My response to the Budget
It was a horror show for business, but this Halloween, its the ghost of Liz Truss that haunts the Conservative Party.
“Budget policies deliver a temporary boost to GDP in the near term and some crowding out of private activity in the medium term.” (OBR Economic and Fiscal Outlook, 30 October 2024)
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“£40 billion worth of taxes rises, some very big spending commitments, and quite a bit of extra borrowing as well… a £25 billion increase in employers NICs is absolutely enormous, lots of argument over whether that breaks the manifesto commitment. Well it’s clearly an increase in NICS and most of it will be felt in lower pay.” (Paul Johnson, Executive Director of the IFS)
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“Nothing in that review was a legitimisation of the £22 billion ‘Black Hole’ figure.” (OBR Economist, Sky News)
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“This budget not only threatens family farms but also makes producing food more expensive.” (Tom Bradshaw, NFU President)
There was so much to find dispiriting and outrageous in yesterdays budget.
First of all we should be absolutely clear… the imposition of £40 billion in new taxes will have a huge and detrimental impact on the economy at a time when our economic model sits on a knife edge. Productivity and growth has stagnated for a generation. The consensus is clear that our planning rules, failure to invest in critical infrastructure (including alternative sources of energy) and a lack of private sector capital investment have compounded a difficult economic period due to Covid and Ukraine. Yesterday’s announcement failed to assuage these concerns.
The most damaging of all those taxes will inevitably be through the large increase in Employers National Insurance Contributions (NICS). As someone who once ran a micro-business that operated on very thin margins, I promise you, increasing both the minimum wage and the rate at which employers will pay tax on those jobs, will make payroll unaffordable and lead to the cutting of jobs. The OBR even says the majority of this NICS increase will filter through to lower wages, with the rest being absorbed through profits… so once again working people will pay the price for this Labour tax.
Growth is what the Government want to see. But the budget doesn’t deliver growth in the long term. The OBR itself forecast shows the impact of the stimulus in the near term, but adds that this is a temporary impact and the economic growth rates will decline in Years 3 and 4. Why? Because the policies introduced by the budget crowd out private sector activity - employment, investment and innovation.
The the only thing this budget will grow is the size of the state. The OBR says: “Budget spending policies add £69.5 billion (2.2 per cent of GDP) a year over the next five years, and £71.6 billion by the end of the decade”. And where will this money go in such a short period of time, it takes many years to build power stations, hospitals and new universities (the kind of economic and social infrastructure we need). The reality is that this will replay what happened during the Blair-Brown years, and a huge stimulus will be spent on consultants and expensive unproductive compliance officers in our public sector.
To add to this already bitter situation, it is profoundly untrue for Rachel Reeves to say that this is a funded budget. Because it clearly isn’t. She will need to borrow more money to meet her £71.6 billion spending plans because “Budget tax measures increase total revenues by £36.2 billion (1.1 per cent of GDP) a year on average and £41.5 billion by the end of the decade”. So we need to borrow a further £30 billion to meet the spending commitments laid out yesterday. The Budget Deficit is expected to grow in every year of this Parliament. What will that do for our international financial credibility, debt levels, Gilt yields and long term fiscal sustainability?
The greatest sadness though for me was the political situation we Conservatives now find ourselves in. Because while this budget was a horror show, the Labour Government’s tax on jobs and businesses was made possible because of the Conservative mini-budget and the Liz truss fiasco. I sat in the chamber for more than 2.5 hours, and watched front-bench and back-bench Labour politicians utter the words ‘Liz Truss’, ‘Lettuce’, ‘Mini-Budget Fiasco’ over and over again. And the reality is that the Truss economic legacy still hangs over the party and our country’s economic agenda. For the time being, the Labour Party will unleash hell on the productive sector of this country, and use Liz truss to legitimise it. And that is Liz Truss’s legacy, she has delegitimised low taxes and deregulation, while giving enough political space for Labour Party to legitimise (politically at least) their high tax and spend agenda. I hope it doesn’t take us a generation to shake that legacy.
