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Rishi Sunak was updating the House of Commons on what has happened since his March budget and so the policy costings include the big announcements over the summer of the National Insurance (NIC) and dividend increases (£12bn per annum) and the suspension of the triple lock on state pensions (£6bn per annum).
Compared to those numbers, there wasn’t anything as big announced this time, although the fuel duty freeze, business rates reductions and the Universal Credit changes each cost about £2bn in 2022/23 – £6bn in total. So, in truth, there wasn’t much new.
What Rishi was mainly doing was allocating the money from his piggy bank which gave his speech the feeling of a numberfest when most of us are still reeling from the hour by hour spending announcements through the media of the last few days. It is hard to discern much sense or meaning from this staccato of numbers being thrown around. It all sounds big and generous. Is there a magic money tree after all?
Withdrawal of emergency support
When one steps back from the detail and surveys the scene, I detect three stories of note.
The first story is that Rishi has resisted calls to be more generous and to continue with the pandemic relief measures. So, furlough has ended, as has the Universal Credit of £20 per week, but also the VAT reduction for hospitality will end in March next year as scheduled.
These stimulus measures will cease and the pain of the extra national insurance contributions for employees and employers from April 2022, followed by the corporation tax increase in April 2023 and the freezing of various rates and allowances. It is not just stimulus support coming to an end, but payback time. Whilst Rishi has had a reputation as a giveaway Chancellor, he probably deserves credit for sticking to his guns and may well have come under considerable pressure from his colleagues to be more generous at this time.
…but not completely
The second story is slightly at odds with the first in that Rishi has given us some extra stimulus for 2022/23, principally a business rates reduction for retail, leisure and hospitality businesses in the form of a 50% reduction in their rates bills. This together with the Universal Credit changes and the freezing of fuel duty and business rates increases, provides some tempering of the tax rise pain to come. For many businesses though especially those in retail, hospitality and in the care sector, the increase in the living wage will put huge additional cost pressure on them.
Risk to public finances
The third story is the concern that we are over leveraged as a country. In Rishi’s view if inflation and interest rates increase, then the nation’s finances could look much worse very quickly. At the same time, business and personal finances would also come under more pressure, creating a double whammy. A 1% increase on a debt burden of £2.2trn is £22bn per annum and a quarter of that debt is index-linked so a 1% increase in inflation adds maybe another £5bn.
Rishi said that he couldn’t reform business rates more substantially as he couldn’t afford to lose £25bn a year from the coffers. That is 1% on interest rates and 1% on inflation. You can see the potential problem ahead. Now the complicating factor is that the Bank of England owns 40% of our debt (so is that real debt?) but even on 60% of the debt figure the interest and inflation exposure is concerning. Hence, Rishi is reiterating the need for fiscal discipline. If interest rates and inflation get out of control then we’re all in trouble.
That led to Rishi’s final homily in his speech, when he said
“Do we want to live in a country where the response to every question is: “What is the government going to do about it?
Where every time prices rise, every time a company gets in trouble, every time some new challenge emerges, the answer is always: the taxpayer must pay?”
We may find that we are on our own a bit more in future.
For more Autumn Budget analysis, visit our Budget hub.