ALEX BRUMMER: Britain would be in a much better position to shoulder its burden without the Chancellor’s tax attack: Gloss is tarnished for Rishi Sunak
- Sunak misjudged the economy that emerged from the Covid crisis and is embroiled in Ukraine
- The Chancellor’s celebrated reputation rested on an intelligent response to the pandemic
- Sunak’s mistake was allowing himself to be swayed by Treasury Department orthodoxy
How quickly the shine is tarnished for Rishi Sunak. As finance minister and then chancellor, he had no choice but to ensure his tax affairs and those of his heiress Akshata Murty were beyond reproach.
The question is not whether Murty’s non-domicile status is permissible, but whether he is appropriate as a partner to a chancellor who is bombarding the nation with tax hikes.
It is unworthy to suggest any kind of slander or political conspiracy if the revelations should be discovered.
Misconception: Rishi Sunak misjudged an economy that emerged from the Covid crisis and became entangled in another in the form of the war in Ukraine
But the bigger argument is that Sunak has grossly misjudged one economy that emerged from the Covid crisis and is caught up in another in the form of wartime Ukraine.
The Chancellor’s previously celebrated reputation rested on his wise and generous response to the pandemic. Less than two weeks after he presented his first budget in March 2020, the country went into lockdown and Sunak devised contingency measures that preserved UK jobs and kept much of UK business intact.
Whether it would have been better for productivity if some zombie companies were allowed to fail is another question.
Sunak’s mistake was allowing himself to be swayed by Treasury Department orthodoxy. Fiscal propriety in the form of deficit and debt control is in line with traditional Tory values. But subordinating public finance decisions to the mandarins is another matter entirely. In uncertain economic times, it’s wiser to follow Grand National jockey Rachael Blackmore’s lead and take the fences cautiously.
Gordon Brown and his chief economic adviser Ed Balls (later Secretary of State) were suspicious of the advice of officials in their early days at the Treasury. They would plan political initiatives in a private space to avoid being polluted by conventional rules. Mistakes were made when the much-admired late Bank of England Governor Eddie George was on the verge of resigning after not being consulted on a decision to transfer supervision of the banks to the new Financial Services Authority.
Exactly who was to blame for the egregious NHS and Social Security blunder announced in September 2021 is unclear. What is certain is that what began as an initiative to regulate welfare has been used as a pretext to raise taxes on consumers and businesses.
Sunak tacitly acknowledged it was damaging in his most recent March 2022 budget when he returned £6.2bn, almost half the levy, by raising the threshold from which it is paid.
No one disputes the need to fix social care, but the notion that throwing huge new resources at the NHS is the answer to underperforming without fundamental reforms is simply wrong.
Even at the time the tax was introduced, it was clear that inflation would skyrocket as the world emerged from the pandemic. The Bank of England may have naively concluded that the price increases were “temporary”, but one would have hoped that the Treasury would express a contrary view. Officials were already concerned in the summer of 2021 about the impact rising inflation was having on the government’s interest bill.
This was one of the reasons the Treasury Department wanted to bank the faster-than-expected improvement in public finances.
Sunak could not be expected to foresee Vladimir Putin’s attack on Ukraine and the dramatic impact it would have on the global economy.
However, he should have recognized that the accumulation of tax pain from threshold freezes, the 1.25 per cent rise in employee and employer NIC and the rise in corporate taxes in 2023 – when the Bank of England began tightening – would risk stagnation or slump.
All of this was seen ahead of this year’s barbaric Russian invasion of Ukraine, which sent commodity prices including energy, wheat and nickel soaring. Rising inflation acts like a tax on consumption and companies.
The March budget was Sunak’s chance to beat a hasty retreat from a series of tax hikes that would take the UK back to the 1940s. Energy sanctions are the severe punishment the West must face in punishing Moscow.
The UK would be in a much better position to shoulder its burden without the Chancellor’s tax attack.
ALEX BRUMMER: Britain better without Chancellor’s tax attack
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