We needed a Robin Hood budget yesterday for the poorest paid but got a Sheriff of Nottingham budget. But what would you expect from a Tory Government?
Our childhood stories tell us of a hero, Robin Hood who took from the rich to give to the poor. Yesterday it was the Sheriff of Nottingham’s turn. Sunak gave to the rich and took from the poor.
So how has Sunak taken from the poor? Surely there was no mention of that in his budget – no new tax measures aimed at the bottom of the pile where most of us reside. That is because he did not do anything yesterday because it was all contained in a previous budget.
Two years ago the Tories introduced what is technically termed, fiscal drag. What it means in practice is the rate at which you start paying tax or the higher rate of tax does not rise in line with inflation. So, you might get paid more but you pay a higher proportion in tax.
For people in lower incomes this is effectively a 10% cut in living standards as the tax increase gets ‘added’ to the fact that most people have had pay increases 5% less than inflation.
For people in middle incomes say between about £30,000 and £80,000 they will lose roughly the same proportion.
Over that level there could be huge savings for the wealthiest 1% of the population. Effectively, they will be able to save as much as they like and the Government will give you 40% of back as a tax relief. This will make an unfair system even more unfair. Of course, we should save for retirement of we can. But why do wealthy people already get a 40% tax rebate whilst the rest of us get a 20% rebate? On what definition of fair is that fair?
The justification for this is that might tempt a few senior medics back into service as they have given up because they don’t get the full value of their pension. That may be true but the key word here is a few! The big gainers here will be the high paid across the private sector, the Bankers and the Chief Executives of big companies. The people with big investments and inherited wealth will do well. The very senior staff in the public sector will also benefit. Most of us will have a small benefit from the changes if we can afford to pay into a pension in the first place.
Most people who are high earners also have other investments. They are likely to have paid for their house. They are also likely to have a high level of tax-free ISAs and other investments. At current annuity levels a £1,000,000 pension pot with give you £250,000 tax free as a lump sum and £37,500 a year increasing with inflation for the rest of your life. Could you live on that? Well, I am retired and that is roughly what my wife and I get in pensions, and we live very comfortably.
So, what else was there in the budget?
Thirty hours of free childcare. Really? Many nurseries that provide full time child care are already closing because of shortage of staff either because there is a smaller pool because of Brexit or because people cannot afford to live on what a child care provider is able to pay in wages. This will not lead to a lot more childcare actually being provided.
More Enterprise Zones including g one for Liverpool. We’ve been there and they did not work. All that happens with an Enterprise Zone and the associated Freeport is a shift of businesses from taxed into untaxed areas. In the case of the Freeport, it will also be associated with dodgy practices in customs, tax and employment terms.
To be fair to the Government they do seem to have got two things at least partly right and that is maintaining the so-called fuel cap at £2,500 rather than the higher level suggested by the regulators. This is only possible however because of the drop in wholesale prices for gas which has a knock-on effect into electricity.
The other thing which is right in principle but might not work in practice is the duty levels on smoking and to a lesser extent on spirits. My guess would be that a 10%+ increase in duties will simply lead to more counterfeiting and smuggling of products which can have even more health dangers than the legitimate products which they replace. The Scotch Whisky Association has pointed out that this tax hike will mean that 75% of the cost of whisky is now paid straight to the Government.
If I am wrong about the smuggling and counterfeiting anything that helps reduces use of tobacco and alcohol is good in principle in health terms.
For 99% of the people who read this the budget has no short-term benefit and our living standards will continue to decline with below inflation pay and tax threshold limits. The top 1% will have opportunities to legitimately shelter their income from vast amounts of tax.
There will be little benefit for small businesses but mobile and large businesses will have increased opportunities to swerve their tax obligations to society by dodgy investments set against capital and a move to tax free areas where the public sector not only lose income but have to supply expensive services.
Robin Hood would be appalled by what happened yesterday, but the Sheriff of Nottingham would be rubbing his hands with glee.