On Personal Tax:
It was Martin Luther who said: “what the right hand gives, the left hand takes”. But there is still something incoherent about cutting the income tax rate whilst at the same time raising the rate of National Insurance.
The way I see it, NI is basically the same as Income Tax. The Chancellor is even harmonising the thresholds for each to £12,570 in July, seemingly acknowledging this point. But NI rates are going up in April – the so-called Health and Social Care Levy. Not now up as much as we thought for everyone, thanks to the increasing threshold. But still going up. (And by the way, rampant inflation means fiscal drag, and that means we will all be paying more Income Tax and NI in absolute terms. A matter the Chancellor is never keen to discuss.)
But Rishi wants the front page of The Sun to call him the “Tax-Cutting Chancellor”. The “rabbit from the hat” (and how I hate that cliché) was his cut in basic rate income tax from 20% to 19%. But not until 2024 – the end of the parliament.
There is many a slip between cup and lip, and the rabbit may very well be shot by then.
The key to everything about tax is timing, and this was quite the exercise in clever temporal presentation by the Chancellor. The timing is the small print. So I wouldn’t be rushing to spend that extra 1% in your pocket just yet.
On the Economy:
I don’t really need to comment about inflation: we saw this coming last year, before any mention of Ukraine. Inflation is a result of government borrowing that has been out of control.
The Chancellor delivered his statement today only hours after inflation was reported to have hit 6.2%. The highest it’s been in 30 years. Forecasts suggest this will average 7.4% this year, and my team tell me that this figure underestimates what they are really feeling day to day in terms of living costs.
The Chancellor recognised this: a fuel duty cut of 5p per litre from 6pm tonight; zero rate VAT on energy efficiency spend (but of course you need the money to be able to do that in the first place); and a £500m pot of targeted support for vulnerable households.
The thing is, inflation hurts discretionary spending: there isn’t a great deal you can do about your energy bills, or your supermarket shop. But if there is less left over at the end of the month, that affects your meals out, your trips to the cinema, your holiday plans. And it’s these sorts of things that make life worth living.
Has the Chancellor done enough to avoid being punished by a fed-up electorate at the ballot box next election?
After the past 2 years of unprecedented splurge, the Chancellor is now desperate to claw back the Tories’ tattered reputation for monetary competence. He told us today that borrowing was back under control, but I thought he made two important caveats today:
1 He said that the OBR has not accounted for the full impact of Ukraine.
2 He made a point of saying that we would be paying an eye-watering £83bn of debt interest next year, 4 times the amount last year. £83bn is about the same as we spent on Defence and Education combined last year. This puts the recent interest rate rises into context.
The Bank of England’s inflation forecasts are starting to look like their interest rate forecasts. I’m not persuaded that borrowing is quite as under control as he would have us believe.
On Business Tax:
This has been kicked to the longer grass of the Autumn Budget in October. But the steer we have been given today is:
1 Changes to the Apprenticeship Levy
2 Reform of Research & Development (R&D) Tax Credits
3 Tinkering with Capital Allowances
We can expect changes in these three areas between now and then. The type and scale of change will, I expect, depend on how entrenched Ukraine becomes.