Today Rishi Sunak announced that he was implementing “the biggest ever tax cuts”. Except, the tax burden is at a seventy year high. The tax “cuts” have also only acted to unpick just 1/6th of the tax rises he has instituted. This government has always been a government of slogans, but this has taken on a whole new meaning. Today’s mini-budget moved into outright gas-lighting.
Before we get into the detail, let’s just remind ourselves of some crucial context. Inflation is rocketing, and is looking to hit 8% this year. The OBR has announced that this is going to lead to the biggest decline in living standards ever recorded. Energy prices have blown up, with OFGEM increasing the price cap by 54%. Freight costs have increased by, in some cases, 600%. Growth and wages remain relatively stagnant when compared to inflation. And NI is set to rise, a completely self-made cherry to top off this crisis.
What was announced?
As usual, it was weak, half-baked nonsense. I’d call it bread and circuses, except there wasn’t even any bread. To summarise:
- 5p cut to fuel duty… except fuel has risen by 55% in the last two years; a 4% reduction doesn’t even make a dent
- NI income threshold increase from £9,570 to £12,570… this does help the worst off, but the NI increase is going ahead and will place a heavy burden on middle income earners
- A meaningless pledge to cut tax in a few years
- £500m extra funding to the Household Support Fund… there’s not much detail on how this will be dished out as yet, but frankly it’s a paltry sum that will do little to help
As usual, this does little to help the worst off. Places a bigger burden on the squeezed middle that will likely drag many into poverty. And does absolutely nothing to redress the tax balance towards the wealthiest.
What wasn’t covered in the mini-budget?
Pretty much everything that people actually needed has been ignored.
People on benefits and pensioners have been completely ignored. The two most vulnerable groups in society are being left to fend for themselves. A planned 3.1% benefits rise will do little to offset inflation. This is especially true given that energy makes up a disproportionate amount of their spending.
There were also calls to scrap National Insurance rises. This has been a hugely controversial move since it was announced and is totally unnecessary. Sunak is stubbornly persisting to avoid a U-turn as opposed to any sort of cogent economic argument. The worst bit about this rise is that it will disproportionately impact middle earners. Again, this puts more of the tax burden on the middle, rather than the wealthiest in society.
Energy companies were also left to enjoy billions of profits, bolstered by lockdown. Shell alone raked in £14.bn in 2021. This was a 394% increase vs 2020 and led to a £6bn dividend. Yet, calls for a windfall tax to help shoulder the economic the burden have been dismissed out of hand. OFGEM has also been allowed to increase the price cap by 54%. Despite this, there has been absolutely no additional support given to families impacted by energy price rises. The government pointed to the “not-a-loan” scheme and the council tax linked rebate, but this again hardly scratches the surface.
Finally, freezes to UK income tax thresholds have meant that over 1 million people have been dragged into the higher rate of tax due to the ludicrous inflation rate. Again, little to none of this extra tax has made it back to the public. Where is it going? Probably on another ridiculous vanity project.