Ulysse Abbate
Research Assistant, Chamber UKExploring the taxes hidden deep within the Spring Budget’s 98 pages of policy, Chamber UK’s Research Assistant, Ulysse Abbate, reflects on Hunt’s Budget in the new edition of Chamber’s Journal.
Recent budget statements in the UK have had their fair share of controversy. Whilst 16 months passed between October 2018 to March 2020, with no budget announcements, the 7 months between September 2022 and March 2023 gave us three budget statements, signaling not only the unprecedented economic challenges facing the UK but also the multitude of perspectives on how to resolve the country’s woes.
This budget was, in the sense of having hysteria and controversy, unique. Whilst Hunt may have promoted his fiscal policies as decisive, the country remained unconvinced. No poll bounce, no sudden influx of foreign direct investment, not even his own party rallying behind the budget (in fact, a new front for Sunak and Hunt to fight off, now that many previously unproblematic Parliamentarians are now critiquing the lack of defence spending).
Tax Cuts: What was Announced?
Those who would have keenly followed the rumours surrounding the budget might have been considering changes to Stamp Duty (The Standard), Child Benefits (Women’s Budget Group), Income Tax (FT and others), National Insurance (eventually the pillar of the budget), Tourist Tax (The Times), or any other number of changes that tax policy wonks could think up.
However, when the budget was announced (and even leaked before), it became clear that the Chancellor’s tax cuts would not be so wide-reaching as many (in particular those on the right of the Conservative Party) might have hoped. The prized cut came in the form of a 2p in the pound cut for National Insurance, for both employees and the self-employed. Lauded as a ‘decisive step’ towards lowering taxes – let’s not forget that Hunt has since confirmed his ambition would be to remove National Insurance as a whole – this change was accompanied by other fiscal policy changes.
Is it a Bird? Is it a Plane? No, It’s a Stealth Tax!
Whilst Hunt may have been hoping to keep all eyes on his National Insurance tax cut, opposition parties and think tanks soon spotted an error in calculations. Whilst National Insurance rates would be decreased, Income Tax thresholds would be frozen! This means that, as wages increase (a common occurrence for any inflationary economy), more people would be entering higher tax bands and therefore paying more tax (whilst also earning more, nominally).
Commons Library statistics dug up by the Liberal Democrats (I should declare an interest) highlight that when put together, the combination of the Income Tax threshold freeze and the National Insurance cuts will lead to changes in average disposable income ranging from -£920 for those in the South East to -£570 for those in the North East.
To add insult to injury, the freeze in tax thresholds has particularly drawn in pensioners (doubly painful for a group of voters who do not benefit from the National Insurance tax cut), who the IFS say will be hit with a £650 stealth tax by 2027. For a party historically popular with pensioners, and with the 65+ age group being the only one where Conservatives are the most popular (36 per cent voting Tory compared to 24 per cent for Labour and 21 per cent for Reform UK), the move is one that might shock political onlookers. However, with the Conservatives facing electoral doomsday, seemingly-risky policy moves may end up being commonplace between now and the General Election.
What Now?
At the time of writing, Sunak has not called the Election, and much of Whitehall is now favouring an Autumn election. This means that, if timelines align, we could see one final budget to launch the General Election campaign. Whilst fears of igniting the fiscal meltdown of his predecessor might remain, Hunt will be on the lookout for a clean sweep of strong policy offerings to the electorate: get ready for ambition (a shift from tax cuts to public sector investment?), politicking (copying more funding models from under Labour’s noses?), and another Commons statement full of sass, rhetoric, and heckling.
Final Thought:
To read the full article, please sign up to our newsletter here, or buy a copy of Chamber’s print journal at the online shop: www.chamberuk.com/shop. Our journal includes an exclusive section on ‘Out in Westminster,’ including insight from Martin Baxter on the ‘Polling Scene,’ the ‘Case for Proportional Representation,’ and a special on Chamber’s 50:50 Parliament Event in Leeds ‘#Asking Her to Stand’ with Shadow Home Secretary, Yvette Cooper MP and Mayor of West Yorkshire, Tracy Brabin MP.
