A famous tale from my hometown involves two best friends and the local bully. Each Thursday evening while the friends walk home merrily from football practice they come across the widely-feared tormenter of their local area. With no provocation, the bully thrusts his schoolbag into the arms of one of the best friends and begins mercilessly beating the other. Week after week this process continues.
One day as the young boy is lying bloodied on the verge of consciousness, the best friend comes over, removes his friend’s broken glasses and exclaims “Good news!”. The boy, dazed and confused, stares inattentively and replies “What?”. The best friend struggling to contain his excitement exclaims, “I got him! I dropped his school bag in the mud before handing it back”.
This tale perfectly characterises the past few days. Like many, I watched starry-eared as Rishi Sunak unveiled his Spring Statement – with his passionate speech adorned with a commitment to free-markets and low taxation filling me with hope. However, we must not lose focus nor be distracted. In truth, this was a weak statement made by a weak Chancellor.
Rishi went into the day against a backdrop no Chancellor would wish for. Inflation at the highest rate in three decades, household energy bills set to increase more than 50 per cent, and the tax burden at the highest in seventy years. Households are currently undergoing the worst squeeze on disposable incomes in three decades, with a reported 85 per cent of Brits feeling the effects.
Yesterday had every chance of being Rishi’s Churchill moment. As the nation huddled together in their dimly lit abodes, our Chancellor had the real chance to strike hope in people’s hearts, especially given the Treasury’s fiscal headroom – the amount of wriggle room before coming up against budget targets – which Goldman Sachs estimated could be upwards of £75 billion.
Instead, Rishi caved in to traditional Treasury pressure to do as little as possible, and his political instincts to not reverse the proposed National Insurance Contribution (NIC) hike. To cover for this, Rishi opted to cut fuel duty by 5p and raise the threshold whereby workers begin paying national insurance to £12,570. For what many have come to describe as the ‘rabbit out of the hat’, Rishi announced his plan to cut the basic rate of income tax by 1 pence conveniently in time for the next election in 2024.
The rabbit out of the hat analogy is misplaced – Rishi’s announcement has more in common with the crushed Canary from the vanishing bird trick. His reduction will be greatly undercut by the pre-announced freeze to income tax thresholds, with an estimated 87 per cent of workers set to pay more in income tax and national insurance after yesterday’s announcement. How does that sound for your low tax credentials, Rishi?
Besides all else, the Spring Statement inflicts most harm on those needing help most. It does strikingly little to alleviate the fastest decline in living standards since records began, and leaves 1.3 million people (500,000 of which children) on the verge of ‘absolute poverty’.
As the Adam Smith Institute’s most recent report argues, it is imperative that Rishi aims for growth as a means of easing the cost of living crisis. Broadly reducing taxes, unfreezing the income tax threshold and scrapping the NIC hike are fiscal measures Rishi could have invoked to substantially lift the burden off household’s backs.
The Treasury entirely overlooked the extortionate childcare costs that plague families with a monthly rate often higher than their mortgage, currently set at the greatest of all Europe. Relaxing our strict child:staff ratios to that of Norway could have more than halved the cost paid by households, removing a great pressure off families.
Let us not rejoice over fuel prices being cut to that of a few days ago or the basic rate of income tax being reduced by a measly 1p two years from now. The Spring Statement fell woefully short of what is needed. There is little reason to celebrate the muddied school bag as the economy is continually beaten.
This article was written for 1828.org, please find it here: https://www.1828.org.uk/2022/03/24/this-was-a-weak-statement-by-a-weak-chancellor/