13billion reasons to spike tax hike
That’s how much less we’ve borrowed as Britain bounces back – prompting more calls to freeze NI
A FAll in borrowing of £13billion means ministers can afford to scrap April’s national insurance hike, experts said last night.
The Treasury borrowed £16.8billion last month – £7.6billion less than in December 2020.
And the £146.8billion deficit so far for 2021-22 is around £13billion lower than the Office for Budget Responsibility had predicted.
With households facing a cost of living crisis in spring, experts urged Boris Johnson and Chancellor Rishi Sunak to use the extra headroom to ‘spike the hike’ in national insurance – itself of around £12billion.
NI contributions for both employers and employees are due to rise by 1.25 percentage points in April.
Bethany Beckett, of the consultancy
Capital Economics, said: ‘Our forecasts imply the Chancellor would have enough fiscal room to cancel the scheduled increase in national insurance taxes on April 1 to cushion the blow [of inflation] for households.’
James Smith, research chief at the Resolution Foundation, said that the lower borrowing made ‘it inevitable the Chancellor will set out a plan to deal with the cost of living crunch’.
Senior figures including lord Frost, the Prime Minister’s former Brexit chief, have insisted that the £12billion tax grab is not needed. It will cost a worker on a £30,000 salary around £255 a year, while someone earning £50,000 will lose around £505 from their take-home pay.
Julian Jessop, economics fellow at the Institute of Economic Affairs, said: ‘Between April and December, the UK Government borrowed £12.9billion less than the OBR had forecast.
‘This provides the “fiscal room” to ditch the hike in national insurance in April, which would have raised about £12billion.’
He added that the Government might still need to raise money later to fund a long-term increase in spending on health and social care – the areas which the tax grab was supposed to cover.
Health Secretary Sajid Javid yesterday insisted social care funding was secure. He told MPs he still backed the tax hike, adding: ‘It’s very important we have the long-term funding in place for the NHS and social care.’
The NI hike will also hit businesses, which have to pay the levy on behalf of their employees. Suren Thiru of the British Chambers of Commerce said: ‘The cumulative effect of a national insurance hike, soaring energy bills and increasing raw material costs means firms will face mounting pressure to raise prices further, and weaken their ability to invest and recruit.’
Carl Emmerson, deputy director at the Institute for Fiscal Studies, said: ‘The long-run pressures on public services, especially health and social care, remain just the same and tax rises are likely to be needed if these are to be met.’
But he added: ‘Mr Sunak certainly could find money to delay tax rises or find other one-off ways of supporting living standtax ards, such as uprating benefits in April with a more up-to-date measure of inflation.’
Sarah Coles, an analyst at investment platform Hargreaves lansdown, said: ‘Now is not the time for a tax hike.’
Britain’s public finances were boosted in December by higher income, especially from large businesses as they performed better than expected.
Factories meanwhile are planning their biggest price hikes since the 1970s amid surging costs and a shortage of workers.
Manufacturing costs in the three months to January grew at their quickest rate since 1980, according to the Confederation of British Industry. Inflation hit a 30-year high of 5.4 per cent in December and is expected to soar to 7 per cent this spring.
Rain Newton-Smith, the CBI’s chief economist, said: ‘Global supply chain challenges are continuing to impact UK firms, with our survey showing intense and escalating cost and price pressures.’ She called for the Government to take short-term action to find solutions to help struggling firms.
‘Weaken their ability to invest’