The Budget is one of the most important speeches any politician can give. It should be the yearly centrepiece for the Chancellor as he or she describes the state of the economy and explains the steps that the government will be making as it seeks to improve the fortunes of the nation and its people.
However, this year’s Budget has been striking in its tone and its policy announcements. The Conservative Party has abandoned its long-held position on the efficacy and value of tax increases. It is widely known that increasing tax beyond a certain point actively reduces the increases you get and that cutting taxes can both increase revenues as well as stimulate investment, entrepreneurship, and economic growth.
Rishi Sunak has thrown this away and has become the first Chancellor to raise corporation tax since Dennis Healey in 1974. He has refuted that lower tax rates lead to higher receipts. In 2017, the Conservative Party believed in the truth about corporation tax. In 2015, Sunak stood up in the Commons and said that raising corporation tax is a “move that would damage jobs and growth.”
This fundamental truth has not changed and if anything, the damage from an increase to corporation tax on the back of the Covid pandemic will have an even more disastrous impact now than it would in normal economic times.
Moreover, there is the hidden stealth taxes that people need to be concerned with. For example, by freezing the personal income tax thresholds thousands of employees up and down the country will have reduced take home pay, even as their wages nominally rise.
Rishi’s tenure has Chancellor has seen the government fail to meet any of its fiscal objectives and is now leading to a tax and spend programme straight out of the 1960’s.
The OBR forecasts for the UK economy do not make for brilliant reading either. There is expected to be a bounce in 2022 – but it will not make up for the astonishing downturns that we have suffered during the pandemic.
There are a few saving graces but they are few and far between and certainly do not make up for the overall message. The decision to introduce a super deduction has gone down well with most right of centre think tanks. Extending the Universal Credit uplifts and the furlough scheme can only be welcomed.
Yet, UK’s £2.8 trillion debt and massive deficits will not be solved or really even addressed by Sunak’s budget – this much is clear. Government borrowing levels are only surpassed by wartime records and the increased tax burden will not help growth in a post-Covid world. It may be that this should only be considered in the context of a short-term Budget, one to tide us over until the economy is fully reopened post-Covid – one that enables the country to keep paying its rising debt.
However, the long term effects of some of Sunak’s decisions will echo on. The decision to increase corporation tax flies in the face of conservative principles and has removed one of the clearest economic policy distinctions between the two major UK parties. The Chancellor could have introduced a pro-growth Budget that focused on recovery and long-term improvement. Instead of building for the future, he has instead gone for short term costly decisions that will only create more problems down the line.