The speculation is over. The budget is out. We can move from analysing guesses, to analysing facts. The coming days will present deep analysis and individuals can work out for themselves what it all means. But the two main takeaways from the budget is this country faces the highest tax burden ever, and that the chancellor was attempting to rewrite history to justify it.
The reality is this government inherited the fastest growing mature economy, with inflation under control, and unemployment very low. Let’s look at taxes.
Employee taxes are unchanged and threshold freezes have been maintained, so inflationary tax increases remain. But employer national insurance rates are up by 1.2% to 15% and the threshold that they start paying drops from £9,100 to just £5,000. There are exemptions for micro businesses, but the government’s employment tax has just been hiked. However, although this is a tax on employment levied against employers, it includes public services. So the employment cost increase on Wyre Forest District Council is the equivalent of a 1.5% increase in our council tax.
And for employers, the minimum wage has been hiked by 6.7% to £12.21 per hour. In itself, probably not a bad thing, but it hits businesses a second time. Meanwhile, 18 to 20 year olds will see their minimum wage hiked by 16.3% to £10.00 per hour. Will this worry employers taking on first time trainees? We will see.
Whilst we were promised no VAT hikes, the government has introduced an education tax on private school fees. This is a huge change of convention, upheld by the EU, that says education is aright that should never be taxed. But having crossed that Rubicon, when will they start charging VAT on university fees?
But one of the biggest changes is how the Treasury looks at government debt. At the moment, if the government borrows to buy an asset, there is no corresponding asset against the debt on the balance sheet. If someone buys a house, their mortgage is offset against the value of the property, but not with the government. The new change says that the asset should be accounted for, with some safeguards. But this means the government can now borrow ad infinitum. Whilst I can see the logic, I’m not sure future generations will thank Rachel Reeves for dumping vast borrowing on them
As I say, more detailed analysis will come. But this is not a great start to the new government.