By James Roberts, managing director
As we at the TaxPayers’ Alliance said in our full response today, under the bonnet the Budget is full of problems for taxpayers. With something for everyone on tax giveaways, and a whole host of tinkers and tweaks, the devil is in the detail. Here are five things you need to know:
1. The Tories have lost control of public spending
As our chairman Mike Denham explained at our Budget briefing, Hunt has increased rather than cut spending. In November, he increased spending in all years up until 2024-25 (i.e. the election). Only from 2025-26 onwards did he cut it. However, it’s not a real cut. All he’s done is assume a cash freeze on capital spending and a 1 per cent rise in resource spending (as opposed to 2.5 per cent real previously assumed for both). Since resource spending is five times the size of capital spend, this amounts to real growth.
We’re still due a spending review (the last one expires next year), but given the coming general election, I wouldn’t hold your breath. Public sector headcount is increasing, and productivity is down too.
As this graph explains, based on the projections of the latest OBR fiscal risks and sustainability report in July 2022 and updated for some new figures today, public spending as a share of GDP (measured as TME, or total managed expenditure) is set to increase massively in the coming decades. From an average level of 36.4 per cent in the 1990s, public spending is likely to race past 50 per cent of GDP in the coming decades, reaching 59.1% in the 2060s.
We have a long term cost of government crisis, and it’s getting worse.
2. Welfare changes are the thin end of the wedge
The crowd-pleasing childcare announcements are part of a huge shift in outlook on welfare. A new arm of the welfare state has been created to care for people’s children, costing an additional £5.2bn in 2026-27.
On the disability changes, as my colleague Dr Mike Jones pointed out, abolishing the work capability assessment will separate benefit entitlement from the ability to work. In effect, this will create a form of basic income for disabled people. They’re a popular idea on the left and right, but our instinct is that unconditional universal incomes are a terrible idea. For context, this is expected to see around 10,000 more disabled people get into work, notably less than than the 15,000 people anticipated by the changes to pension allowances.
3. Pension allowances changes are welcome, but reform has to come next
As my colleague Conor Holohan explained on CapX, abolishing the lifetime allowance is a surprising, but very welcome, simplification. Moving it to £1.8m would only have taken it back to the level it was before, so this is a real step forward.
Meanwhile, changes to the annual allowance are very good for highly paid doctors, whose contributions (as part of the NHS defined benefit scheme) are calculated differently to their private sector counterparts. But the militant doctor’s union, the BMA, have been pushing for these caps to not apply to doctors at all (as they don’t to judges).
No chance! Public sector pensions are already too generous. These changes to allowances are good for everyone, but the government now has no reason not to start reforming unsustainable public sector pensions.
4. Stealth tax rises are lurking
Hidden in the small print, the OBR says stealth taxes introduced since April 2021 will raise £29.3bn in 2027-28 because of fiscal drag - or, in other words, people being quietly inflated into higher tax bands. Around 3.2m people will become new taxpayers, 2.1m higher rate taxpayers and 350,000 hit the 45p rate.
The amount is roughly equivalent to a colossal 4p increase in the basic rate of income tax. It’s part of the reason the tax burden at the end of 2026-27 will be higher than was forecast previously, reaching 37.7 per cent of GDP at the forecast horizon in 2027-28. As the OBR explain, this would be a post-war high and is 4.7 percentage points above where it stood before the pandemic. And for context, we previously worked out that Jeremy Corbyn was set to impose highest tax burden ever, at 37.9 per cent by 2023-24, a term average of 37.3 per cent.
The Tories are putting up taxes to excruciating levels, make no mistake.
5. Spreadsheets look good, but the reality will feel bad
Despite some promising headlines on the UK being set to avoid a recession, the OBR’s verdict on what the Budget means for households is more stark. They’re expecting living standards to fall by a cumulative 5.7 per cent over the two financial years 2022-23 and 2023-24. That is the highest two-year fall since records began.
What’s more, we have tobacco duties going up, alcohol duties due to rise with inflation in autumn and the OBR’s implicit expectation that fuel duty will rise in 2027-28 in line with RPI; not to mention their forecast that the council tax take in England alone is projected to grow by £13bn by then. With a record tax burden and runaway spending, all of this points to more hardship for taxpayers down the road.