Sir Lindsay Hoyle, Speaker of the House of Commons, has criticised Rachel Reeves, Chancellor of the Exchequer, for allegedly providing important budget information publicly ahead of informing Parliament. The criticism invoked paragraph 9.1 of the Ministerial Code, “When Parliament is in session, the most important announcements of Government policy should be made in the first instance, in Parliament.” This is not just to do with respect for Parliament but also about not conferring advance knowledge to interested parties who could gain from this information or cause damage with it.
It can be argued that changes to fiscal rules to allow more borrowing do indeed constitute an important announcement of Government policy, which MPs should have been the first to hear. At the same time, the Chancellor and other members of the government have been regularly jousting with media interviewers keen to seek out early details of the 30th October budget. Unfairly, there have been too many occasions where a failure to deny that a measure will be implemented is construed as an intention to do so.
Speculation has been rife, not least because this is the first Labour budget since 2010. Members of the government appear to have largely avoided the disclosure of specific measures but have nevertheless dropped some strong hints about what might happen. My impression is that Parliament has over the years become more accustomed to and/or tolerant of lapses in the application of paragraph 9.1 of the Ministerial Code, almost weary of apparent violations.
It is clear that the Labour Government will raise taxes to cover a projected year-end deficit substantially of its own making. The old Labour recipe of higher taxes, more borrowing and measures that constrain economic growth seems about to come to the fore once again, with their 2024 manifesto likely to prove an inadequate reference point for some of the measures that they adopt.
We will rightly learn the bulk of budget measures on 30th October in the presentation to Parliament but some hints are already causing considerable alarm. The Labour manifesto states, “The Conservatives have raised the tax burden to a 70-year high. We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.” It is something of a stretch to suggest that this sentence indicates an intention to raise employer National Insurance contributions and yet that is one of the strongest steers we are being given by government spokespeople – an increase in the tax on jobs.
Of similar concern is any definition of working people, especially with the changes to the Winter Fuel Allowance affecting a huge number of pensioners. We have to hope that the Government will find it within themselves to recognise that pensioners too have been, or in a good number of cases still are working people.
Labour governments of the 1960s into the 1970s lacked subtlety in the taking of more tax. At times, we had multiple income tax rates, with the highest set at a staggering 83%, together with an investment income surcharge of 15%, for a total take of 98%. Over time, governments of all colours have become more “thoughtful” in the way that they raise revenue or decrease the tax take. This Labour Government has to some extent boxed itself in, if we are to believe its manifesto. They are left with fewer options to raise revenue and might choose to think very politically along the lines of increasing taxation where the yield is worthwhile but impacts relatively few people and where the change is particularly difficult to explain on the doorstep.
Today’s 20% income tax band runs from £12,571 p.a. to £50,270 p.a. So increasing the tax rate to 22% for somebody earning £20,000 p.a. in this range increases their tax by £400.00 p.a. That is easy to explain but should not happen as it would be a breach of the Labour manifesto commitment. However, would a freeze in personal allowances or a failure to lift them in line with inflation be similarly unconscionable?
Contrast this with Inheritance Tax which is paid by fewer than 4% of estates and has a number of potential mitigations, e.g. bequests to charities, a doubling of the allowance for the spouse of a deceased person. This is quite a complicated area as well so could be ripe for reform in the budget.
Much has been written about possible changes to tax relief on pension contributions. Currently this tax relief increases according to the top slice tax rate that you are in. A contribution of £8,000 to a pension fund attracts a tax relief payment of £2,000 from HMRC (His Majesty’s Revenue and Customs). Higher Rate (40%) and Additional Rate (45%) taxpayers declare a £10,000 pension contribution on their tax form which lifts their personal allowance by the same amount. The effect is that they then receive back from HMRC an additional tax break of £2,000 and £2,500 respectively. This is not a simple outcome to explain and it is easy to imagine the government making changes here.
Whatever happens, on current form we have a government that is vocal in its readiness to take “tough decisions” aka an intention to continue to alienate large swathes of the population with an apparent readiness to appease the powerful and punish some of the most vulnerable, including those assumed not to have the ability to strike.
Councillor Bob Lanzer
28th October 2024
