The politics of the latest “tax-cutting” budget, the final one before the election, present a perplexing situation for the Conservative Party in the UK. The fundamental idea of considerable tax cuts, returned to the electorate to utilise as they wish, is deeply embedded within the party’s grassroots and parliamentary members. Therefore, “Lower taxes mean higher growth” was how Chancellor Jeremy Hunt chose to commence his budget speech. However, a recent YouGov poll discovered that 55% of voters believe surplus funds should be directed to public services, while a mere 30% are in favour of tax cuts.
Attempting to reconcile these opposing views is simply unattainable. Pledging it’s a “tax-cutting budget”, when it isn’t, is unlikely to sway many voters. The tax burden has risen sharply under the Tories’ reign, despite some reductions in tax rates, to its highest point in the past seven decades due to “fiscal drag”, caused by them failing to adjust income tax thresholds in keeping with inflation. This time again, Hunt did not meet this requirement, resulting in a further rise in the overall tax burden.
Hunt was informed by the Office for Budget Responsibility that he had about £10-15 billion of “fiscal space” if he was to fulfill his main goal of reducing debt as a proportion of GDP within five years. His decision to cut national insurance a further two percent, costing £10 billion, has devoured this elbow room. His fund-raisers, including £2.7 billion from reforming the highly unpopular “non-dom” tax loopholes for non-resident millionaires, some taxes on vaping and tobacco, and maintaining a level of windfall taxation of oil and gas profits, will fail to cover the cost of the national insurance cuts.
Hunt has pledged to restrict the overall real boost in public expenditure to one percent. But with definite increases in health, education and defence spending far exceeding that, the anticipation is for major, yet-to-be-determined reductions in a broad array of other public services. As a result, few are likely to feel wealthier or more hopeful about the country’s future. It appears as though this budget is unlikely to be a vote-winner in the upcoming election.