In recent days in the ‘silly season news’ it was suggested that Rishi Sunak could be faced in the run up to his Party’s annual conference this autumn with demands for tax cuts before the next General Election.
There is, allegedly, “disquiet” amongst the “Right” on the Tory benches in the House of Commons. I suspect the ‘Right’ makes up much of the Tory benches as you may need to search hard to find One Nation Tories these days.
One MP, in his first Parliament in a fairly safe seat, whom the tabloid press described as a “leading tax hawk”, not that I am sure he ever worked sufficiently to create much to tax in the first place, told the world that there was “no time to lose to show why voters should stick with the Conservatives and stick with the true interests of the nation at heart”. He added, “the surest way to achieve that is to cut taxes and let people spend more of their own money. Rishi Sunak is to be applauded for restoring much-needed stability to the Government”. Well, Sunak has certainly brought stability to the Government following the Johnson and Truss period; for which we must all be grateful.
The idea put forward is that there should be a clear signal of tax cuts made at the Tory Party Conference; presumably to be implemented pretty darn quick.
It was sighted in the media that public borrowing for the first months of this year was £11billion lower than the Office for Budget Responsibility had expected. It was suggested by these political players that the Chancellor, Jeremy Hunt, had as a result of this more room to manoeuvre when it comes to tax reduction.
Part of the problem in this pre-election period is that people are positioning on the Tory Right for a possible defeat and yet another Leadership election. It happens. I well recall the nice hand-written note I received from Michael Portillo wishing me well in 1997. I was grateful, but it was really about voting for him in any Leadership election that followed; though neither of us were there to bother with the subsequent detail!
I admit to believing that excess money supply leads to inflation. I am definitely not one of those economists that thinks pay rises for public sector workers will have no effect on the inflation bottom line; it sure will. So if the Government’s primary aim is to reduce inflation, which is one of the biggest problems especially for the less well off, we have to be very, very careful about what we do in cutting taxes. Of course I am not a high tax person, but after the Banking Crisis, austerity to reduce debt and borrowing for Covid measures – of which so very much was wasted if not fraudulently spent – we are now paying a huge burden of interest on the nations credit card borrowing. Our ‘credit card debt’ is £2.6trillion.
So is there room for tax cuts? Yes, but not much. Government borrowing in the first four months of the current financial year was £56.6Bn. This is £11.3Bn less than the OBR expected. Even allowing for the OBR to sometimes gets its sums wrong, there has been a higher receipt of taxes during the period than might have been expected. Spending on public sector pay has swollen. The interest on that £2.3trillion debt for the year to date has been £37.8Bn which is £1.9Bn more than the good old OBR expected in March. This highlights that excess inflation also increases our debt servicing bill.
So let us think about those calls for tax cuts. Our man that I mentioned, Eton, Edinburgh, Oxford and largely straight into Downing Street as an advisor and then into Parliament, says that the £11.3Bn ‘drop’ in borrowing which was unexpected, should be used to cut taxes. It is like saying, well we have some head-room on our credit card limit so let us make ourselves feel better and get a cash advance and blow it on ourselves! Erm, hello, it’s borrowing, there’s a cash-advance fee and interest starts immediately!
Last year our debt interest payments totalled almost £107Bn! This fiscal year it is predicted to be about £94Bn. Things are healthier but the longer-term outlook is worrying. Debt interest payments may need to rise a further £40Bn in 2024-5 and by £20Bn in five years time with the total up over five years of some £150Bn. That is just the interest. The UK is in for a very long haul no matter which Party is in Office.
Jeremy Hunt is doing a good job as Chancellor. He reminds me of Kenneth Clarke when Chancellor during 1994-7, doing what was right for UK and ignoring some of the siren voices of disaster.
Perhaps that well-heeled Tory MP I mentioned earlier needs a ‘Margaret Thatcher Lecture’ on personal house-keeping. She believed in letting people keep as much of their own money as possible, but she first and foremost she believed in sound finance.