Thursday, December 2, 2021

The budget’s hidden tax hikes could hurt the Tories sooner than they think

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The big question is whether people are thanking the government for the increased spending or blaming them for having less money in their pockets

For example, when Rishi Sunak described his plans to increase the amount the British government was spending on research and scientific innovation, it sounded very impressive because he was able to conceal the fact that the new amount is less than the previously planned amount.

One reason why national budgets tend to dissolve in the days and weeks after their announcement is that the Chancellor of the Exchequer himself controls on the day what he or she reveals about government spending and in what order.

He talked about the fact that this was the first general spending hike in a decade because that sounds more impressive and a little less awkward to Conservatives than saying that the first time most government departments had received a real spending hike since the Tories came to power .

Sunak is not the first Chancellor to find ways to mask the impact of his spending decisions by carefully choosing how to present them in parliament, and he will not be the last. But there are things that no chancellor, no matter how skilled as a politician, can hide with words alone, so deal with them by not saying them out loud at all. Instead, they are buried in household documents: in what is known as the “red book” (although a “red PDF” would be more accurate for most people these days).

So what did the Chancellor hide in this year’s Red Book? The answer is tax hikes, and lots of them. Most unpopular would be an increase in council tax of £ 6 billion. According to most surveys, the council tax is one of the least popular forms of taxation, but successive Conservative governments have been keen to levy it since 2010. Why? Because the tax rate is technically controlled by the local councils and decentralized mayors rather than the Westminster government, it is easy for a government to evade the guilt.

Because UK local authorities are legally required to maintain a balanced budget and central government can legally require councils to provide certain goods or services, and often does when a local government is legally required to provide a service that costs a certain amount of money and they are not allowed to borrow money for it, they actually have no choice but to increase the council tax.

But the layers of complexity are enough – or at least Sunak will hope they are enough – that the blame is at least shared equally between the local councils and the government, rather than coming back to him alone.

The Chancellor will hope that if he is lucky, he and his administration will acknowledge the increased public spending across much of the UK state while the local councils take the blame for the tax hike. If he’s even luckier, wages will rise faster than inflation and faster than expected, meaning he can spend more money so he can take tax cuts right before the next election.

Labor politicians like to point out that all of this new spending does not nearly offset the cuts made since 2010. That’s true, but it probably doesn’t play a role politically. Everything indicates that most people treat public spending very similarly to the thermostat. If you turn it up to 15 or 20 degrees, think not if it was warmer last November, but if you feel less cold and miserable than you did 10 minutes ago.

Unless the government makes a big mess of how it is spending the extra money Sunak has provided, most people should feel that the government is spending more money than it used to, which should benefit the Tories.

Even more risky is what people think of all these tax hikes: while the council tax is the largest in this budget, the government has already committed to increasing social security and more tax hikes could follow. The big question is whether people are more inclined to thank the government for spending more or blame them for spending less money because of the increased taxes.

Nobody really knows what counts more, the feel-good factor due to increasing expenses or the pinch in your pocket. But after Sunak won the 2015, 2017 and 2019 elections and cut taxes and spending, Sunak is now betting that higher spending and taxes will be the path to victory in 2024.

Stephen Bush is Political Editor at The New Statesman magazine

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