I have spent much of this afternoon, a) talking to journalists and b) trying to work out how the Budget adds up.
The first task was relatively easy. The second was less so.
In part, the great cost saving in the Budget is on interest: it has been assumed that the cost of government borrowing will fall quite quickly to 3% rather than the 4% assumed last November. That finds £10 billion.
But, that was not enough, so I went on a hunt for the rest that explained how Hunt was going to give tax away. I finally got to Table A5 of the Annex to the Office for Budget Responsibility's Economic and Fiscal Outlook publication that supports the Budget data, and there I smelt a rat.
I prepared the following chart by noting n0minal GDP from table A3 of that annex for 2022-23 to 2028-29 and then noting data from table A5 on income tax, national insurance, VAT and corporation tax over the same years.
Then I calculated GDP and tax receipts for each year as a ratio of the 2022-23 figure to show growth in them, and then plotted this to get this chart:
The two blue lines in the centre that almost match each other are GAP growth and VAT, which unsurprisingly match each other almost exactly.
National insurance declines markedly: Hunt is pretending that he really will get rid of this tax.
But then note what happens with both income tax and corporation tax: both rise at rates well over anything that can be justified by the growth in GDP.
Corporation tax is a small tax; silly forecasts can be made for it, and this one is absurd: profitability is not going to grow at that rate.
But, income tax is what really matters. The forecast increase is utterly disproportionate. The growth in tax owing each year is at a rate almost double the rate in the growth of GDP.
To put this in context, income tax shown to be due in 2028/29 is £48 billion more than it would be if it grew at the rate of GDP growth.
In other words, the actual rates of income tax increase we will all actually be suffering because of fiscal drag over the next few years are going to be very high indeed - and that is how Hunt is supposedly balancing its books.
In that case, the real question to ask is, what is Labour going to do about this? We have a tax time bomb waiting to explode in the UK. Are they going to let it go off?
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The term “Fiscal drag” leads most people to switch off. Hence, Hunt is able to “square the circle”…. 2p off NI !!!! but I will tax your pay rise at 40%.
Whilst I would prefer tax raising to be done in line with your report it does beg the question….
If we want to raise tax from income is it fairer to raise headline rates or leave thresholds unchanged (in nominal terms, a decline in real terms). Lib Dems were very keen on raising tax thresholds… were they right? Or Hunt?
Fiscal drag over seven years with significant inflation is big
So allowances need to rise
But we need changes of the sort I suggest too…..
This is why the tax allowance level was not devolved to Holyrood; deliberately to disarm the most effective way to help low earners; i.e., raise the allowance, and then use the tax bands to ensure the higher income tax payers do not receive a disproportionate and unfair advantage by ending the worst effects of fiscal drag. Westminster restricted Holyrood to shuffling tax rates, because tax rates are ‘headline’ rates; if you raise them, the media will declare war and destroy you, if they can. It is al cynical Westminster politics of the worst kind.
The Conservative Government is finished. They have blown hundreds of billions – on nothing; on profligate waste. Their financial management is catastrophic; for example only, unusable PPE £9Bn (BMJ/Select Committee on Public Spending; June. 2022); £62Bn on HS2 – for a service that doesn’t even reach the centre of London (losses on Phase 2a estimated at £100m+; New Civil Engineer, Nov. 2023). £150Bn+ on interest paid for commercial bank reserves at BoE, 2024-28; a completely new cost of Government following QE (New Economic Foundation; 14th Nov., 2023); £500m potential loss on Rwanda policy, and nobody has left Britain (NAO). I could go on (Post Office comes to mind; or Ministry of Defence procurement; the cladding crisis in building regulations; RAAC concrete in public buildings); this short list is just some of the obvious disasters.
The Conservatives are so terrified of losing power (this time it is existential for the Conservative Party), they will hang on for six plus moths in the Micawberish hope something will turn up; and are quite prepared endlessly to trash a broken country in the interim and achieve nothing (and blow Billions), simply to serve the self-interest of the Conservative Party. It really is a simple as that.
Even with tax bands falling in real terms, do the numbers add up? Can we really look forward to such eye-watering increases in Income Tax paid? Don’t these numbers suggest that the Government is counting on inflation remaining at significant levels, which would bring its own serious problems.
As a spreadsheet I think this works
In the real world I cannot see how this can be delivered without creating crises
That is what worries me
“Never let the real world get in the way of a neat spreadsheet!!”
If tax doesn’t pay for spending, why is there a ‘ticking time bomb’?
Because the plan is to ask for the tax to reduce so-called government debt, which it does do.
As long as all the main parties propagate the myth that taxes pay for spending there will be a crisis. Either people will see their tax obligations continue to rise disproportionately or there will be further rounds of extreme austerity. Probably a mix of both as we’ve seen since 2010. If you keep kicking the dog it will eventually bite back.
Still, never let a good crisis go to waste! Hopefully the outcome will be a general recognition of MMT and, therefore, a new politics. If not, then the endgame is extreme civil unrest followed by a police state and the collapse of liberal democracy.