Rishi Sunak will deliver his Autumn Budget this week as the country faces its worst winter crisis in more than 40 years.
Rising fuel prices, tens or billions of dollars in tax increases, inflationary forces, and an environmental activist agenda to net zero are all contributing factors to the cost of living crisis facing ordinary families.
The ears of the nation will be hanging on the Chancellor’s every word to see how he proposes to avoid the impending storm. The Chancellor claims that he is a Thatcherite.
DAVID DAVIS: Rising fuel prices, tens of billions of pounds of tax increases, inflationary pressures and an environmental activist agenda for net zero are fuelling a cost of living crisis for ordinary families
I was familiar with Margaret Thatcher and I will be watching closely to see if he can match her brilliance, and the great Chancellor Nigel Lawson, in government.
Sadly, every indication so far is that his current course will take us on to the rocks – not away from them.
Rishi is likely to do so, and I fear he will make a very un-Thatcherite decision to continue with tax increases as a solution for ballooning Government debt.
After all, increases to Corporation Tax and National Insurance have already been announced.
Unless he changes course at the very last moment, the Chancellor will risk stoking a cost of living crisis that will ensure his legacy is more akin to Denis Healey’s Winter of Discontent than the Thatcherite Lawson boom.
No one disputes the need to take drastic action due to the immense scale of post-pandemic Government Debt.
Driven by more than £400 billion of Covid borrowings, we have borrowed on a scale not seen since after each world war.
However, raising taxes is not the solution. The tax burden is at an all-time high, as it has been since the 1940s. An increase in the tax burden will only cause more damage to the economy and result in lower tax receipts.
NO, the way to deal with such debt levels is to do exactly what we did after the war – issue the modern-day equivalent of ‘war bonds’, to be repaid over 50 years or more.
This is something we should have done before inflation and rising interest rates.
Once we have dealt with the debt, we can set about balancing the books, but by tax cuts – not tax increases. Taxes can be a problem for the economy.
High taxes and high inflation together create a growing threat to our post-pandemic recovery.
However, the worst is yet ahead. According to the Bank, inflation could rise to 5% by the start of next year.
DAVID DAVIS : I was a friend of Margaret Thatcher and I will be keeping an eye on him to see if he can match the brilliance she and her great Chancellor Nigel Lawson brought into government
Andrew Bailey, the Governor of the Bank of England, recently said the central bank ‘will have to act’ to tackle inflationary pressure, which almost inevitably means interest rates rising.
Raising the Bank’s base rate from its historic low of 0.1 per cent will have dramatic and tangible impacts.
The Chancellor estimates that a one percentage point rise will cost the Treasury £25 billion annually – double the cost of the new Social Care Levy.
Inflation and rises in interest rates will not only impact our vital infrastructure, but also our financial system. Rising costs are already putting millions of people under pressure.
Ronald Reagan, Thatcher’s ideological soulmate, described inflation as ‘not just high prices; it’s a reduction in the value of our money’. Inflation is a hidden tax.
People are paying more for food, fuel and bills, which means they have less money for other things, slowing down economic growth.
This problem is amplified by the Government’s disastrous decision to freeze the income tax personal allowance rate until 2026, which will only make the poorest worse off.
Compounding all this is the decision to break with the Tory manifesto pledge and increase National Insurance by 1.25 percentage points to fund the Government’s social care reforms.
This is the worst of all worlds as it fails to fix the entrenched problems with the social care sector, while simultaneously sapping £12 billion from the economy annually.
The Chancellor is also incorrect in believing that Covid will be paid for by raising Corporation Tax rates to 19 to 25 per Cent.
We need to encourage businesses to succeed, not suppress them with tax rates that exceed 36% of national output.
We need higher productivity to get higher wages. This will in turn lead to higher investment. Increases in corporation tax will not lead to more investment.
We cannot attract the companies that will create the jobs of tomorrow or take advantage of the benefits Brexit brings to our economy if we don’t create a dynamic, business-friendly economy.
Collectively, these naive and economically ineffective policies have political consequences – not least for the Chancellor.
His favorability rating, which was 52 percent in April 2013 and is now 31 percent, has plummeted. Opposition to the National Insurance hike is growing: From 43 to 48%
Sadly this Treasury all too often reaches for expedient decisions – prioritising short-term issues over long-term stability.
The Government chose to fund the Social Care Levy through National Insurance instead of income tax. This is a classic example of the government choosing what is convenient over what is right.
The Institute for Fiscal Studies warned that health spending would balloon ‘from 27 per cent of day-to-day public expenditure in 1999-2000 to a projected 44 per cent by 2024-25’.
The Treasury is too cautious and too preoccupied with image over substance, which is a fact.
The Chancellor should not be governed by opinion polls but rather conservative principles.
He will have to choose between the 1970s politics through a high tax, low-growth economy to quickly repay the Covid debt, or the politics that is low-tax and high-growth, which takes a long-view to allow economic freedom.
Even at the last minute, I urge him to not shy away from the challenge, but to embrace it.