Deluded Britain is heading for disaster

I’m old enough to remember when Brits were promised significant tax cuts. So are you. It was two weeks ago. The Prime Minister and Chancellor both used comment pieces in Sunday papers to indicate the March Budget was going to signify a renewed, refreshed, tax-cutting Tory party.

“Because of our careful management of the economy,” Jeremy Hunt said, “we can start cutting taxes again in a way [that] is both affordable and boosts our growth.” It was a nod to the businessfriendly tax cuts he announced in the Autumn Statement last year, but also a clear indication of his intention for this spring. After being accused of over-exaggerating the extent of these reductions last November, the Government has been painfully aware that it has a tax burden problem. Yes, taxes were brought down; fairly substantially, too, as Hunt committed to making full expensing permanent and reducing employee National Insurance from 12pc to 10pc.

But the tax burden remained exactly the same as it was in the OBR’s previous forecast: on track to reach a post-war high by the end of this Parliament. This has presented the Chancellor with an additional mission this year: not just to slash more taxes, but to reduce the overall tax burden in good time before the next general election. No small feat. But it’s also a promise that was made just weeks ago. Already, however, it’s being rolled back.

“As things stand at the moment,”

Hunt told ITV this week, “it doesn’t look like I’ll have the kind of room that I had for those very big tax cuts in the autumn,” throwing in the caveat that “things can change” depending on the final numbers he is presented with from the OBR. A few weeks ago, independent forecasters were predicting the Chancellor would have around £20bn worth of fiscal headroom, but there is now speculation that it could be even

‘Decision to prioritise more state spending has pushed tax cuts down the priority list’

lower. Some £10bn or £15bn worth of extra cash against Hunt’s fiscal rules would allow for another penny to come off National Insurance or perhaps minor relief on income tax. But not much else.

It’s not what anyone wants to hear – especially Tory MPs who are banking on a big tax break for voters this year. But the decision to prioritise more state spending has meant that tax cuts have fallen down the priority list. The trade-off has already taken place, and there is simply not enough time – or willingness – to tackle spending and reverse the high-tax, high-spend trajectory that has been in motion for more than a decade. The Institute for Fiscal Studies has been warning for years now that you can’t, as ageing demographics catch up with us, keep your healthcare and pension promises without significant tax increases.

The public have figured it out, too. Practically every debate these days is framed in terms of supporting the state. Why ban cigarettes for the next generation? To keep young people healthy, working longer for the state and making fewer demands of the NHS. Why get people back into work? To increase the tax base, boosting revenue for the state. Even the most personal and existential questions feed into the same narrative. How to frame the issue of falling birth rates: who is going to pay for the healthcare bills and the pension pots? It’s not obvious, to me anyway, that this is the core purpose behind having children. Yet it’s the reason cited over and over again for why couples need to have more kids.

A poll from YouGov just a few weeks ago showed respondents more supporting extra cash going to public spending rather than tax cuts. This could be an indication that the public is convinced by the Tory push for a bigger state. It could also be an indication that the public are simply resigned to “big state” Toryism: if they are going to be taxed at record levels, they would at least like to be able to access some of those services, like the GP.

“We’re still in the middle of that process”, Hunt said about the OBR’s calculations, as he waits to confirm just how much wiggle room he will have. Hunt’s boss had a habit when he was in the Treasury of under-promising and then making big fiscal announcements in the Commons; it is possible Hunt is taking a play out of Sunak’s handbook, and gearing up to pull a few rabbits out of his hat. But even in the best-case scenario, it seems highly unlikely Hunt will find the room to tackle frozen tax thresholds, reversing the fiscal drag that is pulling millions of people into paying tax or into higher tax brackets. This should come as no surprise. This Government has already been cutting the tax cuts close, as Hunt has left himself roughly half the headroom against his fiscal rules than the average Chancellor since 2010.

Yet it seems the Government is the last to cotton on, only now catching up to what’s happened. It seems to finally be dawning on ministers that their plans to woo voters with a new tax strategy is prohibited by every other spending promise that’s been made.