Rishi Sunak, the adopted Yorkshireman who is now the Chancellor of the Exchequer, is clearly a clever and able man, and in his Budget this week he appears, so far at least, to have kept the hissing to a minimum.
But make no mistake about it, we taxpayers are being well and truly plucked, and many will feel the chilly draft of economic hardship as a result.
For this was undoubtedly a tax raising budget, although a shrewdly disguised one. According to the independent Office of Budget Responsibility’s five year forecast, this Budget will raise £30 billion - £29 billion of it in extra taxes.
Of course in many ways this is no surprise. The Covid-19 pandemic, and the associated restrictions on business activity, have ripped a gaping hole in the economy and the public finances. Borrowing this year is set to top £355 billion – a peacetime record – and Sunak announced this week that the eye-wateringly expensive furlough scheme and the £20 a week uplift to Universal Credit claimants will be extended for another six months.
Anyone with any sense will know that all this has to be paid for somewhere down the line. There is no magic money tree in the Garden of Number 11 Downing Street that can be given a quick shake to meet the shortfall.
And if there was ever any doubt about who is going to pick up this monumental bill, Sunak made it crystal clear – it is you, the poor, sodding taxpayer.
But the Chancellor has slipped in some massive tax rises by stealth, by simply freezing income tax thresholds for five years until 2026. As a result an extra million mainly lower paid workers will be forced to start paying income tax for the first time over the next five years and a million more will move into higher rate tax bands – effectively this is a big pay cut.
Similarly for business there was some good news, including the “super deduction” on investment, which Sunak boasted was the “biggest business tax cut in modern history”.
This may be true, and it allows companies to offset 130 per cent of the money spent buying new plant and machinery against future tax bills. Fantastic idea.
But just as firms were celebrating this innovative and far-sighted move, they were absolutely clobbered with a massive increase in corporation tax, from 19 per cent to 25 per cent, beginning in two years’ time.
Small firms with profits of less than £50,000 will escape this increase, but it will still hit many companies really hard.
Not so long ago Sunak was pointing out that previous reductions in corporation tax had actually resulted in an increase in the tax take paid to the government – yes, that’s right lower taxes resulted in more money paid in tax. But he seems to have forgotten that valuable insight in his latest move.
Since the 2010 election, the Conservatives have already repeatedly broken promises about balancing the nation’s books, and now their commitment to a low tax economy is at risk.
If we are to repair the damage done by the pandemic we will only achieve this through economic growth – more investment, bigger profits, more jobs and higher wages, and ultimately more money collected in taxes for the government to spend on the things we all value, such as education, health care, welfare for the poorest and new transport links. Anything that retards growth will set back our recovery.
And if there is one thing we have learned down the years is that high taxes damage economic growth and therefore result in fewer jobs, lower wages and less prosperity. It is a painful lesson that the Conservatives seem destined to learn again the hard way.
Indeed, Sunak now has the unwelcome distinction of being the first Chancellor to raise corporation tax since Labour’s Dennis Healey in the 1970s, and overall the tax burden imposed on the population will be the highest for some 50 years. The pandemic has hit the country hard, and clearly we need to repair the public finances, but this doesn’t sound much like the low-tax, high growth Conservatism that we had been led to expect, does it?
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