Fact check: Sunak’s ‘tax cut’ claims

Rishi Sunak seems to have a New Year’s resolution: to claim that taxes are falling and say it so often that people start to believe him rather than their own lying payslip. He says that the last Budget was the biggest tax-cutting event since the 1980s, etc. He tells today’s Sunday Telegraph that more welfare reform will allow him to cut taxes even more. I was on the panel after he spoke on Laura Kuenssberg’s BBC1 show and said was stretching the truth a bit too much.

For every £1 cut by his National Insurance tax reductions (which have now come into effect) he is raising £4 by stealth taxes. Freezing the thresholds and allowances etc rather than lift them in line with earnings or inflation is a massive tax rise: it takes four million more into income tax, three million more into the higher rate, 400,000 more into the top rate. Add taxes you pay indirectly and the picture looks like the below: taxes rising, really rather quickly, to the highest they have been in UK peacetime history.

Now to what he told Laura Kuenssberg this morning:

Claim: £450 tax cut for average earners

The Chancellor has just announced £20 billion of tax cuts that came in this weekend. For someone earning £35,000, that’s a tax cut worth £450 a year. And that all of that shows to me that we have made progress. The plan is working. We’re starting to deliver the long term change that our country needs.

On its own, the NI cut does mean a £450 tax cut. But the stealth taxes - income tax and NIC thresholds and allowances frozen - lower the tax cut to £130. (The IFS has done the sums here.) By focusing only on the NI and ignoring the stealth tax effect, Sunak is telling only half of the story. He chooses £35,000 because someone here would not be one of the seven million people stung by his stealth taxes by ending up in a new threshold. His plans mean that within four years, someone on £35k will be paying £440 a year more in tax overall due to all of the various changes.

Claim: that serious welfare reform is afoot

You’ve seen the number of people who are signed off [as too sick to work] has tripled. Now, do I think our country is three times sicker than it was a decade ago? The answer is no. I think the system is not working as it was designed to work, and now we are bringing forward reforms that will mean that we look at the eligibility for who is signed off sick… 

Fact: He’s right about the worrying rise in welfare, but his reforms barely dent this trend. That’s according to DWP analysis slipped out last month show that even after his reforms, the number on disability benefit is expected to rise by an astonishing 920 a day, every day (!) for the next five years. (I wrote about this here.) His proposals would cut this down from about 1,000 a day, thinks the DWP. So yes, a lower rise. But still a crisis: taxes will have to rise to pay for this. 

Claim:

It’s about making sure that everybody who can work does work. And for everyone who is working hard, we reward that hard work with tax cuts…

For those on the lowest incomes, we raise the National Insurance threshold, the personal allowance, so that you can now earn £1,000 a month without paying any tax or National Insurance. We already did that. That disproportionately obviously benefits the lowest paid.

No one is being rewarded with tax cuts: high or low earner. The IFS have added up all of the post-March 2021 budget effects to provide the handy graph below showing that no one, at any point in the salary level, is better off. And the pain that’s focused on those on £13,000 to £20,000 a year – as a share of their income – is particularly acute. The graph shows NIC in yellow, and all the changes to tax since March 2021 in green:

Claiming that the above chart shows taxes falling is not about speaking in ‘shorthand’. Down is not shorthand for up; black is not shorthand for white. Every politician stretches the truth, but Sunak risks doing so up to and beyond the point where the elastic snaps. By cherry-picking to an extent that would embarrass Ed Balls, he ignores what has happened in the other Budgets he either delivered or oversaw.

Sunak is making progress, but this can be forgotten by his poor choice of words. He told Laura Kuenssberg that he always thought NHS waiting lists would keep rising until Easter 2024. Why didn’t he say so when he promised to cut those waiting lists in January 2023? He has made big progress on small boats, with landings down by a third last year. But he doesn’t get much credit as he asked to be judged on whether he would ‘stop the boats’.

Sunak is a tax-cutter by instinct and taxes are rising due to decisions made before he was in No. 10. He is not to blame for the rising taxes, and has taken steps to slow the rise. He could explain this: why taxes are rising (welfare dysfunction, debt interest, lockdown effect) and how is is taking some of the edge of this. But taxes are not falling and the PM should not claim otherwise.

PS For those interested, the effect of the stealth tax threshold freezes in explained in Box 3.1 on p69 of the OBR report that accompanied the budget. This stealth tax will raise £45bn in all, vs the £10.4bn cost of the National Insurance cut.