Harbinger of doom: Jeremy Corbyn
It didn’t take Eddie Browne, someone not short of an opinion or six on what I write every week, much time to give me his candid assessment of Jeremy Hunt’s Budget three days ago.
‘I’m off to find some straw and go into hibernation,’ he said within an hour of the Chancellor of the Exchequer detailing his plans to eradicate a £55billion hole in the Government’s finances. ‘Hopefully, when I wake up, we will still have an economy left.’
Eddie, a proud pensioner who spent most of his working life at United Biscuits in Manchester, believes the economy is heading for rack and ruin as swingeing tax increases curb consumer spending – triggering a spiral into recession.
He might well be right, in the short term at least, given that Hunt conceded the economy would shrink next year by 1.4 per cent before bouncing back in 2024 (don’t bet on it).
Although Eddie is grateful that his state pension will benefit from a thumping 10.1 per cent increase next April, he’s less impressed with the long-term freezing of the thresholds at which basic rate and higher rate taxes kick in. A move that will suck more than six million people into paying higher tax rates by 2028. Shocking.
He also can’t understand why the Chancellor has decided to pick on savers in order to generate yet more tax receipts. Next April, reductions will be applied to both the amount of dividends investors can receive each year without paying tax – and the capital gains investors can crystallise without incurring tax. Further reductions will be made a year later.
‘Madness,’ he says, ‘utter madness.’ As ever, perceptive Eddie (the embodiment of everything our readers stand for – hard work and a fierce determination not to be a burden on the state) is right.
Thankfully, the Isa allowance – which allows investors to channel up to £20,000 into a tax-free wrapper every tax year – remains untouched as does the tax relief boost savers get on pension contributions.
Listening to the Budget in my office on Thursday morning as the rain poured down outside, I couldn’t quite believe what I was hearing. A Tory Chancellor discouraging people from squirrelling money away in the future in order to ensure financial independence in later life.
We had been warned that such cuts were on the way, but not double cuts, reducing the annual tax-free allowances for dividend income and crystallised capital gains from £2,000 and £12,300 respectively to £500 and £3,000 for the tax year starting April 2024. Talk about brutal haircuts. More like skinheads.
If it had been Rachel Reeves, the Shadow Chancellor, at the Dispatch Box announcing such cuts, I would have understood such an assault on wealth. Although Reeves and her boss Keir Starmer have yet to outline how they will manage the nation’s finances if they win the General Election in 2024, wealth taxes are likely to be not far from centre stage. Even more if it had been a Labour Government led by Jeremy Corbyn.
Indeed, some of Hunt’s measures were ideologically the very ones I railed against in the lead-up to the General Election in 2019.
Measures that a Corbyn government would have introduced for sure, but never in a million nightmares did I think a Conservative Government would three years later adopt such fervently Labour policies to address problems – in part of its own making.
Of course, I understand Hunt’s view that there are ‘no easy answers’ to sorting out the parlous state of the country’s finances – a legacy of the pandemic, lockdown and the energy crisis triggered by Putin’s vicious and criminal assault on Ukraine. But to hit the prudent seems so uncaring, so Corbyn-like, and so un-Tory like.
Given a choice between low taxes and sound money, Hunt says sound money must remain the priority. By ‘sound money,’ he means putting the nation’s finances back on an even keel through a mix of tax rises and spending cuts.
Through making this his mission, he believes both inflation (11.1 per cent) and interest rates (three per cent) will come down in time, fuelling economic recovery.
But what a price we will all have to pay for driving inflation out of our economy: recession, higher unemployment and an assault on our precious incomes through the freezing of tax thresholds (and in the case of high earners, 45 per cent tax kicking in at £125,140 rather than £150,000). Plus, as I’ve already said, a curtailment in our ability to build wealth through prudence without the Government knocking on our door and demanding a slice of it in insidious tax.
Surely, there must be a better way to oversee an economy than this kind of boom and bust approach?
IT’S NOT QUITE TOTAL GLOOM
The vocal Eddie Browne was not alone in venting his spleen on the Budget before going into temporary hibernation.
Many readers were eager to give their verdict on the Chancellor’s plans to eradicate a £55billion hole in the Government’s finances. Not all of the feedback was negative. On the positive side, most, especially those in receipt of the state pension, welcome Hunt’s decision to honour the triple-lock guarantee which promises an uplift in the state pension from April next year by the higher of 2.5 per cent, inflation or the increase in average earnings.
Janet Stevens, from near Heathrow in Middlesex, says a ‘majority of pensioners’ like herself will be ‘happy’ with the 10.1 per cent increase payable under the guarantee.
Earlier this month, Janet told me that the Conservatives would lose the pensioner vote at the next election if Hunt reneged on the triple-lock guarantee. Now, she says the Government ‘must be a given a chance to make their economic policies work.’
Janet, 73, with a 40-year career in marketing behind her, adds: ‘I haven’t heard anything from Labour that gives me confidence they have a better economic strategy – or for that matter, any strategy at all. Plenty of criticism, not much substance.’
Pat McLaughlin, from Ringwood in Hampshire, also welcomes the 10.1 per cent increase. Yet the 71-year-old, the former owner of an exhibition and events company, says the triple-lock guarantee should not be broken again – as it was last year when Rishi Sunak (then Chancellor) suspended it as a result of the distortion to average earnings caused by people coming off furlough.
Former Chancellor Philip Hammond has already questioned the long-term future of the guarantee. ‘I think the Government now needs to honour the triple-lock guarantee for the remainder of its term,’ he says. ‘Even if it means lower increases in the future as inflation is controlled.’
A breaking of the promise, he says, would result in him not voting for the Conservatives at the next Election.
OTHER WAYS TO RAISE TAXES…OR CURB SPENDING
It does seem inherently unfair that while many savers are being asked to pay a heavy price for shoring up the nation’s finances, the Government refuses to tackle two big issues – recovering money fraudulently claimed by some businesses under Covid-related loan schemes and the rising cost of public sector pensions.
In October, the National Audit Office said £4.5billion of Covid-related financial aid packages were claimed in error or fraudulently. Of this, less than £1billion has so far been recovered.
Clive Edgley, a 72-year-old former director of a buildings materials company from near Stockport, Greater Manchester, believes recovering this money should be a priority. He adds: ‘It makes me mad that Covid fraud is being ignored. In October, Her Majesty’s Revenue & Customs said no amount of error and fraud is acceptable.
‘Yet, next March, its Covid compliance activity will be wound down and terminated by September. This is nothing but abject complacency and failure.’
It’s a point shared by Martin Wild, chair of the British Golf Industry Association. ‘Covid loan fraud has cost taxpayers billions of pounds,’ he says. ‘It seems fraudsters win and taxpayers lose.’
On public sector pensions, many retirees in such schemes will enjoy 10.1 per cent increases in their pension income from next April – in line with inflation. A cost which taxpayers will have to bear – £3.3billion in the next tax year, rising to £8.2billion in the tax year starting April 6, 2024.
Andrew Tully, a director of insurer Canada Life, questions whether this is fair – ‘at a time when the burden of fiscal responsibility should be shouldered by us all.’
I think I know the answer to this question: a big fat NO.
In short, a painful Budget. No winners and many losers. Corbyn-like. Eddie ain’t happy. Nor am I.