting poorer because GDP per capita – as opposed to straight GDP - is falling.  There was a suggestion from the Chancellor that wages are being depressed by high levels of migration and that getting more of the economically active population back to work was part of the answer. He claimed that the changes to National Insurance combined with previously announced reductions would get 200,000 back to work. It isn’t clear if this factored in tax changes to the treatment of Child Benefit or reforms to child care, which are also important.

“Of course, all of these are welcome but remain small in scale or effect if compared with the current 9.2 million economically inactive people of working age and record levels of net migration, totalling 670,000 in 2023. Greater investment in technology, as well as jobs, is crucial so let us hope he is correct about the as yet unproven productivity benefits of AI and that the vision of the UK becoming a high-tech hub second only to Silicon Valley is not fantasy.”

Professor Michael Ben-Gad is a Professor of Economics and expert in tax and econometrics at City.

He responded to Hunt's plans on national insurance, tax burdens, military defence spending, stamp duty and the triple lock:

"The drop in national insurance rates by 2% will cause the economy to grow a bit faster but the respite is likely to be very brief. As long as income tax thresholds remain, frozen fiscal drag will subject more and more income to higher rates of tax.

"The plans outlined to cut spending do not seem particularly credible so the debt burden is likely to rise rather than decline, and the cuts are likely to be inflationary in the long run. The main drivers behind the UK’s rising tax burden are associated with providing healthcare and pensions for an ageing population, combined with low economic growth.

"Low economic growth also means fewer resources for defending the country from foreign aggression. We will just have to pray that Mr Putin will wait patiently till "economic conditions allow increased defence spending.

"It would have been good to get rid of some of the cliff edges in income tax that can yield absurdly high marginal tax rates, though income tax cuts would have been more expensive and shared with pensioners (who benefited from recent policies such as the triple lock).

"If the Chancellor really had £15 billion to spare (he doesn’t), this would be better spent on abolishing stamp duty, which discourages people from moving house. Another inefficiency is the mismatch it creates in the housing sector, discouraging the elderly from downsizing so that young families can purchase the larger houses they need."

Dr Lauren McCarthy, Senior Lecturer in Corporate Social Responsibility at Bayes responded to Hunt's promises on increased childcare provisions.

She said: "After an appeal for sense from childcare providers and charities, the government appears to have realised that their ‘free’ childcare provision introduced last year needs actual capital behind the rhetoric.

"Whether the money provided in this budget will do much to reduce the predicted mass closures of childcare provision remains to be seen. These services are increasingly being asked to do more, with less.

"Further, large areas of the country are childcare ‘deserts’ where there are simply no providers available to parents, funded places or not. The early years childcare problem needs serious funding in order to plug gaps in workforce, many of whom are women who have left employment as childcare has become so expensive."

Stefan Stern is Honorary Visiting Professor in management practice at Bayes. He lightens the mood.

He said: "This was an underwhelming budget from a government in a very tight corner. Warren Buffett said that 'When a manager with a reputation for brilliance tackles a business with a reputation for bad economics, the reputation of the business remains intact.' Rishi Sunak and Jeremy Hunt may now understand what he meant."