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Harbinger of doom: Jeremy Corbyn
It took Eddie Browne, someone who has no less than half a dozen opinions on what I write each week, to give me his candid review of Jeremy Hunt’s Budget three days ago.
“I’m going to find some straw and hibernate,” he said within an hour of the Chancellor of the Exchequer outlining his plans to eradicate a £55bn hole in public finances. “When I wake up, hopefully we’ll have an economy left.”
Eddie, a proud retiree who spent most of his working life at United Biscuits in Manchester, believes the economy is on the rocks as massive tax hikes curb consumer spending and spiral into recession.
He may well be right, at least in the short term, given that Hunt admitted the economy would contract by 1.4 percent next year and bounce back in 2024 (don’t bet on it).
While Eddie is thankful that his state pension will benefit from a hefty 10.1 percent increase in April, he is less than impressed by the long-term freeze on the thresholds into which the base rate and higher rate go into effect. six million people to pay higher tax rates by 2028. Shocking.
Nor can he understand why the chancellor has decided to attract savers to generate even more tax revenue. In April, cuts will be applied to both the amount of dividends investors can receive each year without paying taxes, and the capital gains investors can crystallize without paying taxes. A further reduction followed a year later.
“Madness,” he says, “utter madness.” As always, the perceptive Eddie (the epitome of everything our readers stand for – hard work and a determination not to be a burden to the state) is right.
Fortunately, the Isa surcharge – which allows investors to put up to £20,000 in a tax-free package each tax year – remains untouched, as does the tax relief savers get on pension contributions.
As I listened to the budget in my office on Thursday morning as the rain poured down from the sky outside, I couldn’t quite believe what I was hearing. A Tory chancellor who discourages people from throwing away money in the future to ensure financial independence in later life.
We were warned that such cuts were coming, but not double cuts, reducing annual tax-free allowances for dividend income and crystallized capital gains from £2,000 and £12,300 respectively to £500 and £3,000 for the tax year commencing in April 2024. about cheeky haircuts. More like skinheads.
If it had been Rachel Reeves, the shadow chancellor, at the Dispatch Box announcing such cuts, I would have understood such an attack on wealth. While Reeves and her boss Keir Starmer have yet to outline how they’ll manage the nation’s finances if they win the 2024 general election, wealth taxes likely won’t be far off the mark. Especially if it had been a Labor government led by Jeremy Corbyn.
Indeed, some of Hunt’s measures were ideologically the ones I railed against in the run-up to the 2019 general election.
Measures a Corbyn government would certainly have introduced, but never in a million nightmares would I have imagined a Conservative government three years down the line would pursue such ardent Labor policies to deal with issues – partly of its own making.
Of course, I understand Hunt’s view that there are “no easy answers” to straightening out the predicament of the country’s finances – a legacy of the pandemic, lockdown and energy crisis caused by Putin’s vicious and criminal attack on Ukraine . But hitting the cautious one seems so indifferent, so Corbyn-like and so un-Tory-like.
Given the choice between low taxes and sound money, Hunt says sound money should remain the priority. By “healthy money,” he means rebalancing the country’s finances through a mix of tax increases and spending cuts.
Making this his mission statement, he believes both inflation (11.1 percent) and interest rates (three percent) will fall over time, fueling the economic recovery.
But what a price we will all have to pay to drive inflation out of our economies: recession, higher unemployment and an attack on our precious incomes by freezing tax thresholds (and in the case of high incomes, 45 per cent taxation for £125,140 in instead of £150,000). Plus, as I have said, a curtailment of our ability to build wealth through prudence without the government knocking on our door and demanding part of it in insidious taxation.
Surely there must be a better way to oversee an economy than this kind of boom and bust approach?
IT’S NOT COMPLETELY TOTAL SLEEP
The vocalist Eddie Browne wasn’t the only one venting his spleen on the budget before going into temporary hibernation.
Many readers were eager to cast their verdict on the Chancellor’s plans to eradicate a £55 billion hole in public finances. Not all responses were negative. On the upside, most, especially those receiving state pensions, welcome Hunt’s decision to honor the triple-lock guarantee that promises a state pension increase from April next year at the highest of 2.5 percent, inflation or the raise for average earnings.
Janet Stevens, from near Heathrow in Middlesex, says a ‘majority of pensioners’ like herself will be ‘happy’ with the 10.1 per cent increase to be paid under the guarantee.
Earlier this month, Janet told me that the Conservatives would lose the vote for retirees in the next election if Hunt reneged on the triple-lock guarantee. Now she says the government “should be given a chance to make their economic policies work.” Janet, 73, with a 40-year career in marketing, adds: ‘I’ve heard nothing from Labor that gives me confidence that they have a better economic strategy – or any strategy for that matter. Lots of criticism, little content.’
Pat McLaughlin, of Ringwood in Hampshire, also welcomes the 10.1 per cent increase. Still, the 71-year-old, the former owner of an exhibition and events company, says the triplelock guarantee should not be broken again – as it was last year when Rishi Sunak (then chancellor) suspended it due to the disruption to average earnings that are caused by people going on leave.
Former Chancellor Philip Hammond has already questioned the long-term future of the guarantee. “I think the government should now honor the triple-lock guarantee for the remainder of its term,” he says. “Even if it means that future increases will be lower when inflation is under control.”
Breaking the promise, he says, would prevent him from voting for the Conservatives in the next election.
OTHER WAYS TO INCREASE TAXES… OR REDUCE EXPENSES
It seems inherently unfair that while many depositors are being asked to pay a high price for sustaining the country’s finances, the government is refusing to address two major problems: recovering funds fraudulently claimed by some companies in context of Covid-related loan arrangements and the rising cost of government pensions.
In October, the National Audit Office said £4.5bn in Covid-related financial aid packages had been claimed in error or fraudulently. Of this, less than £1bn has been recovered to date.
Clive Edgley, a 72-year-old former director of a building materials company near Stockport, Greater Manchester, believes getting this money back should be a priority. He adds: “It angers me that Covid fraud is being ignored. In October, Her Majesty’s Revenue & Customs said no amount of error and fraud is acceptable.
“But in March, the Covid compliance activity will be phased out and ended by September. This is nothing but bitter complacency and failure.”
It’s a point shared by Martin Wild, president of the British Golf Industry Association. “Covid loan fraud has cost taxpayers billions of pounds,” he says. “It seems that fraudsters win and taxpayers lose.”
As for public sector pensions, many retirees in such schemes will receive 10.1 percent of their retirement income from April next year – in line with inflation. A cost that the taxpayer will have to bear – £3.3bn in the next tax year, rising to £8.2bn in the tax year commencing 6 April 2024.
Andrew Tully, director of insurer Canada Life, questions whether this is fair – “at a time when the burden of fiscal responsibility should be borne by all of us.”
I think I know the answer to this question: a big fat NO.
In short, a painful budget. No winners and many losers. Corbyn-esque. Eddie isn’t happy. Me neither.
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