Public spending means more tax
THE tax burden will reach its highest level since the early 1950s as Rishi Sunak boosts public spending and takes action to address the rising cost of living.
The Chancellor reaped the benefits of a stronger-than-expected recovery from the economic hit of Covid-19, using his budget yesterday to set out increases in departmental spending and help for people on low incomes.
The Chancellor pledged a major increase in Whitehall budgets, tax cuts for businesses, and investment to create a “new economy” based on high skills and wages, following the pandemic.
However the moves come on top of previously announced increases in corporate and personal taxation, which the Office for Budget Responsibility (OBR) said would leave the overall tax burden at its highest since the final period of Clement Attlee’s post-war administration 70 years ago.
Key announcements in yesterday’s budget included:
■ A £2.2 billion package of Universal Credit reforms to allow claimants to keep more of the benefit if they earn more from work.
■ Around £7 billion worth of cuts to business rates following a review into the property tax, with the cancellation of next year’s increase in the rates multiplier and a 50% cut to next year’s rates for most retail, hospitality and leisure businesses. ■ A cut in the surcharge levied on bank profits from 8% to 3%.
■ Flights between airports in England, Scotland, Wales and Northern Ireland will be subject to a new lower rate of Air Passenger Duty from April, 2023.
■ Whitehall departments will receive a real terms rise in funding as part of the Spending Review, the Chancellor said, amounting to £150 billion by 2024/25.
Mr Sunak told MPs: “Employment is up. Investment is growing. Public services are improving. The public finances are stabilising, and wages are rising.” He promised “help for working families with the cost of living”, with the OBR expecting consumer price index (CPI) inflation to reach 4.4% but warning it could go further and hit “the highest rate seen in the UK for three decades”.
The Chancellor was given some leeway for greater spending as a result of an improved economic outlook, with the OBR predicting the economy will return to its preCovid level at the turn of the year.
It also reduced the estimate of the long-term “scarring” caused by the pandemic from 3% of gross domestic product, a measure of the size of the economy, to 2%.
The economy is forecast to grow by 6.5% this year instead of the 4% expected in March, but Mr Sunak acknowledged the problems of rising inflation, blaming it on the global reopening of economies following the pandemic.
He promised further action to address strained supply chains, with tax breaks for HGVs and investment in lorry parks. The OBR said international supply-chain bottlenecks had been “exacerbated by changes in the migration and trading regimes following Brexit” in the UK.
Mr Sunak’s budget follows the Government’s decision to increase National Insurance contributions by 1.25 percentage points from April to help fund the NHS and social care, and previously announced hikes in corporation tax rates.