Chancellor Rishi Sunak delivered his Autumn Budget and Spending Review against a background of previously announced significant tax increases which will take effect soon - National Insurance increases from April 2022 to fund the increasing cost of social care, and increased Corporation Tax which will take effect from 2023. Given the pressure these additional costs will bear on businesses, there will be general relief that further tax increases were not announced.
These announcements come on top of the effects of fiscal drag created by the freezing of personal tax allowances and higher rate tax thresholds, which will have an even greater impact if incomes increase within an inflationary environment, as seems to be happening.
Rishi Sunak’s speech was perhaps notable for what was seemingly a major omission, in that it made no reference to the impact of climate change on the Government’s tax and spending plans. There was, for example, no mention of where the estimated £10bn that will need to be provided over the next three years to insulate homes if the Government is to meet its own climate change targets.
The Office for Budget Responsibility (OBR) has revised its prediction of likely economic growth levels up to 6.5% - up from its previous forecast of 4% - which would help to return the size of the economy to pre-Covid levels by the turn of the year, some six months earlier than forecast previously.
The Chancellor acknowledged that the tax burden is now at a historically high level, and he will undoubtedly hope that he can reverse some of the increases or announce other tax cuts before the next election. But with the cost of living now rising, the fundamental question seems to be whether those increases will be funded by increased economic output and efficiency, as the Prime Minister has recently said they will, or whether they will act as a drag on overall economic growth. Whichever turns out to be the correct answer may well have a major bearing on the Government’s popularity over the second half of its current term and ultimately its prospects for success at the next general election.
For further analysis of the Autumn Budget and Spending Review watch our latest webinar
