ANDREW NEIL: One tax up, another one down – this hokey-cokey Chancellor is no Mrs T
Chancellor Rishi Sunak reckons he’s a bit of a Thatcherite, an enthusiast for low tax, tight public spending, prudent borrowing and limited government.
Of course, in his two years at the helm of the Treasury he’s presided over the opposite: high taxes, huge spending, record borrowing, and expanding, intrusive government.
Despite the Thatcherite rhetoric, he continued in that vein in Wednesday’s Spring Statement.
Rightly, he can blame the pandemic for much of what he’s had to do: no Chancellor could have coped without recourse to increased state spending and intervention. But the jury is still out on his Thatcherite credentials, for the more he talks the talk, the less he walks the walk.
That is particularly true of one feature of modern government which used to infuriate Margaret Thatcher: its proclivity for giving with one hand while taking with the other.
I heard her wax lyrical about this first-hand in meetings with her during the 1980s. It wasn’t just the inherent illogic which annoyed her.
‘It’s the waste,’ she complained. ‘You need even more bureaucracy to do both.’
ANDREW NEIL: Chancellor Rishi Sunak reckons he’s a bit of a Thatcherite, an enthusiast for low tax, tight public spending, prudent borrowing and limited government
Sunak has become a master of the art. He puts his right hand in proffering tax cuts — and he pulls his left hand out, his maw replete with tax rises. He is truly the hokey-cokey Chancellor.
Consider the mess he’s in over National Insurance and income tax. Last year, he said National Insurance contributions (NICs) would have to rise next month to pay for the NHS and social care.
That the country would by then be in a vicious cost-of-living squeeze, which his increase would only make worse, was not fully apparent when he made the announcement.
But instead of reversing it — by far the simplest and most sensible response to changed circumstances — he dangled the prospect of a penny cut in income tax in 2024, almost by way of compensation. Never mind that a small tax cut in two years does nothing to help families struggling with soaring food and fuel bills now.
Just consider the absurdity of it. A 1.25 per cent rise in employee NICs is, for most workers, no different from a 1.25 per cent rise in the basic rate of income tax.
But that rise is now to be partly offset by a 1 per cent cut in income tax. So why not just raise NICs by 0.25 per cent? Or better still forget about the rise altogether and keep the basic income tax rate at 20 per cent.
He could easily have afforded to do that. He started looking for new revenues last year because official forecasts said that, after borrowing a shed-load to deal with the pandemic in 2020, the Government would still be borrowing a shed-load more in the two years after that.
But borrowing in the current 2021/22 financial year is £72 billion less than what the Treasury thought it would be last March. And it will fall by a further £30 billion in the new financial year, which starts next month. So there was really no need for any rise in NICs at all.
The Chancellor’s fallback is that the rise in NICs will soon morph into a health and social care levy which will ring-fence money for these purposes. But that has been shown to be a fiction, too.
To make the National Insurance rise more palatable Sunak raised the level at which people start paying NICs to the same level as the income tax personal allowance (£12,570).
Good idea in itself. It simplifies the tax system and helps the low-paid. It costs the Treasury over £6 billion a year in lost revenue, but it’s money worth forgoing because the NHS budget is not being cut by £6 billion. It’s getting the extra dosh whatever the rise in NICs generates. Collapse of another reason for proceeding with the increase.
It doesn’t stop there. National Insurance is a tax on jobs. It falls disproportionately on workers. Pensioners and those with so-called ‘unearned’ income (from rent, interest and investments) don’t pay it.
Instead of increasing his dependence on NICs, a radical chancellor would be phasing it out and merging it with income tax. Since Gordon Brown’s time, NICs have been something of a stealth tax which they nudged up while boasting about not increasing income tax.
Stealthy Sunak’s fingerprints were all over the Spring Statement. He said he wanted people to keep more of their own money. But he’s increased taxes by more than any modern chancellor.
He’s proud of the billions he produced for furlough and fuel bills. But he couldn’t find a penny to help those on benefits cope with the cost-of-living squeeze.
He did manage to promise a penny off income tax in 2024 even though he’d just told us of the ‘unusually high uncertainty around the [economic] outlook’, which suggests he was more anxious to burnish his tax-cutting credentials with Tory MPs, even if it was jam tomorrow, than be prudent with the nation’s finances.
The jury is still out on his Thatcherite credentials, says Andrew Neil, for the more he talks the talk, the less he walks the walk. That is particularly true of one feature of modern government which used to infuriate Margaret Thatcher: its proclivity for giving with one hand while taking with the other (pictured in 1988)
It will take more than a penny cut in income tax to see Sunak as a tax-cutter. He has managed to raise taxes more in two years than Brown managed in ten.
On his watch the national tax burden is on course to reach 36.3 per cent of GDP, up 3.3 percentage points on 2020 (even after the income tax cut), the highest since the Left-wing Labour government of the late 1940s.
Almost all workers (seven out of eight, or 27 million) will pay more tax on their earnings than they did when the Tories won the 2019 election. The tax cuts he has announced still leave more than 80 per cent of the tax rises intact.
Even the penny off income tax will be more than subsumed by his freezing of income tax thresholds, which, with inflation rampant, will drag many low-paid workers into tax for the first time and 1.3 million middle earners into the higher 40 per cent tax band.
Though it was a clumsy metaphor delivered with all the panache of a funeral director, there was truth in shadow chancellor Rachel Reeves’s claim that there was an Alice In Wonderland quality to Sunak’s Spring Statement.
Why claim to cut taxes when everybody knows you’re not? Why say you’re prioritising cost-of-living issues when clearly you are not. Like the characters in Alice In Wonderland, the Chancellor thinks things are whatever he says they are.
The fact is Sunak had the fiscal headroom to scrap the rise in NICs, remove VAT and green levies from fuel bills, increase benefits for the poorest and stick to planned increases in NHS spending.
It would still have left us with major cost-of-living problems, but it would have ameliorated them by more than he chose to do on Wednesday.
It seems he put greater priority on building up his pre-election tax-cutting war chest. It’s not clear the voters will forgive him for that. The job of chancellor is to run a successful economy, not further their career prospects.
A successful economy still eludes us. Largely ignored amid all the detail was the depressing forecast that, as we make our way into a second decade of lost growth, from next year the UK economy settles back into a post-pandemic, sclerotic 2 per cent annual growth through the middle years of the 2020s.
There was little in the Spring Statement to change that and every prospect that high tax levels could make it worse.
Britain needs a business investment boom, but our private sector continues to invest at well below the average for advanced economics. Sunak said he was looking at tax breaks for business.
He’s already announced that tax on company profits will rise from 19 per cent to 25 per cent next April. Now he’s looking at ways to cushion that rise with tax incentives for investment. The hokey-cokey Chancellor in action again.
To be fair, fate has dealt Sunak a tough hand, from a once-in-a-hundred-years pandemic to war in Ukraine. He is clearly not to blame for either. Nor is he responsible for the rise in inflation, which is a global phenomenon and the fault of central banks.
This column recently argued that perhaps the best we could hope for was that he didn’t make things worse. But he failed even that modest test on Wednesday.
Thatcher’s mission was to reform a low-growth, high-tax economy. Sunak looks destined to preside over a low-growth, high-tax economy for the foreseeable future. We can only hope that will have dawned on him by the time of the Autumn Budget.
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