Last Tory Budget will be a reminder of who

WEDNESDAY’S Budget is the Tories’ last chance to pull some financial rabbits out of the UK Treasury hat and bolt for the ballot box in a spring election. Something big. Something that will incentivise a disgruntled and disillusioned electorate. Something that will appeal to the Tory base. Possible, but not likely. Their first problem is deciding which Tory base to aim at. The rabid right being galvanised by Lee Anderson and Suella Braverman? Or the traditional centreright voters in the Tory heartlands – over 45, ABC1, and a little vexed at the apparent vulgarity of current policy?

Economically, these two constituencies are poles apart in what they want, and what they need. The small-town populist right like their public services – just as long as Johnny Foreigner doesn’t get to use them. The -shire Tories want their wealth protected, dividends and shares taxed less. Cuts to public spending are their shield. Buying votes from one of these groups may well cost the votes of the other.

The dilemma is probably only a virtual one. In the real world, there just isn’t the scope to cut much more, not without serious political fallout.

Let’s remember, the current plans – set out only four months ago – already have built-in assumptions about government spending falling in real terms over the rest of the decade.

The Institute for Fiscal Studies estimates that not doing that and instead just keeping spending steady will cost about £20 billion a year. That’s more than twice last month’s national insurance cut.

No-one quite knows exactly how these cuts might fall but given that some areas like health and defence are protected, the brunt will fall on those that are not. If English councils think they’ve got problems at the moment, just wait a few years. In the words of Bachman-Turner Overdrive, you ain’t seen nothin’ yet.

Without saying what they will cut, Jeremy Hunt has pretty much reached the limit of plausibility on squeezing further. If he were to just whack off another unspecified £20bn for more tax cuts, the moneylenders simply wouldn’t believe it. And as Kwasi Kwarteng will testify, these people don’t muck about.

So, I’d predict a boring Budget. Maybe a couple of gimmicks chucking some money at stuff focus groups have thrown up. The narrative though will be all about an aspiration to cut taxes. The Chancellor will claim the plan is working, this Budget will consolidate it, and soon, very soon, you’ll get a bung in your pay to prove it.

This debate, about how much of a country’s wealth should be socialised and how much retained for private consumption, is the age-old political dividing line. Let’s try to give it some perspective.

The go-to source on tax is the Government’s own Office for Budget Responsibility (OBR). They collect and publish a wealth of information on what they call the tax burden. Exactly why socialised expenditure on which civilisation depends should be described as a burden is unclear, but let’s leave that to one side.

The OBR confirm that taxes have increased under this government, last year to 33.5% of GDP and that they will hit a high of 37% by 2027. But what they also confirm is that the proportion of GDP taken in tax in the UK is about 6% less than the average across the 14 comparable countries in Western Europe.

In Denmark, the tax burden is 47%. That’s 40% more than in the UK. Imagine 40% more spent on hospitals, education, social security, transport infrastructure, culture. In hard cash, it’s actually even more than that as people in Denmark are 25% wealthier than here. No wonder the Danes are so much happier.

There’s a historical comparison to be made too. Back in 1965, UK taxation was almost 30% of GDP, a lot higher than the Western European average. Admittedly, a major factor here was servicing a much larger war debt. But what happened to shift the UK’s position in comparison to other advanced economies so dramatically?

Margaret Thatcher happened. In the 1980s, when other countries were expanding their welfare state, the UK saw taxes plummet and some people get very rich in an orgy of irresponsible capitalism. That legacy is one of the main reasons for the chronically underfunded and decrepit social and physical infrastructure these isles still suffer today.

The biggest concern about tax is who pays it. The UK, with a top income tax rate lower than in many comparable countries, is somewhat squeamish about making the rich pay.

Astonishingly, the state forgoes taxes on pension lump sums for even billionaires, taxes on dividends and shares are light, inheritance tax sees most wealth kept within families.

Most of all the idea of taxing wealth and asking the incredibly wealthy to share some of their fortune is seen as a Bolshevik impertinence.

The Tory mantra about low taxes being the route to prosperity is of course predictable – the rich don’t get rich by giving it away.

What is depressing though is the stated aim of Labour to not change