LONDON — With a multibillion-pound tax giveaway, Chancellor Jeremy Hunt hailed his “Autumn Assertion for progress” as an indication Britain has “turned a nook.”
The star flip was a 2-pence reduce to the Nationwide Insurance coverage tax paid by 27 million employees, rushed into impact in January. It reveals a authorities in marketing campaign mode, simply in time for a common election that would come as early as spring 2024.
However not all is rosy for Hunt or PM Rishi Sunak.
As ever, the 114-page “inexperienced e-book” of measures — alongside greater than 160 pages of research from the impartial Workplace for Funds Duty (OBR) — comprise a number of particulars buried or ignored in Hunt’s 51-minute speech to MPs. Right here’s POLITICO’s spin-busting scorching take.
1) Frozen tax thresholds dwarf the Nationwide Insurance coverage reduce
Wednesday’s Nationwide Insurance coverage reduce — billed as a crowd-pleasing drop in private taxes for employees — is dwarfed by the impression of what’s generally known as “fiscal drag.”
That’s, successfully, the impression of six years of freezes to the precise thresholds at which employees begin paying tax within the first place.
These freezes will haul £44.6 billion a 12 months into the Treasury by 2028-2029, the OBR estimates. On the identical measure, the Treasury says right this moment’s Nationwide Insurance coverage modifications will save employees a collective £10 billion a 12 months.
Treasury officers insist that — balancing all tax measures — employees incomes the common wage of about £35,000 are nonetheless higher off than they had been in 2010 and once more in 2019.
However the identical assure has not been made for all employees, and no surprise.
The Institute for Fiscal Research (IFS), a non-partisan suppose tank, says somebody on £20,800 a 12 months will achieve £165 in 2024-2025 from right this moment’s reduce — however lose £413 from the frozen thresholds on the similar time.
2) Tax burden to succeed in a brand new post-war excessive
“I mentioned we’d reduce taxes once we may,” Hunt informed Conservative MPs who’ve been determined for excellent news. “I can ship a package deal which does simply that.”
Sure, right this moment’s modifications depart the “tax burden” 0.6 proportion factors decrease than it could in any other case have been in 2028-2029.
However by no means has context been so essential. Fiscal drag (yep, that once more) will nonetheless push taxes to a brand new post-war excessive of 37.7 p.c of GDP in 2028-2029 — 4.5 factors greater than earlier than the COVID pandemic, and above the 36.9 p.c Brits face now.
3) Spending eroded — however nonetheless greater than pre-COVID
The OBR initiatives there can be a “£19.1 billion erosion in the actual worth” of spending in authorities departments — serving to shave authorities spending from 44.8 p.c of GDP now to 42.7 p.c of GDP in 2028-2029.
In danger is the federal government’s “long-term ambition” to lift protection spending from 2 p.c to 2.5 p.c of GDP, the OBR suggests. That concentrate on is an important a part of Britain’s diplomacy on the world stage — however would add £16.1 billion to present spending estimates if carried out in 2028-2029.
But public spending is ready to stay properly above the 39.6 p.c of GDP it comprised earlier than the pandemic. And right this moment’s assertion raises spending (somewhat) moderately than decreasing it — as many Conservative MPs would really like.
4) Inflation extra persistent than hoped
After peaking above an eye-watering 11 p.c in 2022, inflation is now projected to fall to 2.8 p.c by the tip of 2024 — and Hunt mentioned his general package deal leaves it decrease than it could have been.
However has he damaged his vow to not enable “any form of tax reduce that fuels inflation”?
Treasury officers couldn’t say if the Nationwide Insurance coverage reduce — in isolation — leaves inflation greater than it could in any other case be.
The OBR additionally says inflation can be “extra persistent and domestically-fueled than we beforehand thought,” returning to the Financial institution of England’s 2 p.c goal solely in early 2025.
5) Progress for 3 years revised down since March
Hunt was buoyed by revised OBR forecasts, which have turned an anticipated 0.2 p.c decline in GDP this 12 months to 0.6 p.c progress. A very good factor, too — rising the economic system was considered one of Sunak’s 5 pledges to the voters in January.
However as extensively anticipated, progress forecasts for 2024, 2025 and 2026 have all been downgraded because the final OBR projections in March.
Predicted GDP progress of 1.8 p.c subsequent 12 months is now set to be simply 0.7 p.c; 2.5 p.c in 2025 is now 1.4 p.c; and a pair of.1 p.c in 2026 is now 1.9 p.c.
These forecasts are, nonetheless, cheerier than these given by the Financial institution of England, which just lately projected zero progress in 2024, 0.4 p.c in 2025 and 1.1 p.c in 2026.
6) All of it rests on a gas obligation rise that may not occur
The OBR forecasts assume Hunt will increase the gas obligation subsequent 12 months. Critically, will he?
Not solely has the gas obligation been frozen for 13 years, nevertheless it has additionally been reduce by 5p a liter for 2 years. A robust coalition of Conservative MPs and the Solar newspaper is prone to protest towards its finish.
Will the chancellor actually increase tax on “white van man” months earlier than an election? Or will he prolong the reduce for a 3rd 12 months, leaving himself to lift £6.2 billion a 12 months by 2028-2029 from some other place?
The OBR says maintaining gas obligation as it’s would, at a stroke, wipe out 43 p.c of the Chancellor’s “headroom” in 2028-2029.
Extra importantly, it says the nationwide debt would not be falling — which is one other of Sunak’s 5 pledges — in 2027-2028. Treasury officers say the chancellor would nonetheless meet his fiscal guidelines even with out elevating the gas obligation.
7) Flagship welfare reform will get solely 10,000 folks into work
Put collectively, all of the “labour provide measures” introduced right this moment and in spring 2023, Hunt mentioned, will get about 200,000 additional folks into work throughout 5 years.
However by itself, the reform of the Work Functionality Evaluation for sick and disabled folks is anticipated so as to add solely 10,000 employees by 2028-2029.
The OBR says a far bigger variety of claimants — 342,000 — can be positioned in lower-paying classes within the profit system that require them to search for some work.
These modifications apply to new claimants, not current ones, avoiding a cliff-edge for a lot of. However giving so many individuals much less cash than they might in any other case obtain will certainly anger welfare campaigners — whereas reaching little web change to the workforce.
The Treasury does, nonetheless, predict it’s going to save £1.265 billion by 2028-2029.
8) Numbers on illness profit proceed to rise
“Yearly we log off over 100,000 folks onto advantages with no requirement to search for work due to illness or incapacity,” Hunt mentioned. “That waste of potential is flawed economically and flawed morally.”
Regardless of Hunt’s blizzard of reforms, nonetheless, the general variety of folks on illness and incapacity advantages is anticipated to maintain rising.
The OBR initiatives the variety of folks on health-related advantages will rise by 600,000 — from 2.8 million now to three.4 million in 2028-2029 — because of “worsening well being tendencies and rising take-up.”
9) Web migration is predicted to surge
Thursday morning web migration figures can be a check of Sunak’s assist from his immigration-skeptic again benchers — and the OBR has a sneak preview of hassle to come back.
The watchdog initiatives that new migration to the U.Okay. can be 410,000 folks in 2023-2024, significantly decrease than final 12 months however 115,000 greater than it projected in March.
The OBR caveats its figures by saying future migration ranges are “extremely unsure,” however says the variety of visas granted by the Dwelling Workplace continued to rise in early 2023.