Rishi Sunak has defended his decision to raise UK taxes to their highest level in 70 years, as research showed the rises amounted to an increase of £3,000 per household since Boris Johnson became prime minister.
The chancellor said the measures were partly needed to repair the damage caused by Covid, although official forecasts show the economy bouncing back strongly with what the Office for Budget Responsibility called “tax rich” growth.
But the squeeze on households might also intensify in the weeks ahead, the head of the fiscal watchdog said, because the Budget was stimulative and that would put more pressure on the Bank of England to raise interest rates.
Sunak woke to headlines the day after his third Budget about his “spending spree” and the tax burden he plans that will be the highest since the 1950s.
Speaking on the BBC’s Today programme, the chancellor did not dispute analysis by the Resolution Foundation think-tank that households on average would pay £3,000 more in taxes by the end of this parliament.
“Of course I would not like it to be there,” he said. “It’s been caused because this country suffered the biggest shock it has suffered for 300 years.”
The chancellor insisted that “people’s priority now is to see public services recover strongly after coronavirus” and that they only want to pay for more public spending from higher growth, hence investment in skills and science.
But he added: “I was very clear about my desire over the course of this parliament to start reducing taxes for people.”
The Resolution Foundation said that the taxes introduced by Sunak were broadly progressive with poorer people slightly better off and most of the increased tax burden landing on people on average incomes and richer households.
It said that all working people would find the next few years tough, however, because high inflation would eat away at wage increases, leaving real wages only 2.4 per cent higher on average in 2024 than in 2008, one of the longest periods of wage stagnation in UK economic history.
Richard Hughes, chair of the Office for Budget Responsibility, added that the pain for households with mortgages might not be over, because the fiscal watchdog believed that the Budget measures made interest rate increases more likely because they had raised household demand further.
“We had anticipated some market reaction to the fiscal package that was announced by the chancellor because it’s basically stimulative in net terms . . . and we’ll see how the Bank of England makes its own decisions later,” Hughes said.
Sunak’s Budget bore the imprint of Johnson, who believes in an interventionist state and insisted that his chancellor provided the cash needed to start delivering on his “levelling up” agenda.
But in his Budget speech the chancellor struck a different tone, claiming there was a “moral dimension” to the need to contain the inexorable growth of the state once the current spending increases were delivered.
The Tories will go into the next election in 2024-5 with public spending accounting for 2.5 per cent more of the economy than when Johnson became prime minister.
That has gone down well with Tory MPs in the north, while those in the south are for the moment biting their tongues. The chancellor was warmly received by Tory MPs on both wings of the party at a meeting of the backbench 1922 committee on Wednesday night, according to those present.
The Resolution Foundation said that in 2026-27 tax, as a share of the economy, would be at its highest level since 1950, but Nick Macpherson, former Treasury permanent secretary, predicted it would never reach the predicted 36.2 per cent level.
“Getting revenue in is a difficult business — one reason the tax take is so stable,” he tweeted. “Either [HM Revenue & Customs] will fail to secure this tax yield, as it has failed in the past. Or, if it succeeds, the chancellor will feel obliged to cut taxes, consistent with the election timetable.”
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