Boris Johnson promised a low-tax era when he won nearly two years back the election.
The Conservatives’ 2019 manifesto contained a clear tax guarantee, which stated that they would not raise income tax, National Insurance, or VAT.
Many things have changed since then. Nobody could have predicted the coronavirus pandemic. Many have been shocked at the speed with which Tories have broken their promises.
To address the coronavirus spending and balance the books, Chancellor Rishi sunak has increased taxes to a level never seen since the 1950s, when the UK was still recovering after the Second World War and when the NHS was just beginning to emerge.
Sunak has increased taxes by more in this year’s March and October budgets combined than any year since Ken Clarke’s 1993 Budgets and Norman Lamont. Fears that the Conservative government is abandoning its small state and low tax past have been raised by the tax increases.
Sunak yesterday assured that the Government would cut taxes by the end of Parliament, despite being concerned about the growing accusations.
To show he is a low tax Chancellor at heart, tax cuts were made to universal credit, alcohol, as well as a discount for hotels, retail, and leisure.
But these followed three whopping increases in taxes already announced – the corporation tax hike and freezing of income tax allowances in March and the rise in national insurance contributions announced in September.
Andrew Bridgen, North West Leicestershire MP, stated: “A country cannot tax itself to prosperity.”
But economists believe there are signs Sunak is preparing a war chest for voter-friendly tax cuts before the next election. Under his new fiscal rules, he is on course to have £25billion, according to the OBR’s own projections. However, the increased tax burden will hurt. Tax rises began last March when the planned cut in corporation taxes from 19% to 17% was abandoned. This was followed by the March 2021 Budget, which announced that the corporation tax would rise to 25% in April 2023.
The OBR estimates that these two moves will generate £25.7billion in extra revenues in 2025-26, a huge tax hike on British business.
The raid on business came alongside a stealth tax on millions of workers as income tax thresholds were frozen. Instead of rising each year, the point at which the 20 per cent rate of income tax kicks in was pegged at £12,570 until the middle of the decade. OBR estimates that an additional 1.3 million people will begin to pay income tax in 2026 due to the freeze. The threshold for paying the higher 40 per cent rate of tax was also frozen at £50,270, dragging an extra 1m into the band within five years. In September, the health and social services levy of 1.25 percent on employers, employees, and self-employed followed.
In total the levies will raise a whopping £54.6billion a year by 2026.
Business feels particularly aggrieved by the tax rises and have never fully trusted Johnson. Back in 2018, when asked about corporate concerns over a so-called hard Brexit by Belgium’s ambassador Rudolf Huygelen, Johnson was overheard saying: ‘F*** business.’
Luke Johnson, serial entrepreneur, and former chairman of Pizza Express, stated that this is not the Tory government they have seen before.
“This is a high-tax, high-spend government and the fear that they’re just getting started.”
Backbenchers of the Tory party fear that the tax hikes and rise in interest rates will halt the UK’s recovery.
But others in the Party are more sanguine and believe Sunak and Johnson will return to traditional Tory economics once the worst of the pandemic has passed. Iain Duncan Smith, former Tory leader, said that tax cuts would be more effective than increases as we head into the next election. These are short term measures.
The OBR predicts that the Budget will be in surplus to the tune of £12.5billion in 2023-24 and £25.1billion in 2024-25. Capital Economics’ chief economist Neil Shearing stated that this would give the Chancellor the opportunity to increase spending or cut taxes before the next election. This view makes it difficult to avoid the feeling that the Budget was intended to meet political and not economic objectives.