Ahead of the Budget, Rishi Sunak and Jeremy Hunt met MPs for drinks in the Prime Minister’s parliamentary office to try to temper expectations. The Chancellor informed those present that, while he is a low-tax Conservative, he is not a magician. Yes, lots of MPs want him to slash taxes to revive the Tories’ standing in the polls, but he can’t escape reality. In other words, spending is too great and has to be paid for. No Tory can ignore that basic fact.

As one government figure puts it: ‘Calling an election during a recession? Genius’

This is why the Budget he announced on Wednesday fell short of some of his MPs’ expectations. Rather than delivering the income tax cut many had hoped for, Hunt went for the relatively cheaper option of reducing National Insurance by 2p. This will affect 27 million people from April. When combined with the previous cut to NI in the Autumn Statement, the slash is worth £900 to the average earner. The earlier freezing of tax thresholds will mean many people still don’t feel better off – but that’s not a point Hunt wanted to dwell on.

Treasury figures say the UK now has the lowest combined basic rate of tax – NI and income – since 1975. The worry, however, is that the overall tax burden will still be near a postwar high and that cutting NI means the Tories don’t have an offering for retirees, a core voter group for the party. When Hunt addressed backbench MPs, he conceded that the party had received no political credit for last November’s NI cut, which raises the question: why would they this time around? ‘National Insurance is necessary but not sufficient,’ says a senior Tory. ‘Income tax is the totemic thing – there will be a lot of disappointment around.’

The message of this Budget – which could well be the last before the election – is that the government is ‘sticking to the plan’. Covid lockdowns, the war in Ukraine and the resulting energy crisis have all placed strain on the economy. Sunak has made progress in his plan to bring down inflation, but the job is not done. In the meantime, some steps can be taken to ease the load. In an election (in which Sunak and Hunt may promise five years of tax cuts), the Tories will warn that a Labour government will undo the work that’s already been done, bringing about higher borrowing and higher taxes.

One of the largest measures in the package is child benefit. Hunt announced the government will move the high-income child benefit charge to a household-based system in 2026 (should the Tories still be in power then). The aim of this is to address the anomaly which means a family with two parents earning £49,000 each receives the full child benefit, while a household with a single earner on £50,000 or more does not.

As a stop-gap, the earnings threshold to start paying back child benefit will increase from £50,000 to £60,000. Child benefit will no longer need to be repaid in full until earnings exceed £80,000. The reason for this is to encourage more parents to go back to work; estimates say that it will boost the workforce by around 10,000.

The most political parts of the Budget were the revenue raisers, which paid for the tax cuts and the fuel and alcohol duty freezes. Rather than cut future government spending – as he was tipped to – Hunt stole Labour’s policy of abolishing the non-dom regime, but said he’d replace it with a new residency-based system to ensure Britain doesn’t lose its high taxpayers. The move has been pushed by Sunak’s team, who argue the existing system is ripe for reform. It could also box Labour in – given that Keir Starmer’s party has already assigned money from abolishing non-dom status to Labour spending pledges.

Finally, the removal of the non-dom status blunts an attack line against Sunak. While the Prime Minister’s personal approval ratings are wallowing at an all-time low, according to an Ipsos poll, the non-dom issue hurt him even when he was doing better. It emerged that Akshata Murty, his wife, is a non-dom and that he had kept this information from senior officials. She later agreed to pay UK tax on her overseas earnings, while maintaining the status.

‘Labour keeps trying to smear the Prime Minister’s wife with it,’ says an ally of Sunak. While some on the right of the party will see the change as another anti-business measure, the other argument for it is that if Labour wins, it will happen anyway. Hunt attempted to defend himself at the despatch box from Tory attacks on the issue by pointing out that as chancellor, Nigel Lawson had considered abolishing the regime in 1988.

Rachel Reeves spent last weekend working with aides on potential responses to Tory measures. She moved her regular tour of the TV studios to the weekend after the Budget, so she has time to respond properly. Reeves believes she already has her most effective attack line – fiscal drag. She can say that the Tories are giving with one hand and taking with other. ‘The phrase “fiscal drag” is starting to come up in focus groups,’ says a Labour figure.

Sunak’s most immediate problem is managing his party. Before Hunt even stood up at the despatch box, Tory backbenchers were saying that he had the wrong priorities and should have cut taxes more. This Budget had been pitched to Tories as a pre-election game-changer. Instead, it was much more modest than many in the party had hoped for. Dire economic growth has left Hunt and Sunak with little room for manoeuvre.

All this makes a May election look unappealing. ‘All the logic points to the autumn,’ says a Conservative MP, in the hope that things improve. As one government figure puts it: ‘Calling an election during a recession? Genius.’ The OBR expects the economy to grow by 0.8 per cent this year, picking up to 1.9 per cent next year. Some MPs argue that the only reason Sunak would lean towards a spring election is fear of having to live with his increasingly regicidal party for several more months. ‘It’s not tenable to stay in the situation we are in with awful polls coming out every week. If this Budget doesn’t change things, something else will have to change,’ says one Tory MP. As Hunt and Sunak play it safe, the Prime Minister could soon find himself fighting his own side.