Digesting a Budget in the hours after it’s delivered is always a rather frantic process, so I won’t attempt to go over every cough and spit.
Rishi Sunak split things into three parts: recover from Covid, repair the public finances and rebuild the economy in the longer term. We heard a fair bit about parts one and two, not all of it particularly satisfactory, and not enough on part three.
On the Covid recovery, the measures were reasonable: extending the successful furlough scheme, reducing VAT and business rates, and offering some ‘bounce back’ support for retailers slammed by Covid restrictions. We are still in thoroughly uncertain times, particularly with the prospect of vaccine-busting virus variants still all too real, so it seems prudent to proceed with caution here.
At the same time, as elsewhere in this Budget, Sunak risks storing up problems for the future with some of these policies, not least extending the £20 uplift in Universal Credit. As our CPS colleague James Heywood has argued, this is not an especially well targeted use of money, and it will be even more politically difficult to withdraw it six months further down the line. The old adage about nothing being as permanent as a temporary government programme may turn out to be apt here. In a similar vein, the decision to introduce an interim VAT rate for hospitality businesses risks adding yet more complexity into our already convoluted consumption taxes.
As for repairing the public finances, this was an unapologetically tax-raising budget. Over the OBR’s five-year forecast period, it promises to raise £30bn, of which £29bn comes from tax rises. The overall tax burden will soon reach its highest level in over 50 years. No wonder the IFS fiscal panjandrum Paul Johnson is calling this “a new phase of UK economic history”. Sunak also has the dubious distinction of being the first Chancellor since Labour’s Denis Healey to raise Corporation Tax, although at least he delayed that rise until a couple of years’ time.
Elsewhere the Chancellor has chosen to raise personal taxes in one of the most indirect ways possible, by freezing income tax brackets, known as “fiscal drag” over here and “bracket creep” across the ponds. As tax rises go, this was a pretty shrewd way to raise some money without breaking the Tory manifesto commitment not to raise income tax, VAT or national insurance. It might also leave scope for a crowd-pleasing NI or tax cut further along this Parliament.
This brings us to part three: rebuilding the economy for the future. It wasn’t so much that there weren’t welcome policies, as that there was still little sense of a coherent, bold or long-term plan.
So we get a Stamp Duty Holiday, but only for another three months. Why not make it permanent, if it’s producing the kind of activity in the housing market we want to see? Likewise, the plan for ‘super-deductions’ for firms who invest in plant and machinery is welcome, but is only in place until 2023, just when the corporation tax rise will kick in.
Again, if ‘fuller expensing’ is such a growth-enhancing measure, why couldn’t the Chancellor set out a longer term path here? Likewise, the fiddling with different rates of corporation tax suggests Sunak knows this is a fundamentally anti-growth measure and is trying to lessen its impact – which again raises the question, why not just go for a lower headline rate or bin it entirely?
Of course it would be churlish to expect the Chancellor to address the entire alluvial plain of the British tax code in a single Budget, but it does feel as though he has, on balance, added to the already baffling panoply of taxes, exemptions and loopholes available to firms. In doing so he may also have offered a chance to firms to engage in accounting jiggery-pokery to reduce their tax bill.
Still, we shouldn’t ignore the positives, including new visa arrangements for scientists, measures to support high-growth scale-up companies, and the focus on the free ports first proposed by the Chancellor himself in a CPS report back in 2016.
And as a piece of political positioning, I suspect Sunak will be very pleased with his day’s work. Keir Starmer’s accusation that his was a statement aimed more at the political cycle than the economic one may have rung true, but that doesn’t make it any less of a problem for the opposition.
Otherwise, Starmer didn’t seem to be able to settle on a critique of the Chancellor, throwing in the odd jibe at him being a bit of a slick PR man but never really alighting on a compelling theme. The claim that Sunak was “papering over the cracks” also felt pretty empty, given the gargantuan sums the Government has spent on Covid support.
Indeed, Starmer’s response – just like his big speech on the economy the other day – felt like it was aimed more at some imaginary neo-Thatcherite than the high-spending politician sitting opposite him.
“We know he’s itching to get back to his free market principles…” the Labour leader claimed accusingly. To which free marketeers might well reply, chance would be a fine thing.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.