It was not all that long ago the Labour Party was campaigning for government, promising to prioritise economic growth, and reassuring voters that vast tax rises were not necessary. Yesterday’s Budget put paid to that.
The Chancellor raised taxes by £40 billion, changed her fiscal rules to facilitate further borrowing, and hit growth generating sectors with her National Insurance hike. What happens next will determine whether voters forgive Labour’s less than full measure of candidness.
One early problem appears to be the Government's definition of “working people”, in that it largely seems to include public sector workers and those in blue collar jobs. Someone running a small business, trying to keep the lights on amid rising rents, business rates and energy costs apparently does not qualify.
Another is living standards. The Office for Budget Responsibility forecasts that real household disposable income per head, a critical measure of living standards, will grow by an average of just over half a per cent a year over the next few years. This on top of a more than decade's worth of anaemic growth means that Britons are in for years more of feeling the pinch.
Indeed, while employer National Insurance is not a direct tax on workers, it will clearly feed through to their pay packets in due course. Even Rachel Reeves herself has today admitted that workers would be impacted by the tax rise on firms. It follows forecasts from the OBR, which predicts that by 2026-27, more than three-quarters of the total cost of the extra hit on businesses will be passed on through lower real wages, by a combination of pay cuts and higher prices. The measure could also lead to the equivalent of around 50,000 average-hour jobs being lost, the Budget watchdog said.
Few could interact with the NHS and not quickly conclude the service urgently needs more money. Same for school buildings and the justice system. Yet tax raids on the very businesses on which we rely for economic growth is a massive gamble. Time will tell whether it pays off.
