This is the morning when I know that almost anything I right now will be the equivalent of chip paper by lunchtime. Any speculation on what Jeremy Hunt might say today is, most particularly this year when so many things have been mooted as possibilities, particularly pointless. In that case, I will discuss a general point and not a specific forecast.
The only point on which all commentators appear to agree this morning is that the strongest possible hint has been provided that today's autumn statement (or budget) will include details of tax cuts.
The one thing that I can say for certain is that the last thing that we need today is tax cuts.
A one per cent cut in the income tax rate would cost around £7 billion. The benefits would go to all taxpayers, whatever their income level. The greatest benefit will go to those with the highest levels of income because the higher the income that a person has, the bigger the gain that they get from a percentage fall in the tax rate. That is a simple arithmetic fact. So too is it a simple fact that those who do not pay tax cannot benefit from a tax rate cut. Their gain comes to precisely nothing.
A cut of one per cent in national insurance is even more discriminatory. The cost is approximately £5 billion per annum, with the difference between this cut and that for income tax being that pensioners are excluded.
Meanwhile, whilst everyone has gone quiet on the issue, I suspect that inheritance tax cuts will be mentioned today. They may well be one of the many NITMO offerings (‘not in my term of office'), meaning that they will have no impact until after the coming general election, but I think that they are likely to be proposed, nonetheless. The entire benefit will, of course, go to those already wealthy.
It is also widely rumoured that there will be a substantial change to corporation tax because the £9 billion per annum deduction made temporarily available last year to soften the blow of the increase in the rate to 25%, as a result of which large companies can offset their entire capital expenditure cost against their taxable profits in the year in which that capital expense is incurred will, it will be announced, continue into the future, making it another NITMO issue that will be used to taunt Labour. Since the incidence of corporation tax is almost entirely on shareholders (although there are economists who argue otherwise), this benefit will also flow to the already wealthy, who are always the biggest beneficiaries of lower tax rates paid by the companies that they own.
In other words, any tax cut today will be deeply selective, with a very strong bias towards those with higher incomes. Those most in need will lose out, entirely. Those on low incomes will gain a little, at best. If, in that case, this is the focus of the autumn statement, it will have three typically Tory consequences.
Firstly, it will deliberately benefit the best off.
Secondly, it will deliberately increase inequality in the UK.
Thirdly, it will deliberately increase the divisions in our society.
Meanwhile, the Tories will claim that such cuts will encourage enterprise, increase the amount of work that people are willing to do, and will, therefore, increase growth.
As I noted when being interviewed on Radio Five yesterday, in my entire career as a practising chartered accountant not one client told me that a cut in the tax rate would ever impact the amount of work that they were willing to do. Firstly, that was because very few knew what that rate was. Secondly, it was because those who were running their own businesses rarely knew precisely what their profits were until well after the time that they were earned. Thirdly, it was because, even if they knew what their income was, their ability to relate that directly to the amount of tax they might pay was decidedly limited because of the complexity of the tax system. In other words, whilst this link between tax paid and effort expended might look to be obvious on an economist's whiteboard when teaching students, in the real world and with small tax changes the impact is almost certainly non-existent.
So, if this is the focus of today, then what we will be looking at is a Tory tax giveaway to those most likely to vote for them in exchange, from which we will see no overall economic gain to the economy of any great significance, not least because those who will benefit most (the best of) are the most likely to save everything that they gain from a tax cut.
I can hope for better. I suspect my hope will be forlorn.
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A cut in NIC would at least reduce the differential between earned and unearned income. But only to a small degree and wider reform is needed.
The wider story will be one of cuts to public spending. Already creaking public services are close to collapse, and people claiming benefits (which to give them the bare minimum to live) will be left in penury.
(NITMO? Not In Term My Office? Not In My Term Of Office should be NIMTOO.)
Noted
Re your observation that while working as an accountant no client had ever told you that a cut in tax would motivate them to work harder.
There is a substantial history of good academic research that demonstrates that people are not motivated to be more productive by money incentives.
Rather people see a fair days work for a fair days pay as a necessity. Without which they will leave a job at the earliest opportunity or find non-productive ways to redress what they see as a fundamentally unfair relationship.
A major reason that from Henry Ford to Amazon some companies seek to impose slave like conditions on their workforce in an effort to maintain productivity.
Agreed
In the run-up to today’s Autumn Statement the government and their media accomplices have tried desperately to paint a picture of turning the financial corner. Those sunlight upland are now within our grasp and the OBR runes tell us the time for largess is here.
It’s got nothing to do with currying favour with our friends or people we think might vote for us by the the way.
When reading about the claim that “We’ve halved inflation, Rishi has delivered on his promise” i saw this analysis of the government’s claims. It’s 6 days old but I thought, “That puts their claims clearly into context”. I thought your readers may appreciate the simple, clear explanations.
https://youtu.be/bsp9ajJCJ-4?si=C0xH5GVb3Oi7ji19
I particularly like the bit towards the end where he shows that although energy inflation has officially fallen, our pockets don’t actually see the fall in reality.
Tommy Cooper would have been proud of the slight of hand
“Mr Speaker, I Commend this Statement to the House, Just Like That”
Perhaps the clearest explanation I’ve seen recently of the effect of halving inflation goes as follows.
“Last year I sold my widgets for £1 each. With 100% annual inflation I am selling them for £2 each this year. If inflation is halved to 50% next year I will sell them for £3 each.”
So, do you feel like you are going to be better off?
That is good
I apologise. I am embarrassed; but I must point out the spelling error in you first line of the article. I expect it is due to the pressure of the Radio 2 no-line commentary.
Good luck on the radio.
I’m as nervous as you. “no-line” should be “on-line”.
Your analysis of the resulting division is likely correct, and what amazes me is that the tories genuinely think this improves their chances of winning an election. I know that weirdly contrary results have been fashionable in the last decade or so, but at a time when people desperately need some stability because there has been very little of it, the tories are quickly running out of cruel and stupid people in large enough numbers to give them votes. What they are gaining, in their place, is an increasing number of scared people who will wonder who the tories are going to hit next. It’s got to the point where there are no grounds for expecting readers of the Daily Mail to vote for cruelty to hurt someone on their behalf. We’re seeing true cruelty, unreasoning, unappeasable cruelty for its own sake. They want to burn people like a child given a chance to feed a fire. They MUST be stopped. They have already done incalculable harm. Answering the cruelty in the world with yet more of it, is never a solution, except in the mind of a person who is predisposed to nazi philosophy. We must stop this before it is a matter of national disaster and shame. If we cannot do this with the next election, we may lose all remaining chance to do it. We need to learn from what was necessary to beat Hitler, to solve this, or at least, what the US is having to do to thwart Trump.