Hunt takes us for fools with his stealth taxes

This Autumn Statement was based on a false premise: that Britain is on the brink of fiscal implosion and on course to be shut out of international bond markets. As a result, Jeremy Hunt is imposing very substantial tax rises at precisely the wrong time, which risks driving an already shrinking economy even deeper into recession and undermining our public finances even more.

Hours before the Chancellor stood up in the House of Commons last Thursday, the 10-year gilt yield – the annual interest the Government must pay on a new decade-long loan – was 3.14pc. Ahead of the now notorious mini-Budget in late September, that same yield was 3.49pc – considerably higher.

It’s not as if Britain is so much more indebted than other comparable countries. While our national debt stands at 97pc of GDP, the figures in France, Canada and the United States are 115pc, 116pc and 132pc respectively. Across the G7, only Germany has less public debt than Britain.

But before the measures proposed by Liz Truss, prime minister at the time, and Kwasi Kwarteng, her chancellor, no one was seriously questioning the British Government’s solvency. They weren’t before this Autumn Statement either, as illustrated by the fact that – partly because of measures Hunt already implemented since becoming Chancellor – gilt yields had fallen by a third in little more than a month.

As such, was it really necessary, in the midst of a cost of living crisis, to drive the tax burden even higher?

Government revenue as a share of GDP – 33.1pc as recently as 2019 – is now heading for 37.1pc, the highest sustained level since the Second World War. Hunt’s strategy is the product of the fraught internal politics of the Tory party. The “going for growth” tax-cutting aspirations of the previous government were wrong, with those proposing them now cast into oblivion. So only the diametric opposite will now do – swinging the tax-and-spend pendulum too far the other way.

Yet no other major economy is imposing sharp tax rises in the face of a slowdown. How will that encourage cash-strapped households to spend and get the economy moving? How will raising corporation tax from 19pc to 25pc generate the growth needed to improve our public finances, with business sentiment already at a post-lockdown low?

Britain does indeed, as Hunt remarked, “face serious global headwinds”. Over the past six months, the energy and food supply shocks emanating from Russia’s invasion of Ukraine have intensified, not least across Western Europe – one reason British inflation will stay high.

The consumer prices index in October was 11.1pc up on the same month in 2021, reported the Office for National Statistics last Wednesday, the highest level in 41 years. Even more worrying, the producer prices index continues to soar – up 19.2pc during the year to last month.

This points to ongoing supply chain price pressures, as companies continue to pay more for the inputs needed to produce the goods and services they sell us. That is why the Office for Budget Responsibility (OBR), while predicting CPI inflation of 9.1pc this year, expects price pressures to abate only slowly, with inflation still up at 7.2pc in 2023.

On top of that, as major central banks have raised interest rates over recent months, the post-lockdown bounce back has been thwarted and the world economy has stalled.

The OBR now judges Britain to be in recession, with the fall in GDP between July and September expected to be followed by another quarter of contraction before the end of this year. The economy will then shrink another 1.4pc in 2023, says the OBR – a stunning reversal. Only in March, the OBR believed growth next year was heading for a relatively buoyant 1.8pc.

Britain is heading “into a storm”, as Hunt said. But while he attempted to come across as humane – the word “compassion” appeared five times in a speech lasting less than an hour – the Chancellor came across as rather cynical. There was a strong argument that the basic state pension should have indeed risen by 10.1pc, maintaining the “triple lock” not least because that was a manifesto pledge, despite many pensioners frankly not needing the money.

And while some bemoan the impact on work incentives of awarding a similar inflation-linked upgrade across a range of other benefits, others would say that also was the right thing to do.

What was cynical, in my view, was the Chancellor’s heavy reliance on “stealth taxes” to raise revenue, rather than being up front about the scale of his tax increases.

The freezing of multiple thresholds in a high inflation environment – on income tax and VAT-registration, for instance – will drag millions of workers and companies into higher tax brackets.

Hunt kept the personal allowance at £12,570 and the 40pc higher rate threshold at £50,270 until 2028, extending freezes initially imposed when Rishi Sunak was chancellor, while yanking down the additional 45pc higher tax rate threshold from £150,000 to £125,140.

It is as if he thinks we are fools and won’t notice we’re paying much more if most headline tax rates stay put.

When Nigel Lawson introduced the 40p rate of tax in 1988, it was paid by only the 1.7m highest earning workers. Now, those paying income tax at 40pc or more will soon number almost eight million – a fifth of the workforce.

“These freezes are expected to raise £26bn per year by 2027-28 relative to thresholds being raised in line with CPI inflation,” concluded the OBR. That’s equivalent to slapping 4p on the basic rate of income tax.

This Autumn Statement was disingenuous not only because of stealth taxes, but on the spending side too. Some £30bn of the £54bn of fiscal consolidation is accounted for by lower spending, said Hunt.

“Spending will rise in real terms every year for the next five years, but at a lower rate”.

The Treasury fine print, though, shows this spending slowdown is largely back loaded, happening only after 2024, the likely year for a general election.

This is the kind of fiscal management typically associated with Labour, not the Tories. And that could turn out to be ironic – given the voter anger that will be generated as this Autumn Statement sinks in.

‘When the 40p rate of tax was introduced in 1988, it was paid by only 1.7m workers. Now, that will soon number almost 8m’