Mr Hunt – which pocket will he pick and will it hurt?
Will the tax rises affect pensions and pensioners? Not much, we think.
by Doug Brodie
Like borrowing money for a car or a house, government money also needs to be paid back, and that job belongs to Jeremy Hunt. His predecessor said he planned to ignore paying back what we owe so the lenders had him and his boss evicted. It’s interesting to note that MPs and the media appear to have forgotten the £132 billion that was spent to help everyone over covid, or the total £376 billion of committed government spending.
Now is the time to pay back what we borrowed. The Office for Budget Responsibility (the one the previous chancellor chose to ignore) estimates in 2022/23 our government’s debt interest will be £83 billion which is more than we spend on education, twice what we spend on all defence, and more than Westminster spends on Scotland, Ireland and Wales combined.
Our interest bill is over 5% of all spending, or the cost of 664,000 GPs, or £9,222 per every child in school, or 2.5% of our total income, or £1,900 for every family. That is the interest cost, it is not the debt, which is £2.3 trillion.
We preach to our children that paying interest to pay for things is a waste of money yet MPs and the media appear to believe the £83 billion interest bill doesn’t belong to us but to some mythical autonomous entity. It doesn’t of course, it’s yours and mine, and the lenders (the credit markets) showed Ms Truss they are not afraid to send in the bailiffs; plus Kwarteng got a rude lesson that it’s other people who decide what your credit score is, and when you display financial profligacy they raise your interest rates. UK plc was required to pay 1% on borrowings in July this year, Kwarteng’s budget ideas made lenders up that to 4.5%.
On top of that, we have a £50bn mismatch between tax income and public spending that Hunt has to fix. Here’s the main options the FT thinks are likely:
If we can engineer lower interest rates for the government by just 0.7%, that will cut spending by £10 billion per year which is 20% of the shortfall. This doesn’t cost you and me anything, this doesn’t touch voters.
If we can increase immigration above the OBR forecast of 129,000 per year, then the potential growth and tax revenues will yield around £5 billion per year. (There’s an interesting discussion on the merits of Brexit and Braverman).
Government department spending is due to increase by 3.7% per year from 24/25 onwards, and if that is held down to just 2% that would save over £20 billion per year (£2,250 per school child).
Restoring the NIC increase will raise £13 billion – a tax by any other name, but only on workers. (And by the way Mick Lynch, I work, I am a member of the working classes).
Uprating benefits and pensions by earnings not by inflation will raise £10 billion – there is a hard-to-dismiss argument that those working and contributing most to the taxes should not be rewarded less than those not working. (David Cameron got more than one thing wrong).
Overseas aid is supposed to be at 0.7% of GDP but was cut to 0.5% during the pandemic; if that is cut is made permanent, it saves a further 0.5% per year.
The energy windfall tax is expected to raise £17 billion this year. If kept in place it would raise circa £5 billion per year over time.
Freezing income tax allowances would raise a further £6 billion per year.
Oddly, probably given its readership, the FT hasn’t picked an increase in income tax. There are 660,000 additional rate taxpayers in the UK and they pay 36% of all income tax receipts in the UK. Raising the rate from 45% back to 50% will raise circa £6 billion (The Guardian 29/9/22), or 48,000 GPs.
What we can’t work out is why, in a Brexit world, the government wants to increase corporation tax to more than twice that of Ireland?
Overall, the Institute of Financial Studies (IFS) thinks we don’t do too badly compared to other countries.
Our GDP is around £2.76 trillion, so bringing our tax take in line with the G7 average would raise £82 billion. Job done.
No one likes to pay more than they should for anything, and in summary where you and I are the fortunate in a society where ‘heat or eat’ is a recurring theme, an increase in tax is the right thing to do.
Making that tax rise more palatable, and learning how to relax with investable money, there’s no simpler allegory than Kurt Vonnegut’s poem about Joseph Heller (that Mr Heller).
Joe Heller
True story, Word of Honour:
Joseph Heller, an important and funny writer
now dead,
and I were at a party given by a billionaire
on Shelter Island.
I said, “Joe, how does it make you feel
to know that our host only yesterday
may have made more money
than your novel ‘Catch-22’
has earned in its entire history?”
And Joe said, “I’ve got something he can never have.”
And I said, “What on earth could that be, Joe?”
And Joe said, “The knowledge that I’ve got enough.”
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