TO TAX OR NOT TO TAX?
22 Oct 2021
Autumn budget and spending review 2021
Ahead of the Financial Statement next week, DRD’s newest Associate, Clemency Huggins, who spent three years working for a Conservative MP, shares her insight on the future of the country’s finances and where the money to ‘level-up’ will come from.
On Wednesday 27th October, after Prime Minister’s Questions, Chancellor Rishi Sunak will take centre stage in the House of Commons to deliver his Autumn Budget and the 2021 Spending Review.
While closely related and undoubtedly designed and planned together by those in the Treasury, these are two separate events.
Spending Reviews are conducted every two to three years and set out the longer-term spending priorities and Departmental Spending Limits of government departments. This allows for longer term planning and certainty for individual departments.
The Budget is a statement on the state of the nation’s finances, plans for taxation and forecasts for the economy, produced by the Office for Budget Responsibility (OBR).
This will not be an enviable task for (currently) the Conservative’s second most popular Cabinet Minister, beaten in league tables only by new to post Foreign Secretary Liz Truss. Having spent the past eighteen months waving his magic money wand to help the nation overcome the effects of the pandemic, the Chancellor is going to have some tough decisions to make to start to balance the books.
The Government’s priorities will be a key focus of the Financial Statement that Sunak will deliver next week, so expect all the usual buzz words such as ‘levelling up’, ‘transition to net zero’, ‘global Britain’ and ‘plan for growth’. The UK is hosting COP26 next month, so green announcements may be particularly relevant.
But with the biggest peacetime deficit the country has ever seen and ambitions to keep Government borrowing to a minimum and “continue to invest in public services… while keeping the public finances on a sustainable path”, many will wonder how the billionaire Chancellor is going to fund such ambitious plans.
Budgets for Defence, Education and Health have already been settled and are not expected to be revisited. This opens questions around whether any of the larger and more costly projects from some of the remaining departments, like HS2 at the Department for Transport or the prison building programme at the Ministry of Justice, will be scrapped to free up funds for other levelling up or net zero projects.
The Conservatives have long been the party of low taxes, so the National Insurance and dividend tax increases (which broke a manifesto promise not to raise taxes) were unpopular with many of their voters. The income from this increase has already been earmarked to fund a health and social care levy, so further tax increases are widely speculated and may be just around the corner. Announcements at this budget may be more about ‘reviews to taxation’ rather than straight hikes, but will be paving the way for what seem to be inevitable increases in the not so distant future. Capital Gains and Inheritance taxes are at particular risk of hikes, despite the undoubted backlash this would attract from some of the more traditional Tory supporters.
Further, student loan repayments are widely reported to be under review, with suspicions that the income threshold for repayments to start at may be reduced to as low as £23,000 per year. This will have a big impact on graduate pay and won’t help the party to attract some of the younger voters that they have struggled to attract in the past.
Please, Sir. May we have some more?
It may not be all doom and gloom for the British public, though. Many believe that Boris hinted at an increase to minimum wage when he spoke about a “higher wage, higher skill” workforce at party conference. There are also expectations that he will end the one-year freeze on public sector pay.
The Chancellor will need to tread carefully to achieve his aims of reducing the deficit without alienating either traditional Conservatives or some of the new ‘Blue Wall’ voters. It will be interesting to see where Dishy Rishi finds himself in the Cabinet League Table this time next week.