Editorial: Long-term growth worryingly absent in a tax-hiking, business-battering Budget
Tax hikes are one thing – but more concerning are the pedestrian growth numbers that seem to be the new normal for the British economy
Conservative Chancellors do not, as a general rule, batter big business or ordinary Brits with tax hikes.
But these are not normal times, and batter both Rishi Sunak certainly has.
A hike to Corporation Tax will shift almost £50bn over the next five years from business bank accounts to the Treasury.
Fiscal drag from freezes to tax allowances will see the Chancellor dip into workers’ pockets to the tune of £19bn over the same period, too.
The Chancellor will win few friends by claiming it doesn’t amount to a tax rise, simply because, as he says, their current take-home pay will not change.
Over the next four years, 1.3 million people will be brought into the tax system because the freeze on the tax free threshold.
A further 1 million people will be pushed into higher tax bands by 2025-26.
The risk of these raids becoming the new normal is a real one, of course. The tax burden is the highest since the 1960s.
Read more: Budget 2021: Big business to pay off UK’s Covid debt burden with £45bn corporation tax rises
Rishi’s rabbits – a very generous super-deduction on investment and freeports – are welcome, but they are respectively extremely short-term and extremely localised.
Both, too, will displace as much business activity as they will create it, with investments brought forward and business potentially moved to freeports rather than beginning afresh.
And even the Treasury watchdog notes that the corporation tax hike will end up reducing investment in the medium-term.
So all in all, it’s hardly the most business-friendly Budget we might have seen.
But for all the sturm und drang of Budget day, the most worrying numbers in the Budget are those in the Office for Budget Responsibility’s GDP forecasts for the years to come.
Next year, yes, sees the highest GDP growth since 1941. But what about three, four years’ time, when the pandemic has receded and life is back to normal?
The new normal, we are told today, is slow growth. Just a year after 7.3 per cent growth, the UK’s GDP is set to fall to 1.7 per cent. It’ll be at the distinctly underwhelming 1.6 per cent in 2024, and 1.7 per cent in 2025.
Alongside the Budget, the Government published a hundred-plus page report called ‘The Plan for Growth’. As wags have pointed out, it might need a rewrite.
There has been ample noise about this Government’s desire to do all number of ambitious things. Even today, the Chancellor talked about transformative freeports, an investment spree that would spur growth, changes to the listing regime which will supercharge the City.
There was welcome news on tech visas and on boosting our venture capital economy.
So why do we end up ambling along at an uninspiring, nothing-to-see-here growth rate by the end of this Parliament? Whither the grand plans for levelling up, for Big Bang 2.0?
We have seen Rishi Sunak’s plan to start refilling the Government coffers.
But too many taxes, and too many short-term fiddles, will choke off the go-go growth Britain should be aiming for.
Read more: Budget 2021: How does the new tax ‘super-deduction’ work?