The real cost-of-living solution is tax cuts
The Prime Minister has asked his Cabinet colleagues to come up with ideas to ease the cost of living crunch that is beginning to have a serious impact on household budgets. The high cost of energy will soon be joined by rising food prices as the impact of the war in Ukraine and the latest lockdowns in China is felt worldwide.
Departmental ministers are looking to see if there was any targeted help going largely unclaimed that people who qualified could be directed towards. This includes benefits such as pension credit. The DWP says up to £1.7billion went unclaimed last year, amounting to around £1,900 for each family entitled to help with living costs. Take-up is low because people don’t know about it or the form-filling is onerous. Access to welfare payments invariably involves bureaucracy that is off-putting. Mr Johnson is also keen to see childcare costs reduced.
But there is a simpler way of helping people financially and that is to let them keep more of their own money. New figures show that even as the economy was struggling to emerge from the pandemic, the Treasury raked in more income tax, National Insurance, capital gains and inheritance taxes than at any time in history. HM Revenue & Customs collected £718.2billion, up almost a quarter from the year before. Tax receipts as a proportion of GDP are now at 30 per cent, up from 27 per cent the previous year.
The haul has risen every year since the Conservatives came to power under David Cameron’s 2010 coalition, apart from when VAT was cut to 5 per cent to mitigate the effect of the lockdowns on the worst-hit sectors of the economy. Middle class professionals have borne the brunt of so-called fiscal drag – being drawn into higher tax brackets by the freezing of allowances.
Under a Conservative Government ostensibly committed to low taxes, the overall burden is at an all-time high.
The Government has rightly identified the cost of living as a serious threat to the wellbeing of voters and, by extension, to the electoral chances of the Tory party.
Rather than hunt around for ideas, Mr Johnson and Mr Sunak should look to the solution staring them in the face and cut taxes. The Chancellor does not have a Budget until the autumn and if he announced cuts then they would not take effect until next spring. That will be too late, so an emergency package is in order.