For further comment or to arrange an interview please get in touch with Joseph Silke: joseph@brightblue.org.uk or 07948 420 584.
Commenting on the Spring Statement, Ryan Shorthouse, Chief Executive of Bright Blue, said:
“This is the confused Chancellor. He is desperate to burnish his Hayekian credentials to his colleagues, but he has been consistently Keynesian in his response to two major crises during his short tenure, using a mixture of public spending and now tax cuts to stimulate the economy through troubled times. Public debt, tax levels and inflation will remain historically very high for the foreseeable future, much higher than what fiscally hawkish economists would advise.
“The fairest way of helping households struggling with a range of costs, especially fuel and energy, is through broad subsidies such as Universal Credit or broad taxes such as VAT, National insurance or Income Tax. The Chancellor should be applauded for introducing the most targeted tax cut he could: increasing the starting salary threshold for employees and the self-employed paying National Insurance and to such an extent it will be aligned with the threshold for Income Tax, a policy which Bright Blue has long called for.
“Since the Chancellor seems to be allergic to welfare, he is hamstringing himself by refusing to do what would help best: increasing the value of benefits such as Universal Credit or the Warm Homes Discount.
“Using a good chunk of what limited funds he had to help on cutting Fuel Duty is poor policymaking. This is not the second time in twenty years it has been cut, as the Chancellor claimed. Fuel Duty has consistently been cut in real terms since 2011. It is poorly targeted, especially as fewer than half of the poorest 20% of households actually have a car.
“Raising National Insurance, via a new Health and Social Care Levy, and then reducing Income Tax in this Parliament is straightforwardly odd. Since Income Tax applies to a broader range of income other than work, it means the total tax revenue from earnings is increasing whereas the total revenue on other income – for example, pensions and rent – is reducing. Really, Conservatives should be rewarding work via the tax system.”
The 2022 Spring Statement adopted the following Bright Blue policies:
- Raising the salary threshold for employees and self-employed paying National Insurance
- R&D Tax Credit expanded to include cloud computing and data
Fuel Duty
- The Government will reduce the main rates of petrol and diesel fuel duty by 5p per litre, and other rates proportionately, for 12 months until March 2023.
Sam Robinson, Senior Researcher at Bright Blue, said:
“Today’s cut to Fuel Duty will ease the pain on some households. But it is woefully targeted. Fewer than half of the poorest 20% of households own a car. If the goal is to support struggling households on the lowest incomes, there are far better ways of doing this than cutting Fuel Duty.
“The Chancellor is wrong to say this is the first time in 20 years that Fuel Duty has been cut. It has already been cut substantially in real terms over the last decade and would have been cut further this year had the Government simply kept the freeze on Fuel Duty in place. There is now a risk that this temporary, and unnecessary, cut becomes permanent and hamstrings progress on net zero.”
National Insurance
- The Government will increase the annual Primary Threshold and Lower Profits Limit to £12,570 from July 2022
Sam Robinson, Senior Researcher at Bright Blue, said:
“Out of all the tax options available to the Government, raising the starting salary threshold for National Insurance is one of the best. It delivers broad-based benefits that will help low and middle-income households. And it makes the way we tax earnings considerably more logical and coherent. Indeed, Bright Blue has called for raising the Primary Threshold for National Insurance since 2015.
However, the Chancellor missed an opportunity today to improve the design of the new Health and Social Care Levy. Cutting the employer element of the Levy, and broadening it out to include pensions and rental income, would help businesses to ride out the economic storm in the short term, spread the cost of the measure more fairly, and in the longer term feed through into wages and employment.
“An important caveat to the increased National Insurance thresholds is that those on Universal Credit will not capture all of the benefits. Higher thresholds will increase many people’s net income, which will in turn reduce Universal Credit awards.”
Income Tax
- The Government will reduce the basic rate of Income Tax from 20% to 19% from April 2024.
Sam Robinson, Senior Researcher at Bright Blue, said:
“The cut to the basic rate will no doubt grab headlines. But this is a move that, ultimately, mainly benefits better-off households and does little to help those on low incomes. And the Chancellor merely promised to make the cut by 2024. A better approach to addressing the cost-of-living crisis now would have been to focus on unfreezing the starting threshold for basic rate Income Tax to account for higher than expected inflation.
“Cutting Income Tax while raising rates of National Insurance is a confused approach. It will further widen the gap between earned income from work and other forms of income, such as pensions and rental income. And, from a fiscal standpoint, the measures act in opposing directions. While it may not be as flashy as Income Tax reforms, the priority for tax cuts should be National Insurance.”
Benefits
- Additional £500 million for the Household Support Fund from April 2022
Anvar Sarygulov, Senior Research Fellow at Bright Blue, said:
“While benefits are set to be uprated by 3.1% next month, inflation is forecast to peak at over 8% later this year, meaning millions of households on the lowest incomes face a very difficult year ahead, with rising costs of fuel, food and childcare.
The additional £500 million for the Household Support Fund is both an explicit admission that the social security system is providing inadequate support for those most in need, and a measly sum that does not come close to addressing the gap between rising costs and the falling value of support.
“Bringing forward the next uprating of the benefits forward from April 2023, and increasing the value of the Warm Homes Discount in line with rising energy prices, would have been far more substantive, effective and targeted interventions to keep the value of fiscal support for low-income households in line with rising prices.”
Energy and the environment
- Scrapping 5% VAT on energy saving products and home insulation including solar panels, heat pumps, wind and water turbines
Rebecca Foster, Energy and Environment Researcher at Bright Blue, said:
“Abolishing VAT for energy saving products and home insulation for the next five years is a good use of Brexit freedoms which should incentivise further uptake of essential household energy efficiency upgrades. Encompassing wind and water turbines also promotes green energy generation, helping reduce Britain’s exposure to volatile gas imports.
“The Chancellor will be under pressure later this year, at the next Budget just before the next Winter, to do more to support households with energy costs. The best way to help is by uprating the value of the Warm Home Discount offered to low-income households, which has been frozen in value since 2014.”
[Image: Number 10]
