Faced with the highest tax burden for 70 years, the Budget fails to put Britain on a path to prosperity
This budget took place against a bleak backdrop: The forecast from the Office for Budget Responsibility (OBR) showed a worsening cost of living crisis with real wages falling at the fastest rate since records began.
It revealed decade of stagnation with the United Kingdom’s economy forecast to shrink by 0.2 per cent this year and all subsequent growth forecasts downgraded. This means that the UK is revealed as the only economy in the G7 not to have regained its pre pandemic size.
Perhaps this dire performance is not surprising given the fact that 13 years of Conservative government have given us five prime ministers, seven chancellors – four in the last year alone – and the catastrophe of last September’s Truss/Kwarteng mini Budget with its £45bn of unfunded tax cuts and the meltdown in the bond markets it caused.
This is a government which has delivered the worst of all possible worlds
The last proper Budget was delivered in October 2021, not by the Chancellor’s predecessor, or even his predecessor’s predecessor, but by the current Prime Minister, who was the Chancellor’s predecessor’s predecessor’s predecessor. This farcical game of ministerial musical chairs epitomises the Conservative Party’s recklessness that has trashed our international reputation and failed to deliver the business certainty or political stability upon which economic prosperity can and must be built. Brexit has exacerbated the uncertainty causing a permanent 4 per cent hit to the UK’s GDP according to the OBR.
This is a government which has delivered the worst of all possible worlds, the highest tax burden for 70 years— up again as a percentage of GDP in the OBR documents to 37.7 per cent, alongside crumbling infrastructure and crumbling public services.
The meagre one per cent increase in public expenditure announced in the Budget will actually be real terms cut and means ongoing austerity for the foreseeable future. Nor should we forget the £55bn in public expenditure cuts the Chancellor announced in November to kick in conveniently after the next election, which look completely unsustainable.
The Chancellor proceeded with the increase in corporation tax and introduced a new “full expensing” tax relief for investment, but he only guaranteed if for three years and it is worth less than the super deduction relief it has replaced. Tax reliefs to incentivise investment will not do the job, however generous they are, if uncertainly continues.
Another major failure was the omission of action on green transformation in this Budget. Joe Biden’s Inflation Reduction Act, with its $400bn subsidies for green transformation and the soon to be announced EU response, leaves the UK in the slow lane likely to fall behind in the competition to develop the green technologies needed in the future.
Even with the government’s welcome decision to extend the energy cap until summer, energy prices are due to be 20 per cent higher than last year. Soaring inflation has hit the poorest hardest, because energy and food costs take up a larger share of their income.
The Budget could have addressed this – instead, we saw a £1bn pension tax cut for the top 1 per cent opening up a worrying new tax loophole, widening the chasm between the have and the have-nots. The biggest hit to take home pay in the Budget was a stealth tax, the decision to continue with Rishi Sunak’s decision to freeze income tax thresholds.
The OBR shows that these stealth taxes will raise £29.3bn because of fiscal drag, equivalent to a 4p increase in the basic rate of tax, dragging nearly 6 million people into higher tax rate bands. The IFS has warned that his pension tax cut – forecast to cost £2.7bn – “probably won’t play a big part, if any” in getting people back to work, instead putting more money in the pockets of the richest 1 per cent.
As the dust settles on this Budget, it is clear that the government is without a workable plan or a strategy to create prosperity for the future. Failure and incompetence on this scale requires a wholesale change of the management team and a Labour government which has a plan to build the better future Britain deserves.
Angela Eagle, Labour MP for Wallasey.
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