As far from Liz Truss’s tax-cut agenda as it’s possible to go
JEREMY Hunt has long threatened stern measures to beat inflation and promote stability – and today he was true to his word. In sombre tones, the Chancellor unveiled a savage package of tax rises that will deal a hammer blow to the prosperity of businesses and ordinary working citizens alike as he seeks to restore order to the public finances.
Hunt’s debut financial statement was greeted by MPs with almost total silence – and who can blame them?
With consumer price inflation hitting its highest level in 41 years and energy bills soaring as a consequence of Russia’s brutal invasion of Ukraine, working Britons face the bleakest of prospects. Real incomes – what wages are worth after inflation has been taken into account – will fall by 7 per cent a year over the next two years meaning our living standards will take a painful hit.
So anxious are Rishi Sunak and his Chancellor to show the world Britain believes in sound money, and has well and truly turned its back on Liz Truss’s taxcutting dash for growth, that they have gone over the top on the tax front. In so doing the UK has gone out on a limb, with other advanced nations preferring to let borrowing take the strain as war rages on Western Europe’s doorstep.
BOTH economic and fiscal forecasts read like a horror story. The economy is already in recession and growth is set to plunge from 4.2 per cent this year (a rate due in part to the ongoing Covid bounce-back) to minus 1.4 per cent next with a sickly recovery pencilled in for 2024 – the last possible year for Sunak to go to the country. Yes, inflation will start to cool off next year but is still forecast to average 7.6 per cent in 2023-24 – almost four times the 2 per cent level the Bank of England was tasked with maintaining by the Treasury. As for the national debt – now standing at a colossal £2.4trillion after years of living beyond our means – it remains above 100 per cent of the economy’s total annual output in spite of Hunt’s punishing new levies.
As a consequence of the autumn statement, taxes will jump to 37.1 per cent of national output over the next few years, a level that the Office for Budget Responsibility describes as the longest ‘ sustained’ period of high taxation since the Second World War.
But it is not just taxes that are rising. Because Hunt chose to protect those on welfare and keep faith with pensioners by standing by the Tories’ manifesto promise to honour the triple lock that guarantees retirees an annual increase in line with inflation, spending also surges to record-breaking levels. The Chancellor sought to portray his measures as pro-growth by backing big capital programmes such a nuclear power project at Sizewell C in Suffolk. Yet he has moved as far away from Liz Truss’s vision of a supply-side, tax-cutting agenda as it is possible to travel.
The severity of Hunt’s tax regime could make former chancellor George Osborne’s austerity budget, in the aftermath of the financial crisis of 2008-09, look modest. Overall taxation on business will climb by an agonising £32billion in the next financial year alone. By clobbering companies with higher taxes – with energy companies and electricity generators hardest hit – he is gambling that enterprise values calmer markets more than incentives to invest. But there is a real risk that the combination of higher taxes and the Bank of England’s interest rate increases will make the upcoming recession deeper and longer than it need be.
And you don’t have to just take my word for it. The insurance giant Royal London, a big investor in its own right, cautions that a significantly tighter fiscal policy as higher interest rates take effect ‘risks a long recession’ with great damage to consumer incomes, the property market and domestic stocks and shares. In the recent past the OBR’s forecasts have often been way off target and faster than expected economic growth has delivered higher tax receipts thus creating unexpected headroom for the Exchequer.
But this time round the independent body’s economic projections are more optimistic than those produced by the Bank of England: it is predicting a yearlong recession rather than the two-year slump forecast by the Bank just a week ago.
And the high costs of the £2,500 energy price cap – yesterday extended by 12 months at a higher level of £3,000 – plus an inflation-matching rise in state pensions and most benefits means borrowing will surge to £177billion this year.
THERE was an occasional chink of light amid the gloom. Hunt sought to boost commercial innovation and Britain’s world-leading research universities with a promise to maintain research and development tax breaks that had looked to be under threat.
And by preserving spending on big road and rail projects, as well as the national broadband network, he has avoided the mistake many chancellors have made in the past of taking an axe to projects that will benefit the next generation and should deliver much-needed productivity gains. That is something to be grateful for.
But in prioritising the restoration of financial stability over everything else, Sunak and Hunt have overcooked the tax shock to ordinary people, and they are stifling enterprise and entrepreneurship too by coming down hard on capital gains taxes.
This was a financial statement suffocated by Treasury orthodoxy and put out by an administration clearly completely bereft of ambition, vision and aspiration.