Elections hinge on the people in the middle. The same goes for Jeremy Hunt’s autumn economic statement this week. In the space between the statement’s modest increases in personal taxes on the richest on the one hand, and its increased support for the poorest on the other, Thursday’s package was marked by a major revenue-raising squeeze on the living standards of the many millions in the middle. This represents one of the biggest political gambles by any government in modern times, the more so because this is the same government that helped create the very problem it is now struggling to solve.
This large group of taxpayers and voters has gone by many aliases down the years – among them Middle Britain, the squeezed middle and the just-about-managing. Not everyone who falls into any of these categories thinks of themselves in the same ways, and there are certainly many large contrasts of wealth and living standards among them. In personal finance terms, they stretch all the way from anyone who will now miss out on the more targeted cost of living support for their heating costs from April, through to those whose incomes will be dragged into higher tax bands in the coming years as a result of the freezes on allowances.
These freezes add up to a very large tax rise across the whole swathe of middle incomes, and at a very hard time. They will raise, according to the Office for Budget Responsibility, a total of £35bn by 2027-28. They come as the OBR forecasts that living standards will fall by 4.3% in the current financial year, the largest fall since the 1950s, and again by a further 2.8% in the following year. They come, too, at a time when the prices of food and fuel have risen sharply and when year-on-year inflation has reached 11.1%, the highest figure for more than 40 years, ensuring that the public will have less money in real terms to pay for the same goods.
Politically, this is an extremely unusual move. Partly that is because these are such desperate times – especially for the poorest – and desperate remedies are in order. Yet it is also because reasoned public conversation in Britain about raising tax to deal with need, even in less extreme circumstances, has withered on the vine.
For at least 40 years, UK governments of all stripes have been afraid of taxing the middle class more. Labour is almost as wary as the Tories. As a result, not just taxes on income, but taxes on wealth or land have become almost taboo. Now, however, Kwasi Kwarteng’s car crash of tax cuts has put such issues back on the agenda for all political parties.
There is little mystery about why Mr Hunt intends to cut Middle Britain’s living standards in spite of the inevitable unpopularity of his action. There are currently more than 30 million income-tax payers, of whom more than 6 million now pay the higher rate. Middle Britain’s taxes therefore raise a lot of money for the Treasury and do so efficiently. Mr Hunt’s dilemma is that all of these taxpayers also have votes.
The chancellor has in fact got a bit closer than some of his predecessors to coming clean with Middle Britain. But he has ultimately shied away from making a sustained public case for necessary taxation. On Thursday, he talked about compassion and fairness, and then balked at explaining how the tax system is an essential part of delivering them. Admittedly, that’s an uphill task in a party that has been in thrall for so long – and still is – to the doctrine of tax cuts and small government. But it is a conversation that has been thrust on the Conservative party by a combination of Brexit, Covid, energy prices and Liz Truss. It is a conversation that the country has needed for decades.
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