Tel. +44 (0)20 7287 4414
Email. This email address is being protected from spambots. You need JavaScript enabled to view it.
Tel. +44 (0)20 7287 4414
Email. This email address is being protected from spambots. You need JavaScript enabled to view it.
The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.
The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.
Image
Image
Image
Image

Mr Sunak’s ‘Spring Statement’ – a man without a fallback

credit-squeeze-g5fcb1491d_1920

Mr Sunak's Spring Statement was far less impressive than his rhetoric has made it appear. Once again a senior member of this administration reaches a Gold Standard in rhetoric, but at best a Bronze one in achievement. The claim does not stand up to examination that these were the largest reductions in personal taxation for three (or was it four?) decades, nor that most will benefit by £300 per annum or more.

Many will be worse off by a lot more than that, when their employers make them redundant on account of the significant and unmitigated increases in Employer National Insurance Contributions (NICs).

Here is our arithmetic on actual Employee NICs in 2021/2, 2022/3, from 2023/4 onwards, and what they would have been had Mr Sunak not rowed back on his previous proposal.

A presentational irritant is that the advertised raising of the NICs Primary Threshold for employees to £12,570 is not what is happening in 2022/3. The increase only kicks in as from July 2022 so it is only for ¾ of a year. Until July the annualized Primary Threshold remains at £9,880. It is only from April 2023 that the figure of £12,570 applies for the full year.

Publicity around the Spring Statement has prominently featured claims that people will be over £300 per annum better off, but this is not the case for all. Employee NICs will only reduce by a figure above £300 if one's wages are in the region of £15,000 and for the full tax year of 2023/4, because of the staggered introduction of the raised Primary Threshold. At levels of wages below and above £15,000 the reductions are smaller. People earning less than the current Primary Threshold will not benefit at all. People earning between £35-45,000 will pay more NICs in 2022/3 but less from 2023/4. People earning above £45,000 will be worse off as from now and ad infinitum.

The above figures compare what people will pay in 2022/3 and 2023/4 with what they paid in 2021/2.

The government has chosen a different basis of comparison. Their chosen comparison is against what people would have paid if Mr Sunak's original proposals had stood. Under that gloss everyone earning above £15,000 will pay £267 less in 2022/3 and £356 less in 2023/4.

However, these are only tax reductions if you believe that it is a reduction when a government decides not to go through with a planned increase. If your definition of a reduction is that the government takes less of your money than it did before, then these claimed 'reductions' are a deception.

One problem for employees is that their employers will still be paying increased Employer NICs. The uplift to Employer NICs has not been reduced by the Spring Statement and they were already considerably larger than the NICs for employees: they begin at a lower level than Employee NICs and do not have a major step-down at the Upper Earnings Limit of £50,270.

They will be 15.05%, up from 13.8%, starting at annual wages of £9,100 (as opposed to £9,880 and then £12,570 for Employee NICs), and remaining at 15.05% above and beyond the Upper Earnings Limit of £50,270 (they reduce to 3.25% for Employees above this figure).

This will simply lead to higher unemployment, or else to manoeuvres to get employees onto lower wages. We will not have seen the last of the cases similar to the recent one at P&O.

In formal terms the 1.25% increases in NICs transmute into the 'Health and Social Care Levy' from April 2023. They then become a separate levy but guided by the NIC framework (although there is no guarantee of their continuing to do so).

This legerdemain enables Mr Sunak to execute a neat trick to catch more people into his net. From April 2023 people who are above the state pensionable age but who are still working will begin to be liable for the 1.25% 'Health and Social Care Levy', whereas they are not liable for NICs. This will dissuade people in this age category from working to a level they do not have to, resulting in lower tax takings, not higher ones.

Then there is the question of funding for the purposes that the increased NICs and the 'Health and Social Care Levy' were meant to be put to. The increased tax revenues were sold to the British public as hypothecated levies for a distinct purpose, except now they will not be large enough if those purposes continue to require £12 billion per annum.

The extra NICs collected in 2022/3 were meant to help clear the NHS backlog. Now the Spring Statement has 'given back' £6.25 billion. How will this missing amount be replaced so that £12 billion can still be spent in the NHS in 2022/3?

Similarly, the separate 'Health and Social Care Levy' from April 2023 was supposed to continue to bring in £12 billion annually and was meant to go to local authorities to better provision Adult Social Care. How will the shortfall of £6.25 billion per annum be filled from April 2023 onwards?

We know how it is being filled between April 2022 and March 2023.

Eagle-eyed Council Tax payers will have noticed a sharp increase in the component of their bills for 2022/3 which is the Adult Social Care Precept. Surrey County Council, by way of example, has attempted to portray a 33% increase as a 3% increase. They did this by portraying the increase in the Adult Social Care Precept as a percentage of the total Council Tax bill for 2021/2: 'The £67.12 increase in 2022/3 is 3% of the 2021/2 overall Valuation Band F charge of £2,237.56'. In fact, for a Band F property, the Precept went up by £67.12 from £200.79 to £267.91 – 33% not 3%.

This major increase for 2022/3 is justified on the immediate need for more funding for Adult Social Care, whereas the NICs money is being applied for the NHS backlog during 2022/3.

From April 2023 the 'Health and Social Care Levy' should have been replacing the 2022/3 increase in the Adult Social Care Precept. However, since only half of the expected amount will now be available to central government, will only half the amount flow down to local authorities? Will their response in turn be to retain the Adult Social Care Precept at its 2022/3 level instead of returning it to the 2021/2 level, or making a partial reduction, or even putting through a further increase? This would be a breach of faith with Council Tax payers, and perpetrated both by central and local government.

In other words it is possible that the give-out via reduced NICs will be taken back via a refusal at the local authority level to return the Adult Social Care Precept to its 2021/2 level, or by central government only paying on what comes in, or a combination of the two.

There is a further irritant around the VAT on petrol.

VAT accrues on the large Fuel Duty component of the price of a litre of fuel.[1] In what way does the Fuel Duty 'add value', such that Value Added Tax should be applied to it? If VAT was only applied to the price before the Fuel Duty (which was 57.95p a litre before the 5p cut), then VAT would have accrued on 80p out of the 165p price-at-the-pump instead of on 138p. That would have knocked 11.6p off the price-per-litre (20% of 58p). The imposition of VAT payable to the government on a price artificially inflated by the government's imposition of an extra duty should be subjected to a legal challenge, or simply changed.

Summary Rating for claims of and on Mr Sunak: Ba1 on the Moody's Investors Service rating system – Speculative, with Substantial Credit Risk (aka he's winging it and out of his depth). 

 This article first appeared Lyddon Consulting

Debunked, the great renewables delusion
Is the Digital Euro Coming Soon?

By accepting you will be accessing a service provided by a third-party external to https://brugesgroup.com/

Copyright ©1989-2022 The Bruges Group. All Rights Reserved.
Site designed by WA Designs