Tax

Rishi Sunak's promises on tax are lacklustre. He's announced a fiddly one-off tax break on energy that will last for just a year which hardly anyone will notice due to inflation. There's also income tax cuts up to seven years in the future, even though he is hardly likely to be Prime Minister by then (and he seldom keeps any promises on taxation for more than a few hours anyway).  Sunak’s promises and u-turns on taxes are making him look inconsistent at best, and a cynical opportunist at worst. The Tory members are right to regard his words with suspicion. But there is one tax cut that could still win the membership over: abolishing inheritance tax.

The Tory leadership race is becoming a test of patience. Today Rishi Sunak has laid out his plan to slash tax: not in a matter of days or weeks, as Liz Truss has pledged to do, but by the end of the next parliament. He’s promised to reduce the base rate of income tax by 20 per cent, by taking 1p off income tax in 2024 (as already pledged) and an additional 3p over the next parliament. As Fraser Nelson notes on Coffee House, the timing of this announcement is working against him: it’s easily characterised as a u-turn on tax cuts, when in truth the former Chancellor is far more interested in reducing the tax burden than perhaps his time in the Treasury conveyed. Team Sunak was always planning to hold back his bigger policy announcements for later in the campaign.

The Financial Times story on Rishi Sunak looking at a possible windfall tax on energy firms captures how difficult such a tax is for any government, especially a Tory one. Because it begs questions why, when electricity suppliers suffered unsustainable losses in autumn and winter, when under the price cap they suffered huge and unsustainable losses – what you might call a reverse windfall – they were allowed to go bust. If you believe in capitalism and competition, you believe in swings and roundabouts: windfall profits in good times are the obverse of extreme losses in the bad. Kwasi Kwarteng repeated that mantra as failing electricity suppliers would not be bailed out.

It is been a familiar story in recent years: a Budget that sounded reasonably good when delivered, but that unravels in subsequent days. Rishi Sunak’s spring statement was no exception. When he delivered it a fortnight ago, he said he was going to compensate low-earners by raising the primary threshold for National Insurance, bringing it into line with income tax and relieving people who earn less than £12,500 from having to pay NI at all. But as the 1.25 percentage point rise in National Insurance kicks in today, it turns out that the rise in the threshold for NI will not take effect for another three months, on 6 July. In the meantime, any employee who earns more than £9,880 a year will be paying 13.25 per cent of their earnings on NI.

A war is raging in Ukraine. Inflation has risen to a 30-year high and may have started to spiral out of control. The country is on the brink of recession, and a gaffe-prone leadership is under increasing fire. You could be forgiven for thinking that President Biden has more than enough problems right now. But he is about to make his already miserable term in the White House a whole lot worse. How? By adding a stock market crash, and the destruction of America’s best companies, to the already worryingly long list of self-inflicted disasters. It is hard to think of a single tax that could be worse for growth This week, Biden is set to unveil a ‘billionaire's tax’ targeted at the country’s super-rich.

The biggest surprise of Rishi Sunak’s spring statement was the announcement that the basic rate of income tax will be cut by one penny come 2024. This is the first cut in the basic rate since the cut to 20p announced by Gordon Brown in his last Budget in 2007, which was of course partly paid for by abolishing the 10p starting rate of tax. Cynics will be quick to suggest that there is a long way to go before 2024 and so the tax cut might not happen. But this is to ignore the politics. The most likely date for the next election is May 2024. It would be bizarre, and electorally disastrous, for a government to announce that it intends to cut taxes just before that date and then fail to do so. Sunak has lashed himself – and the government – to the mast.

When Rishi Sunak first envisaged this year's spring statement, the idea was that it would be policy light. Instead, it would serve as an economic update on the latest forecast and give him a chance to lay out his broad tax aspirations for the year ahead. However, Russia's full-scale invasion of Ukraine means that the goalposts have moved. The Chancellor has had to adjust to the fact that he has come to the end of one crisis only to be greeted by the next. With the economic fallout from Ukraine only exacerbating the cost of living crisis, Sunak is under pressure to announce measures to ease the pressure on households. So, what can we expect?

Before the pandemic hit, NHS England waiting lists were at a record high of 4.4 million. Three lockdowns later, they’ve risen to six million: an unacceptable figure for a Tory government that has spent years trying to rebrand itself as the ‘party of the NHS’. Boris Johnson’s decision to break his manifesto pledge and raise taxes was directly linked to the idea that the money would first be funnelled into the health service to fix the backlog. So can he now deliver for patients? When Health Secretary Sajid Javid announced his ‘elective recovery plan’ in the House of Commons on Tuesday, he said that the waiting list would start shrinking by March 2024, though he stressed that the numbers will rise before then. By how much?

Forget the desirability (or lack thereof) of tax hikes: can Britain survive them? That’s the economic question that kicked off the new year in cabinet this week when Jacob Rees-Mogg was reported to have encouraged the Prime Minister and his colleagues to roll back plans to bring in the new National Insurance levy this April. A recap on the proposals: the 1.25 per cent National Insurance hike will be paid by both employers and employees, and will eventually be funnelled into social care, we're told. But for the first few years, most of the tax revenue it raises (roughly £12 billion) will go to addressing the NHS backlog and the millions of people on waiting lists.

For once, yesterday’s Downing Street press conference included a worthwhile question, and not of the 'why aren’t you locking us down?' variety. In fact, it had nothing to do with Covid at all. Harry Cole of the Sun asked why, given that the Prime Minister had once cited the ability to remove VAT from fuel bills as a tangible benefit of leaving the EU, he was not now taking advantage of his new-found freedom, especially as bills are heading sharply upwards. Boris Johnson mumbled something about not wanting to help people who could easily afford their energy bills and that the government might consider more targeted help instead.