Budgets – and let’s make no bones about it, today’s Spring Statement was significant enough to qualify as a budget – tend to follow a time-honoured pattern.
The chancellor unveils his measures, makes a big noise about them in the House of Commons, and then – sometimes over a few hours, sometimes over a few weeks – the reality behind those promises and claims comes into focus. So it has been today.
Rishi Sunak made a lot of noise about cutting taxes.
He raised the national insurance threshold (a move which will delight workers and economists alike, since not only does it lessen the impact of the coming rate increase, it also simplifies the tax system).
He announced a cut in the basic rate of income tax; it won’t come into place until 2024 but such things are nonetheless totemic – especially in the Conservative party.
He even went so far as publishing his own neatly-branded “Tax Plan” which as far as I can make out contains nothing that isn’t in the official Spring Statement documentation aside from Rishi Sunak’s signature. Make of that what you will.
But the real story on taxes, the one the chancellor wasn’t so keen to talk about, was buried deep inside the Office for Budget Responsibility’s (OBR) documents: here you discover that even after Mr Sunak’s “Tax Plan” has been enacted, total taxes as a percentage of gross domestic product – that most comprehensive measure of the tax burden – will be at the highest level since 1949.
The split of spending and taxes, according to the OBR.
But one might ask a bigger question: in the face of the biggest standards-of-living crisis in living memory, is a vague tax plan really the remedy the British public are crying out for?
This brings us to the other contrast between statement and reality from today’s statement.
The chancellor pledged to do as much as possible to mitigate the impact of rising prices. He announced a cut in fuel duty and that increase in the National Insurance thresholds, which will more than eliminate the impact of the new health and social care levy for 70% of people.
The forecast for inflation, according to the OBR.
But now look again at the OBR documents.
Here you learn that they expect the biggest fall in real-terms household disposable income since records began in the 1950s.
The OBR added that were it not for the chancellor’s policies today, the crunch would have been considerably worse – about a third worse – but even so, it is worth pondering the historical perspective here.
Not in any recession or downturn in modern statistical record have we experienced a year like the one we are about to face. Which raises a question: why hasn’t the chancellor done more?
Economic growth forecast for the UK until 2026, according to the OBR.
While many will welcome the National Insurance threshold increase, others point out that it will help mostly middle earners rather than the poor.
Some will ask why Mr Sunak didn’t increase benefits, given those receiving them will face an enormous real terms squeeze.
Others will point to one of the more startling details in the Spring Statement: the giveaways this year and in coming years are being offset in large part by an enormous increase in revenues from students, who will have to pay significantly more on their student loans, due to changes in the loan small print earlier this year.
Chancellor Rishi Sunak addresses MPs.
They will ask these questions because it’s now patently clear from the fiscal arithmetic that the chancellor had significantly more money left to play with, yet he chose to leave a good chunk of it in his pocket.
Consider the figures this year. Thanks to better-than-expected tax revenues, the chancellor had a windfall of around £20bn. But rather than spending all of that on new measures, he chose to spend only £10bn (largely on lower fuel duties and higher National Insurance thresholds) but pocketed the remaining £10bn.
He will argue – as will many economists – that it makes more sense to repair the public finances and “fix the fiscal roof while the sun is shining”. Others will ask: in the face of an almighty cost of living crisis, was that really the wisest move?
Frankly, however, this story isn’t over yet. There is a strong chance the chancellor has to return later on this year with more money to soften the economic blow.