Spring Statement 2022: Sunak flaunts dubious tax-cutting credentials

Rishi Sunak stepped up at the despatch box to deliver his Spring Statement today in a rapidly worsening economic context. Household bills are spiralling, and families across the country are facing the worst cost-of-living crisis in 50 years. Inflation rose from 5.5% in January to 6.2% last month, representing a 30-year high. The Office for Budget Responsibility has just downgraded its economic growth forecast for the year, which was 6% in October, to 3.8%. Against this unprecedented backdrop, you might have expected the Chancellor to outline a similarly extraordinary package of support. Unfortunately, he did not.

First, let’s have a look at what was in the Spring Statement today. Vowing to help people now, Sunak outlined three measures designed to protect people from the cost-of-living crisis: 1) cutting fuel duty by 5p per litre for 12 months; 2) raising the threshold at which workers start paying National Insurance contributions (NICs) by £3,000 a year; and 3) outlining a 1p reduction in income tax in 2024. Unsurprisingly, his words were met by MPs yelling: “Is that it?”

These are giveaways decisively not aimed at the poorest households. Only 7% of the benefit of the fuel tax cut will filter down to the bottom fifth of households, compared to 33% for the richest. The raised NICs threshold is a tax cut really only for those in the middle and top of the income distribution – just £1 in £3 of the benefit goes to the bottom half. Meanwhile, an income tax cut in 2024 does nothing to “help people now” as Sunak himself said he would do today.

What was missing? Let’s talk about pay. Energy bills alone are set to rise 14 times faster than pay this year, but there was nothing today about getting wages rising. One quick fix for the Chancellor could have been to immediately raise the minimum wage to at least £10 per hour (a call made frequently by trade unions), which also would have stimulated local economies, as those on lower incomes spend more of their pay packet in local businesses.

Another glaring omission was a boost to Universal Credit. Sunak has faced calls over recent months to raise the benefit at least in line with inflation. Benefit payments will increase by 3.1% next month – but as mentioned above, inflation was running at twice that last month. The Institute for Fiscal Studies director Paul Johnson has warned that those on means-tested welfare are looking at cost-of-living increases of 10%. And let’s not forget, this is after the average Universal Credit claimant saw their payments axed to the tune of £1,000 per year last autumn.

Many people will no doubt have been hoping that the Chancellor, faced with such a crisis, would show a modicum of the interventionist approach demonstrated during the pandemic when the government effectively paid millions of workers’ wages. But no, instead he ramped up his tax-cutting rhetoric, claiming his income tax cut – which is not to take place for more than a year, remember – is “for workers, for pensioners, for savers”. He boasted that the move would cost £5bn and affect 30 million people across the country.

Why the emphasis on being such a big tax-cutter, when in fact by 2025 virtually all workers will be paying more tax on their earnings? The reasons are threefold. Firstly, it fits with Sunak’s fundamental ideological bent. In the early months of the pandemic Sunak became known, and was increasingly liked, for the state paying wages when the virus prevented people from working. People grew used to a radically more interventionist Tory government than anyone could have imagined pre-Covid. But this was a hand forced upon him.

Shutting people in their homes caused the economy to shrink by a quarter in just two months. He was keen to scrap the furlough scheme as soon as possible, and he has been a far more traditional Conservative Chancellor since. His solution to spiralling bills, for example, is a ‘buy-now-pay-later’ scheme – rather than a tax on oil and gas companies that  made bumper profits. What does not fit with that ideological conviction is the fact that he has raised taxes 15 times over the past two years, in various forms. This is something he is loath to be known for, and this statement is partly an attempt to get away from it.

The second reason is his career ambition. Since the start of the pandemic sparked a surge in popularity for the formerly little-known Sunak, he has been tipped as a successor to Boris Johnson. Although ‘partygate’ has largely been knocked from the headlines by Ukraine, the Prime Minister is in a far from stable position. A Conservative leadership election could well be on the cards in the not-too-distant future. What better way to burnish his credentials for the job, in particular to his Tory backbenchers, than berating them with claims that he is a ‘tax-cutting Conservative’?

Finally, Sunak told parliament today that his overarching aim to lower taxes by the end of the parliament – an aim he announced at his Budget in October, too – remains his objective. By making his pledge to cut income tax in 2024, he has just set out the election plan for the Conservatives: force up taxes now – and in an especially regressive way, such as through council tax and NICs – and then give some of that back in a pre-election offering in a bid to woo the electorate.

There is a long way to go between now and 2024. The months to come as prices spiral further and tax rises bite will seem especially hard for the 2.4 million people (34% of the population) who are forecast to be living below a socially acceptable standard over the next year. In those months, food banks will hand out even more than the 2.5 million food parcels they did last year. But those were not the concerns of the Chancellor today. Instead, he made a concerted attempts to depict himself as a traditional, tax-cutting Chancellor. And because he used this statement to paint this frankly spurious picture, people across the country will suffer.