This approach to fiscal policy sets a dangerous precedent. What happens when the cost of living crisis really bites this fall or if it doesn’t go away next spring? Can we now expect the Chancellor to give a lot of fiscal support when people’s real incomes are under pressure? What will he do, for example, when and when there is real mortgage misery caused by higher interest rates?
Although this package of benefits will mean that the level of public loans is higher than it would otherwise be, it should still fall. While in 2021/2022 the loan was 144 billion pounds, this year it may now fall to something like £ 109 billion, instead of the £ 99 billion it would have reached without this package.
But given this borrowing profile and the Chancellor’s willingness to see loans decline more slowly, why the hell did he push through the earlier increase in National Social Security (NIC) contributions, raising around £ 13 billion? NICs are a completely bad tax and fall only on employment income, which seriously damages work incentives. In addition, the increase in the NIC undermined the manifesto’s commitment and ruined the Conservatives’ reputation as a country of low taxes.
In the same way, it was a key part of conservative ideology to oppose unforeseen taxes. Both are unfair and ineffective. Although the Ministry of Finance has done everything possible to compensate for any adverse effects of this unforeseen tax by providing additional investment incentives, the long-term impact will not be favorable. This will do no good to the UK’s reputation as a good place to grow and develop business.
The only precedent that might suggest otherwise was a significant difference. In 1981, then-Treasury Secretary Jeffrey Howe imposed an unforeseen tax on commercial banks on Ms Thatcher, the alleged believer in the ultra-free market. However, the Thatcher government not only said it believed in tax cuts, but it did. In addition, the whole focus of its economic policy was in favor of business in the context of free market competition. This can hardly be said of this government.
In addition to providing some relief to households by reducing energy bills, this package could directly mitigate the upward movement of the consumer price index and thus do something to curb inflation expectations and reduce the intensity of the wage / price spiral. . But this seems unlikely. The Office for National Statistics is likely to rule that the discount on energy costs will not reduce the contribution of utility bills to inflation.
Add Comment