York Press Column: A Mixed Mini-Budget
October 5, 2022
With the events of the last fortnight, I could dedicate this column to no other issue than the Chancellor of the Exchequer’s recent mini budget.
First, I would say that the Chancellor correctly diagnosed that if we all want better paying jobs and first-class frontline services then we need to learn the lessons that other nations such as Germany and Japan accepted long ago. Rather than solely focus on redistribution, look to growing the amount you have to redistribute thus benefiting all of society. Put simply, the larger the pie the larger the slice for everyone.
I would also push back against the narrative that fiscal the statement only supports those most well off. Aside from the focus on growing the economy so that we can all benefit from the increased receipts to the Exchequer, there were policies explicitly directed at those who will be most impacted by rising costs.
From the start of the month, domestic energy prices will be capped to ensure that the energy usage of an average household will cost £2,500 per year until 2024. This saves the average household £1,000 a year as a minimum based on previous OFCOM energy cap projected rises. This winter, this is paired with Cost of Living Payments announced earlier this year. Every household will receive a minimum of £400, with those on low receiving an additional £650 and those already in receipt of Winter Fuel Payment receiving an additional £300.
A major concern for me was energy rates for businesses as they did not have an existing cap and were already paying higher rates than domestic households. This was a particular worry given many businesses are still recovering from the impact of the pandemic. I therefore welcome the introduction of a cap to business energy rates which will allow businesses to budget for the months ahead.
Another barrier to growth is red tape so I fully support the reclassification of a small business from under 250 employees to under 500 employees. This will cut costs for 40,000 additional businesses and exempt them from burdensome regulation that is not relevant to smaller companies. To put this change into context, businesses between 50 and 249 employees currently spend on average 22 staff days per month dealing with regulations. By unlocking these staff hours, businesses will have the manpower to drive growth.
Onto individual support, from next month employees will see their National Insurance rate reset to March 2022 levels meaning they will have more money in their pay-packet. The Government has also brought forward the cut to the basic rate of tax from 2024 to 2023.
Despite media reports, I would stress that there is nothing radical about the changes to corporation tax, national insurance or income tax. They either bring forward preannounced policies or simply reset tax levels to where they were a few months ago.
However, that doesn’t mean what has been announced is perfect. The decision to bring forward the statement but not accompany it with an OBR forecast was ill-judged and directly caused instability in the markets. This was wholly unnecessary and an unforced error, especially since most of the policies announced were prominent elements of the Prime Minister’s leadership campaign so had already been factored into the market. The Government must accept that their unexpected and unassessed policies have triggered the uncertainty in the market and must take ownership of their actions.
I am glad to see the Government recognise the error of their ways and meet with OBR officials last week before announcing that there will be an assessment of all elements of the ‘Plan for Growth’ rather than just the medium and long-term policies. I am calling on the Government to publish this assessment and bring forward the medium and long-term announcements to the end of the month before the Bank of England meets to discuss interest rates on the 3rd November.
The Government are listening though, and I welcome their decision to scrap the planned cut to the 45p tax rate, which I would have voted against if given the opportunity. The policy only benefited 600,000 people and, while it was resetting tax rates to those under the last Labour government, it only had minimal impact on stimulating growth. Furthermore, in this instance our priority should be keeping the short-term additional tax income to allow us to fund further support for those most in need over the possibility of minimal long-term growth stimulation.
Ultimately though, a focus on growth can benefit us all. A strong economy produces better paying jobs and funds the services we all use. A stronger economy will make a better York.
