The next year will determine whether or not we abandon lockdowns, and other Covid restrictions. However, one thing is certain. The economic impact of the pandemic on every household across the country will begin to be felt by 2022.
According to a think tank report yesterday, by April the average British family is going to be at least £1,200 poorer thanks to soaring energy bills, swingeing tax rises and inflation leaping to the highest level in a generation.
The Resolution Foundation warns that we can expect ‘the year of the squeeze’ as a hurricane of economic bad news batters our already beleaguered finances.
The first gusts are already here.
Inflation is now at 5 per cent, far above the Bank of England’s 2 per cent target, and is expected to leap to 6 per cent by the spring
Misery
Real earnings — with inflation taken into account — are now flat, and when next month’s figures come out they will almost certainly show a fall.
Inflation is now at 5 per cent, far above the Bank of England’s 2 per cent target, and is expected to leap to 6 per cent by the spring.
Do you expect a 6 percent pay increase this year? If not, then by next Christmas, all other things being equal, you’ll have less money in your pocket.
Meanwhile, annual gas bills are expected to soar by an astonishing £600 on average once the energy price cap is reviewed in the spring. It is due to a remarkable rise in wholesale prices.
As if all that wasn’t bad enough, from April, National Insurance contributions will rise by 1.25 per cent from their current level to fund the NHS and social care.
This rise will affect any full-time employee earning the national living wage.
And the tax misery doesn’t even end there. It’s possible you haven’t remembered that Rishi Sunak, the Chancellor of India, announced in his March budget that the income tax thresholds would be frozen up to 2026.
Rishi Sunak, the Chancellor, declared that income tax thresholds would remain frozen through 2026
As wages rise thanks to inflation, this means that more and more of us will steadily be ensnared in the higher rate of income tax: currently 40 per cent on earnings over £50,270.
Sunak’s manoeuvre was a classic stealth tax of the kind New Labour so relished. There was a time when only the richest people had to surrender almost half their pay packet above a threshold to the Government — yet now teachers, nurses and many others on relatively ordinary incomes are being expected to cough up.
Given all the economic doom, what can the government actually do?
This should include rediscovering sensible Conservative principles such as pro-entrepreneurship, low taxes, and personal responsibility.
Ministers have little to no power today to stop the rising wholesale gasoline prices. This is an international phenomenon that has been triggered by recovery in the global economy.
However, it is possible to resist these pressures much more effectively if the government embraced the establishment of a national industry for shale gas instead of bowing to environmentalists or turning its back against the technology.
The Government can immediately scrap punitive eco taxes that were added to energy bills. These tax are intended to encourage the transition to renewable energy.
Many people are unaware that a remarkable 25 per cent of their electricity bill is devoted to ‘environmental and social levies’ — paying to subsidise owners of wind and solar farms, as well as insulation schemes for low-income households. Similar levies account for 2.5% of our gas bills.
It was Blair’s chancellor Gordon Brown who came to office promising not to raise income tax rates — and then jacked up National Insurance rates instead
This generosity by the taxpayer, as energy costs rise to unprecedented levels in recent times, is totally unsustainable. Let the market determine how electricity is produced and scrap these levies.
As regards April’s National Insurance rise, this too is straight out of Tony Blair’s old playbook. It was Blair’s chancellor Gordon Brown who came to office promising not to raise income tax rates — and then jacked up National Insurance rates instead, hoping that we wouldn’t notice. Sorry, but we did then — and we do now.
National Insurance is income tax disguised as an additional name. And because it is levied on earnings from work rather than income from investments, it is what the Tories once called a ‘tax on jobs’. These are not words that you hear often from the spendthrift government these days.
Debt
As families’ living standards are squeezed, the proposed rise in National Insurance should be deferred or delayed. As far as money goes, the NHS is where billions of our dollars will first go.
However generous it may be, the NHS will continue to demand billions of dollars more. While we all want healthcare to be accessible and available for everyone, and that’s the goal of all healthcare providers, there should still be a way to manage the NHS better and cut down on waste.
The most worrying aspect is however the rapid normalization of out-of control public spending.
Rishi Sunak says that his ‘intention’ as Chancellor is to ‘lower taxes for people
For all the talk of ‘Tory austerity’ during the coalition years, no government has succeeded in balancing the books in two decades.
Instead of building up debt each year, it has been increasing the debt servicing costs. This is kicking a problem down the road — and the road, sooner or later, will run out.
This year the Government is spending £39 billion on debt interest alone — more than it spends on transport.
This is despite interest rates remaining at a low of 400 years. When they rise to normal levels again, as history strongly suggests they will, the consequences could be catastrophic and make a £1,200 hit to family finances look like chicken feed.
Alarming
Rishi Sunak says that his ‘intention’ as Chancellor is to ‘lower taxes for people’. He has steered the largest increase in the nation’s tax burden ever since Clement Attlee, the socialist prime minister after World War II.
Fine intentions are one thing — but actions are better.
As yesterday’s alarming report makes perfectly clear, now is not the time to be putting up taxes. Although the economy is now much better than before the pandemic, its size remains small.
The economic recovery that we require will be stimulated by low taxes.
Yet April’s tax rises, combined with soaring energy prices and the other squalls I have mentioned in the looming economic hurricane, will jeopardise that very recovery.
‘Read my lips,’ Boris Johnson assured a radio interviewer just before the last election in 2019. ‘We will not be raising taxes.’
Boris Johnson disregarded that promise, just like George H. W. Bush the American president who made that famous phrase.
Now he needs to honour the spirit of his party — and stop these swingeing tax rises before voters start to look elsewhere.