An economy in recession; increasing levels of insecure work; record numbers of people out of the labour market due to ill health; inflation still double the Bank of England target of two per cent; Government debt levels rising; and, public services under increasing strain with little prospect of additional investment.

These are only some of the storm clouds gathered over Number 11 Downing Street as the Chancellor prepares to deliver what will almost certainly be the final Budget Statement of the current Parliament. Add in persistently poor poll ratings for the Conservatives and ongoing infighting in the Party, and it’s clear Mr Hunt has his work cut out for him.

In such challenging circumstances, the Chancellor faces a series of stark choices and trade offs to try and get the economy growing again, to support more people into good quality, secure jobs and to set the public finances on a sustainable course for the future.

A short-term sugar rush versus long-term sustainability

The Chancellor has already indicated he is considering a further cut in National Insurance – over and above the two per cent reduction he announced at the Autumn Statement and introduced at the beginning of 2024. Depending on other tax changes that the Chancellor may introduce, analysis of previous NIC reductions suggests this could end up disproportionately benefitting those on higher incomes.

Politically, he will hope this will be immediately popular amongst his party and voters in an election year. While economically, he will hope this will incentivise employers to create more jobs, provide more opportunities for those out of work to find employment, and kick start the economy to start growing again.

The problem is additional tax cuts will almost certainly spell significant, and likely unidentified, future public spending cuts in order to balance the books. This runs the risk of undermining confidence in the public finances, and reducing investment available for key public services required to help tackle economic inactivity, rising levels of ill health and wider economic development over the long-term.

The Institute for Fiscal Studies have already made clear that they believe the case for further tax cuts at this stage is “weak”. Instead, a more sensible focus would be on providing additional long-term investments in health, social care, education and childcare supply – each of which will be required to deliver sustained growth into the future.

Childcare reform and investment warrants a particular focus. The Government has already committed to expanding funding for and access to the sector 12 months ago – in recognition that an inability to access adequate childcare support can be a significant barrier to entering and staying in work, particularly for women. Even if mothers are able to enter work, poor childcare provision is a key factor in explaining why they are 2.3 times more likely to experience severely insecure work, as they trade security for the flexibility they need to care for their children.

Yet the reality is the Government has yet to produce a long-term workforce plan for the sector. Serious question marks remain over its capacity to deliver on its commitments to roll-out further childcare provision from April 2024 to September 2025 with the Early Years Alliance finding that 55% of childcare services have no places available. In this context, the Chancellor must do more in the Budget to provide reassurance that the promised investment in the sector and long-term planning will arrive.

More welfare cuts versus deeper focus on employment support and improving job quality

With continued worker shortages in key sectors and an increasing benefits bill, the Chancellor may look to introduce further punitive sanctions into the welfare system in order to further ‘incentivise’ those out of work to seek employment. And of course, ahead of a likely autumn election, this may become an election dividing line between the Conservatives and the Labour Party.

So far, the Government has sought to implement a so-called ‘carrot and stick’ approach to encouraging more people into the labour market. For example, in September 2023 they introduced an expanded package of employment support for those facing complex barriers to work. This Universal Support programme aims to provide personalised support to 25,000 people to help them back into work within 12 months.

But at the Autumn Statement Mr Hunt went further, pledging to reform the Fit Note process, the Work Capability Assessment, and introducing mandatory placements or training in a ‘workfare’ type programme after 18 months of unemployment. If job seekers fail to obtain work via this route, they stand to see their welfare cases closed, their benefits withdrawn entirely, and their access to wider services such as free prescriptions and legal aid ended.

Less than six months on, it is far from clear what the impact of these already announced measures will be. As the UK Insecure Work Index 2024 makes clear, insecure work is on the rise, and the risk of vulnerable individuals being pushed out of welfare and cycling in and out of poor quality, unstable work is high.

If the Chancellor seeks to take additional action in this area, he should resist calls to further heighten welfare sanctions, and instead invest further energy and money in ‘de-risking’ the process of entering and remaining in work. This should include reforming Universal Credit to remove the need to re-start your welfare claim should you enter and fall out of work. It is also imperative to invest further in the long-term employment support infrastructure the UK will need to genuinely tackle current levels of economic inactivity and long-term sickness, particularly as the working population ages.

Alongside this, there is an urgent need to strengthen employment protections and tackle the kind of insecure jobs that can exacerbate underlying health conditions and lead to people cycling in and out of low-quality work.

Delivering a new Employment Bill in this Parliament is clearly off the cards for the Government. But the Chancellor could use this opportunity to signal that seven years after his Party commissioned and endorsed the Taylor Review into modern working practices – this remains a priority for the Conservatives in the next Parliament.

Big choices with big implications

The choices that the Chancellor makes at the Spring Budget will have a decisive impact on the prospects for economic growth and labour market participation in 2024, as well as the health of the UK economy and public finances into the next Parliament.

Despite a looming election, Mr Hunt should resist the temptation for short-term crowd-pleasing initiatives like cuts to taxes and welfare spending, and instead focus on further investing in tackling the underlying factors holding the UK economy back.

To successfully deliver inclusive economic growth, he must focus his Spring Budget statement on ensuring key public services are fit for purpose, that job quality is on the rise, and those out of the labour market have the tailored and long-term support they need to return to work.

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