The author chairs the FT .’s Appointments and Oversight Committee
“When winter comes, can spring be far behind?” asked Shelley. Chancellor Rishi Sunak must feel that the question is not merely rhetorical. What he has to say on Wednesday might be labeled the spring statement, but he’ll struggle to give the country any hope that we’re headed for sunny post-Covid highlands. The architect of “Eat Out to Help Out” may have managed to briefly cheer the nation up with discounted meals — though he likely contributed to the spread of the virus in the process — but the economy is off a pandemic in plunged into a war and he has little room for maneuver.
Still, the demand for more spending continues to grow. The latest is understandably for defense; only the most ardent pacifist would now argue against the need to rebuild our armed forces. If the NHS is to deliver on its boundless promises, it is insatiable and the extra money being promised for social care is instead destined to disappear in funding from that behemoth. The infrastructure that is an essential part of the much-vaunted leveling agenda will not come cheap. Cries for help with rising fuel costs have already reached a screaming peak. Meanwhile, the number of people who need financial assistance to feed their families is growing.
Imagine if the chancellor decided to be candid about the impossibility of meeting all these requirements. He could choose to be honest with the country and say that dealing with Covid had pushed government lending to record levels; that while the corporate recovery boosted tax revenues, rising interest rates meant that accrued interest payments on government debt had reached new peaks. We’re sorry, but we’re all going to have to soak up the pain of rising energy costs, rising food prices and poorly funded public services – unless we’re willing to pay more for them.
It seems Sunak has tried to get this message across to cabinet colleagues, but it’s not what they want to hear – and it’s certainly not what they want him to tell the electorate. He has fought those who want him to increase last month’s measures to cushion a majority of the population against some of the massive surge in energy prices, arguing that he wants to see where they are in the fall. settle. He also opposes the demand to lift national insurance premiums, even though it takes effect next month, just as workers will feel the effects of rising inflation and higher rates.
But he’ll feel obligated to offer a few bonbons — aside from some cheery comments about the employment numbers — and we can expect him to play nice with the fact that borrowing isn’t actually as bad as had been predicted. And while current conservative ideology abhors any suggestion of an income tax hike, last year’s decision to freeze thresholds for four years, coupled with wage inflation, could send the Treasury an additional £12.5 billion. per year that Sunak might choose to redistribute.
The most effective way would probably be to increase the benefit hike, which comes into effect in April. This amounts to just 3.1 percent, a miserable figure compared to inflation now destined to hit at least 8 percent this year. The Joseph Rowntree Foundation estimates 9 million families will be at least £500 a year worse off as a result and that will equate to real pain.
Sunak might also recognize that not all retirees are on the bread line. There is absolutely no reason why older people who are still in work should not pay the full rate of national insurance. They will now have to pay the extra health care allowance, but there can be no justification for excluding them from the totality. As Sunak brings in some extra cash, he also needs to change the taxation of private equity funds so that what is actual income is no longer taxed as capital gains. These are small amounts, but the message is big: we really want to be a fairer society. A pledge to improve public procurement would be welcome, especially after the PPE fiasco.
We also need to be a more productive society. The CBI employers’ organization and others are pushing hard for even more tax breaks to encourage companies to invest, and it is true that capital investment is lagging behind other developing countries, as is our gross domestic product. However, incentives are not what really hold back UK productivity: poor management is the problem. That is what the committee led by former John Lewis chairman Sir Charlie Mayfield concluded and it was correct.
The CBI is teasing Sunak for 100 percent tax deductions for capital expenditures, but for many companies, sensible investments wouldn’t require huge tax incentives. Strong management is needed to make bold decisions.
And it takes brave politicians to tell the hard truth: Either way, tax rates will have to rise
This post Rishi Sunak could choose to be honest with the voters, but he doesn’t was original published at “https://www.ft.com/content/967a15e7-a85a-4815-b447-678ed54c2cde”