Given the enthusiasm for tax cuts usually shown by Conservative MPs it is remarkable how few of them have, in public, raised objections to the government’s loose fiscal policy. True, the Prime Minister’s announcement of a hike in National Insurance ostensibly to pay for social care, elicited squeals from the back benches, yet last month’s Budget drew only muted objections. This was in spite of claims by the Resolution Foundation that the Budget will cost an average household £3000 a year – if you take into account the effect of higher prices as businesses seek to pass on their higher tax bills to consumers.
Today, however, Mel Stride, former Treasury minister and now chairman of the Treasury select committee, has broken free and called for the government to cut taxes before the next election. Tax increases, he complained, are ‘getting in the way’ of investment and economic growth.
Stride’s intervention doesn’t put him too much at odds with government policy, given that the Chancellor, Rishi Sunak, has himself said he wants to start lowering taxes
Stride’s intervention doesn’t put him too much at odds with government policy, given that the Chancellor, Rishi Sunak, has himself said he wants to start lowering taxes again before the next election. But for a backbencher in such an influential position to register his opposition to tax rises is significant, and may make others more inclined to speak up, too.
The government’s problem is that while tax rises have been announced, they haven’t yet hit voters in the pocket. The higher National Insurance rates won’t start to impact on pay packets until next April. Combined with inflation already at four per cent and likely to rise further, that is not going to go unnoticed.
The rise in corporation tax, on the other hand, won’t kick into until April 2023 – when companies with profits in excess of £250,000 will see their rate increase from 19 per cent to 35 per cent. It should not be forgotten that until a few weeks before the 2019 general election Boris Johnson was telling us that he would reduce corporation tax to 17 per cent.
Big tax hikes in 2022 for individuals and 2023 for businesses don’t leave a lot of time to effect tax cuts in time for the next election, which under the terms of he Fixed Terms Parliament Act is due to be held in May 2024 (the first Thursday in May in the fifth year of a Parliament).
There has been much talk, however, of bringing the election forward – which would mean going to the country when tax rises were still very fresh in people’s minds. Under the normal rules of the electoral cycle you expect tax rises to be crammed into the first couple of years of a parliament, followed by a bit of fiscal loosening thereafter in order to create a bit of a feel good factor in the run-up to an election.
Covid and the resulting financial crisis, however, has forced the government to hold off tax rises until later in the Parliament, leaving little room for tax cuts. As 2024 approaches, a lot more Tories are going to start getting nervous what they will have to offer voters in the shape of tax cuts. Indeed, the party is likely to have to go into the next election still bearing the dubious honour of imposing on the country the biggest overall tax burden in 70 years.
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