ALEX BRUMMER: As Boris exits, tax moves to centre stage

Eye-catching forecasts are a speciality of the Office for Budget Responsibility. 

At the time of the spring statement in March, it noted that Boris Johnson’s government had raised taxes in Britain to the highest level since the 1940s when Labour was in power.

That could never be a good look for a Conservative government that has a modern history as the party of low taxation. That is why tax policy will be at the heart of the debate about Tory succession.

Tax burden: It would be a boost to business confidence and inward investment in Britain if an unwanted headline rise in company taxation, from 19% to 25% next year, were rescinded

Chancellor Nadhim Zahawi has signalled his belief in lower taxes. Whether the tycoon will ever have the opportunity to implement changes is in the lap of the Gods. 

Advocates of tax cuts – to generate growth as the country navigates away from the energy price shock – may not, at first blush, find the OBR’s report on fiscal risks, very comforting. 

It points out that at over 90 per cent of national output, the national debt stands at three times higher than in 2020. Be that as it may, most of the world has become used to higher borrowing levels.

The UK is in a much better fiscal position than much of the G7. Public debt in the US stands at 126 per cent of GDP, in Japan at 252 per cent, in Canada at 102 per cent and in Italy at 156 per cent, according to IMF data.

The OBR points out the pandemic has had ‘remarkably little impact on the UK’s medium term fiscal position’. This is largely because of substantial announced tax rises and less demographic pressure.

The budget headroom should be red meat for the next permanent occupant of Number 11. 

A fiscal squeeze at the same time as interest rates are rising makes no economic sense. It could push an economy skirting recession into a slump. 

The OBR explained at the start of Covid-19 that the pandemic was the equivalent of war, and in such circumstances higher borrowing is justified.

At present, the Government is fighting on two fronts. It is supporting democracy in Ukraine, requiring higher defence spending, and helping households and businesses through the cost of living surge at home.

It would be a boost to business confidence and inward investment in Britain if an unwanted headline rise in company taxation, from 19 per cent to 25 per cent next year, were rescinded. 

Tax breaks, such as Rishi Sunak’s temporary super deduction for investment, have not had the dramatic impact desired. 

That’s why keeping the headline corporate rate low, while offering big breaks for R&D, digital investment and training, is essential.

The penny off income tax, proffered for 2024, is too late as the UK navigates itself through the current difficulties.

All the evidence from the post-Covid period shows that revenues from most tax groups have out-performed OBR forecasts. 

Lower taxes on income may be just what is required to bring the 400,000 people who have surrendered their jobs since the pandemic back into the workforce. 

The first task of a post-Boris administration will be an emergency tax-cutting budget that supports households and enterprise.

Higher income for the Exchequer will flow as night follows day.

Cash machine

There should be no surprise that surging oil prices are dropping straight through to the bottom line at Shell. 

Refining margins widened to $28.04 a barrel in the second quarter, up from $10.23 in the first quarter, and seven times higher than a year ago. The result is a near £1billion bonanza.

Drivers will be curious as to why those juicy profits could not be used to lower painful prices at the pump.

The answer is that competition authorities regard upstream production and retail as separate entities, and cross subsidy is frowned upon. It would give Shell forecourts an unfair advantage.

Ukraine and the changed energy market are generating nimble responses from big oil. At Shell, it has led to a write-back of previously depreciated assets and an effort to drill more in the Gulf of Mexico to the distress of green interests.

How quickly the world turns.

Building back better

Where was Business Secretary Kwasi Kwarteng on a startling day for the Tories? He was to be found in Grimsby where levelling up is becoming a reality. 

Associated British Ports is developing a 89-acre site at Port Grimsby to support green projects including hydrogen production. 

The port already has established itself as a leading maintenance centre for offshore wind.

Onwards and upwards.