The Daily Mail has a headline today that says:
Rishi Sunak 'plans to cut income tax by 2p in the pound or lower VAT before the next election'
There are three initial comments to make. The first is that this is not a plan, as yet.
The second is to say that although this is not a plan I have little doubt that the story comes from the government Treasury team.
Third, this in that case is what is called kite flying. Reaction to an idea is being sought.
So, let me provide some reaction. Again, three will do.
First, this is a slap in the face for working people. Those who have to work for a living will suffer an effective 2.5% tax increase as a consequence of national insurance rises which will come into effect next year. I know that only half of this will be seen on payslips, but the other half will be paid by employers who will use it as an excuse to resist pay increases when there will be inflationary pressure on them to give way to such demands. The net consequence will be that the whole increase will be passed on to employees. Of course, it could be argued that the 2% cut in the income tax rate would compensate for this, but the simple fact is that the cut will come in after the national insurance increases, and everyone will get that 2% cut, including all those who paid no more national insurance, which includes all those who live off rents, definitely come, distributions from trusts, share dividends and so on who pay no national insurance on those sources of income.
Second, an cut in the basic rate of income tax does, invariably, reduce the tax paid by the wealthiest in society, and very often in greater absolute amount than is enjoyed by those on average income. In other words, this will be another tax subsidy for the rich that will only increase inequality in the UK.
Third, the hidden agenda in this is, then, as ever for the Tories to provide benefits for their friends at cost to the vast majority in the UK who have to work for a living to simply make ends meet. The Daily Mail will sell this for all it is worth precisely because it suits those who are now seeking to make that a privately owned newspaper, but no one should be deceived: this is yet another populist move that is designed to do the exact opposite of what it claims.
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Maybe now that Megan has exposed the lies and misinformation in the Mail, their circulation will go down even further – hooray!
I think the timing is interesting. Am I cynical to think the Treasury released this a couple of days earlier, before the by-election, in the hope of boosting support, but the Mail decided not to play ball?
As for the content – same old, although a VAT reduction may be slightly more beneficial.
I would say it’s not clear what effect it would have on dividends now that that is a semi-separate tax. I doubt they would increase it and then decrease it again?
As we conclude in our editorial this month (https://labouraffairs.com/2021/12/05/sunaks-agenda-is-labours-opportunity/) :
“Sunak’s move to austerity has given Labour a huge opportunity to win back those red walls seats. Starmer must seize it and not talk about fragile public finances and express worries about the size of the national debt. Otherwise Sunak will feel completely confident that he can bring back austerity and still retain many of those red wall seats.”