The Chancellor Giveth and The Chancellor Taketh Away
In response to Chancellor Rishi Sunak’s 2022 Spring Statement, Morgan Schondelmeier, Director of Operations at the Adam Smith Institute, said:
At a time when gas prices are only getting higher, we don’t need to be gaslit by a Chancellor who continuously claims to be a low tax fiscal conservative.
While the Chancellor is clearly paying lip service to conservative principles of low tax and personal responsibility, we are still facing an impending cost of living crisis with too few immediate solutions.
The big announcement today will undoubtedly be the 1p cut to the basic rate of income tax. Such a cut won’t go into effect until 2024 and Brits need relief now. It’s a cynical ploy to cut tax just in time for the next election, while at the same time hiking tax on workers through National Insurance. In terms of intergenerational inequality, lowering income tax while increasing NIC shifts the tax burden from the old to the young.
In an ideal world, the Chancellor would have scrapped the planned National Insurance Contribution rise, although it is encouraging to see that he plans to raise the NIC threshold in line with income tax thresholds. This brings more people out of tax entirely, lets us keep more of our own money and creates a more transparent tax system.
All in all, the Spring Statement leaves a lot to be desired. There are promising mentions of a review of full expensing policy and increasing private sector investment, but more immediate relief for the rising cost of living and our oppressive tax burden are needed.
In response to Labour’s call for a windfall tax, John Macdonald, Director of Strategy at the Adam Smith Institute said:
The Labour Party should leave its obsession with windfall taxes behind. Appropriating profit from energy companies might make for good political posturing. In reality it is economic nonsense. Sending signals that the Government might take a chunk of cash at a moment’s notice will reduce the available amount of investment now and discourage it in future.
This is to say nothing of the current energy crisis - only a competitive energy market can channel investment into improving storage capacity, efficient distribution or increasing supply, and ultimately bring down wholesale prices.
In response to the Government’s pledge to increase the Household Support Fund, Morgan Schondelmeier, Director of Operations at the Adam Smith Institute, said:
“We welcome additional support for the most vulnerable in this country, but an increase to the Household Support Fund goes nowhere near far enough in providing immediate, targeted, individualised support for those on low incomes. It doesn’t put money directly into the hands of household decision-makers, but instead leaves discretionary power with local government. Recipients of means-tested benefits are facing huge hikes to the cost of living without any substantial help from the Government—a disgraceful abdication of responsibility.”
In response to the Chancellor’s promise to review taxes on business capital investment, Daniel Pryor, Head of Research at the Adam Smith Institute, said:
“Cutting the UK's eyewatering taxes on business investment is key to addressing our long-standing productivity crisis. When the superdeduction comes to an end, it's vital that the Chancellor commits to abolishing the 'factory tax' in the Autumn Budget—allowing businesses to immediately write off the cost of investments against their tax bill.
Doing so would supercharge investment, kickstart growth and boost wages whilst levelling up our tax rules so they no longer punish manufacturing firms which tend to be based in the North and Midlands.”
Notes to editors:
For further comments or to arrange an interview, contact Emily Fielder, emily@adamsmith.org | 07584778207.
The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.