THE HEADLINE from today’s Budget is a £40bn increase in taxes.
However, those tax increases are aimed at wealth, investment income, and businesses rather than standard-rate income taxpayers.
For the latter, the minimum wage rose, the price of draught beer was cut, the freeze in income tax thresholds will end, fuel duty will not rise, and the government is forecast to pump £70bn into public services and national infrastructure.
For small businesses, the Chancellor promised to “permanently lower business rate multiplies” for retail and hospitality businesses, cutting the amount of money High Street business pay in rates.
However, the Chancellor giveth and the Chancellor taketh away.
Rachel Reeves said that the employers’ NI rate will increase to 15 per cent from April next year.
In addition, the threshold at which employers start paying NI on each employee’s salary will drop from £9,100 to £5,000.
Those decisions represent a massive tax raid with massive potential impacts on prices (up), wages (lower), and hiring decisions.
Ms Reeves said that the increase in the employers’ NI rate, combined with the lowering of thresholds, would raise £25m for public services.
However, she sugared the pill, also announcing the employment allowance will rise from £5,000 to £10,500.
The Chancellor said: “This means 865,000 employers won’t pay any national insurance at all next year, and over one million will pay the same or less than they did previously.
“This will allow a small business to employ the equivalent of four full-time workers on the national living wage without paying any national insurance on their wages.”
The Chancellor also targeted wealth and inherited wealth.
Inherited pensions, formerly exempt from Inheritance Tax, will be subject to it. The threshold will be frozen (effectively, a rise). The Chancellor reintroduced the cap on lifetime pension pots, which was introduced and then scrapped under the Conservatives.
Farmers leaving estates worth over £1m will be subject to 20% in inheritance tax. Capital Gains Tax on shares and dividend income (unearned income) will rise from 10% to 18% for standard-income taxpayers and to 24% for higher-rate income taxpayers.
For those at the upper edges of income, there was even more bad news. The Chancellor announced the abolition of Non-Dom tax status, which allows the wealthy to duck tax on their income by claiming to be based abroad. That is unlikely to hit many taxpayers, but closing the Non-Dom loophole is an important symbolic act.
Rachel Reeves’s big gamble is that, by frontloading tax increases, there will be no need for substantial future tax rises for the next three years or so. Having boxed herself in on employee NI and income tax, Rachel Reeves left herself limited room for manoeuvre, making tax rises essential if she was to balance the books and fund unaccounted-for expenditures. As examples of the foregoing, Ms Reeves revealed that although the previous government announced compensation schemes for Post Office employees and postmasters and the victims of the contaminated blood scandal, it had not budgeted for funding them and – as Shadow Chief Secretary to the Treasury Laura Trott confirmed afterwards, had no intention of standing by the public sector pay awards it announced at the Budget in March.
The second gamble is that injecting money into capital infrastructure projects will drive forward growth and economic activity. If that happens, it will buck a two-decade-long trend of stagnation and industrial failure. If that works, Labour will reap the benefits; if it doesn’t, and if public services do not improve markedly, Labour will suffer.
