JEFF PRESTRIDGE: Batten down the hatches, the worst is still to come from Sunak’s grim Autumn Budget
I was seriously underwhelmed listening to Rishi Sunak’s Budget on Wednesday. But at the same time, I was rather alarmed at the prospect of what’s coming around the corner like an out of control juggernaut: higher taxes, bigger fuel bills and a lot more grim news besides. Issues sidestepped by Sunak.
Although his delivery was upbeat – and, of course, it was good to learn that my favourite pre-dinner tipple (prosecco) should be a little cheaper as a result of his reform of alcohol duties – this was not a Budget to cheer the soul or wallet. Far from it.
Indeed, it was somewhat misleading because of what had gone before – namely, the £25 billion of tax rises in March (targeting businesses in particular) and September’s blockbuster announcement to jack up both National Insurance employee contribution rates and dividend taxes by 1.25 percentage points from next April. Tax hikes that will yield the Government another £15 billion in tax revenues to pour into the vast ocean that is the National Health Service.
Seeing red: Rishi Sunak’s Budget conveniently devoid of the household financial pain that will come next April
And, of course, we must not forget the Government’s decision – again announced a month before the Budget – to break the triple lock which had previously ensured those in receipt of a state pension would get an annual increase the higher of inflation, earnings growth or 2.5 per cent.
As reader Eddie Browne (never short of an opinion or three) was quick to point out to me as soon as the Chancellor sat down, Sunak said precious little about the plight of pensioners in his Budget.
Stripped of their free TV licences and their pension triple-lock guarantee, the Eddies of this world feel shunned and are obliged to be grateful for the 3.1 per cent state pension rise that will come their way next April.
As a result, it was a Budget conveniently devoid of the household financial pain that will come next April when pay packets suddenly dip in response to tax rises and freezes in allowances previously announced.
Instead, the Budget allowed Sunak to celebrate the start of a Government spending spree (forget the austerity years under George Osborne) that will mean more money for a range of public services – schools, prisons, the courts and local councils. Only defence will not benefit from the Government’s largesse: rather scary given the increasing belligerence (and cooperation) of the Chinese and Russians on the global stage. I won’t mention the antics of the French.
Of course, some of that spending is justified – for example, the courts are in disarray, preventing justice being done – but it does make you wonder whether the economy will recover sufficiently to generate the tax revenues necessary to fund Sunak’s largesse. Sunak thinks so – and I admire his optimism. But many others don’t.
Certainly, it doesn’t look particularly good from my tiny office in London W8. Without wishing to depress you too much on a day when we have all gained an extra hour, let me remind you of some stark facts.
For a start, household bills are on the rise as a result of a steep increase in energy bills (surely heads should roll at regulator Ofgem for its part in the shambolic and uncompetitive energy market we are now left with).
By the way, Eddie’s answer to fighting the rising cost of energy is to get on a plane to Tenerife and spend a few weeks enjoying the sunshine while staying in a dirt-cheap hotel. He says the maths behind this imaginative response to soaring utility bills just about works: clever Eddie, I say.
Food prices are also on the march and inflation is heading towards five per cent, undermining our spending power and the value of our cash savings. With interest rates likely to notch up in the near future, mortgage providers are already making their product ranges more expensive. In recent days, a batch of lenders – including Barclays, HSBC, NatWest and TSB – have increased the cost of their new mortgage products.
This doesn’t impact on those who are locked into a fixed rate loan – or for that matter a variable rate mortgage – but it’s a sign of what is around the corner.
Remortgaging is becoming more expensive. Finding a loan for a new home is ratcheting up.
And that’s before the Bank of England pulls the lever and sends interest rates higher. As the Office for Budget Responsibility said in a document published to coincide with the Budget, mortgage interest payments are set for their biggest rise since the dark days of 2008.
And with the United Nations Climate Change Conference starting today in Glasgow, there’s the prospect of higher taxes and household bills to meet the Government’s bold carbon emission targets.
All in all, a rather sobering backdrop to set against Sunak’s optimism. As Paul Johnson, director at the apolitical Institute for Fiscal Studies, says: ‘For all the Chancellor’s upbeat delivery, voters may not get much feelgood factor. High inflation, rising taxes and poor growth – still undermined more by Brexit than by the pandemic – will see real living standards barely rising and, for many, falling over the next year.’
Take-home pay for the average earner, experts say, will fall in real terms by about one per cent from April next year while over the next four years, 1.3million more taxpayers will be paying 40 per cent tax.
Maybe Sunak’s positivity about the economy’s future will prove well-founded (I really do hope so). But a mix of nasty inflation, higher interest rates and prohibitive taxes all present formidable obstacles.
As for tax cuts ahead of the next Election – something Sunak would love to deliver – their likelihood is receding by the day.
So fix your mortgage if you can. Turn down the heating a notch or three – or even do an Eddie and think about a long winter break in Tenerife.
And keep your fingers crossed that Sunak – and not all the economic experts – will be proved right about the economy’s future course.