This month’s Budget is going to be awful for households up and down the country. Bloody awful.
Apologies for the industrial language, but I can’t think of a more appropriate choice of words following today’s rambling, robotic and alarming pre-Budget speech by Chancellor of the Exchequer Rachel Reeves, made inside Number 10 Downing Street.
Her extraordinary decision to spell out some (not all) of the broad choices she will take on November 26 (Budget Day) in such a formal manner was as unprecedented as it was bizarre.
Unprecedented in that no Chancellor, certainly in my living memory, has ever delivered an equivalent Budget precursor. To my ears, it sounded like a Chancellor getting her excuses in before delivering a Budget so punishing that it will shake the financial foundations of most households. Softening us for a horror of a Budget.
Bizarre in that the narrative was as one sided as a third round FA Cup match between a Premiership giant and a struggling non-league club.
For the best part of half an hour, the Chancellor repeatedly spelt out her Budget priorities without giving a scintilla of detail as to how these objectives – shrinking NHS waiting lists, reducing government debt (and its cost), and cutting the cost of living for households – would be funded.
Rather than come clean and confirm that an avalanche of tax rises awaits us on Budget Day in just over three weeks’ time, she opted instead to play her ‘blame game’ card.
Nearly everyone and everything was fingered for the financial mess the Government currently finds itself in. That is, of course, with the exception of free-spending Labour: a government unwilling to tackle a welfare bill spiralling out of control and happy to hand out inflation-busting pay awards to public sector workers.
Chancellor Rachel Reeves played the ‘blame game’ rather than opting to come clean about the ‘avalanche of tax rises’ that await us, says Jeff Prestridge
So, previous austerity-focused Conservative governments got it in the neck (particularly Liz Truss and Kwasi Kwarteng) as did President Trump for the disruptive impact of tariffs on the global economy. Brexit, predictably, got a mention in dispatches as did geopolitical tensions.
Throughout, Ms Reeves refused to say anything on the tax rises coming our way – either in her speech or afterwards in response to questions from reporters. That ‘delight’ awaits us in the Budget, but it’s not difficult to see where we’re all heading.
In order to meet her ambitious objectives – and address the £40billion plus black hole in the nation’s finances – she is going to tax us to the hilt. And in the interests of the ‘fairness’ that Ms Reeves bleats on about, it will be those with the broadest shoulders who will bear the brunt.
That means the middle classes, the strivers, the hard working who have scrimped and saved throughout their working lives to put money aside for the future.
But I get the feeling that everyone will have to make a financial sacrifice at Ms Reeves’ altar, even struggling pensioners.
What is clear is that Labour’s manifesto commitment not to push up the rates of income tax, National Insurance (NI) or VAT will be shredded. With a black hole now approaching supermassive proportion, the Chancellor has no choice but to hike one of these big revenue raisers.
All the mood music indicates that the Chancellor will opt to increase income tax rates. How she will go about this we don’t know for certain – Ms Reeves is probably still mulling over the issue as you read this – but it is more than likely that all income tax rates will be increased.
My best guess is that income tax rates will go up by two percentage points. So current rates of 20 per cent, 40 per cent and 45 per cent for basic, higher, and additional rate taxpayers will be replaced by respective rates of 22, 42 and 47 per cent.
Jeff Prestridge predicts that income tax rates will go up by two percentage points (picture posed by models)
Yet, to deflect some of the inevitable criticism that will come the Chancellor’s way if she does this, Ms Reeves will announce an equivalent cut in employee National Insurance.
In doing this, she will argue that ‘working people’ will be no worse off. Those who take the tax hit will be pensioners currently paying income tax, the self-employed, and landlords.
It’s a tax raising plan that the left leaning Resolution Foundation (a massive friend of Labour) has previously argued for – and reiterated in the aftermath of this morning’s speech by the Chancellor.
Although it will raise a juicy £6billion a year for the Treasury, it won’t be enough to fill the black hole in the nation’s finances. That means that an array of other taxes is likely to come our way. Indeed, last weekend, it was reported that Treasury officials were casting their eyes over more than 100 tax raising and spending measures. A majority will be tax orientated.
Most of these periphery taxes will be small in terms of the extra tax revenue they generate, but that doesn’t mean they will be relatively painless, or without negative consequences. Far from it.
A mansion tax on high value properties (£2million plus) looks a dead cert even though it won’t raise much dosh for the Chancellor: maybe £1billion a year if it goes ahead according to the details recently leaked to The Mail on Sunday. That is, a one per cent tax levied on the value of properties in excess of £2million.
But a raft of experts, from ex Governors of the Bank of England (Sir Mervyn King) through to property gurus (Kirstie Allsopp), have already warned the Chancellor against such a move.
They argue that a mansion tax could trigger a brain drain as business leaders and entrepreneurs look to take their skills to a country where wealth creation is valued. It could even cause a wider correction in house prices.
For those with more modest wealth, the pensions we save into month in, month out could well come under attack. Most vulnerable is the amount of tax-free cash that we are currently allowed to take when we hit age 55 or retire.
For most people, it is set at 25 per cent of the pension fund we have accumulated, subject to a cash cap of £268,275. Ms Reeves could well trim the cash cap to £100,000. She could also cut the tax relief that high earners enjoy on the contributions they make into their pensions.
Anything is possible come November 26. Indeed, I wouldn’t be surprised if the Budget includes a tax measure so left field that no one (not even the Resolution Foundation) has yet thought about.
With three weeks and one day to go until Budget Armageddon, my advice to you is simple. Batten down the hatches.
Ensure as much of your savings and investments are protected in tax-friendly vehicles such as Isas and pensions. And those savings and investments that aren’t in these vehicles are set up in the most tax-efficient way.
If you’re in a position to take tax-free pension cash and desperately need the money, at the very least seek advice from a financial adviser.
And ensure that the rest of your finances are in tip-top shape. That means making sure you getting the best deal from your array of utility providers, paying down any high-costs debts (as far as possible) and building up a decent cash buffer in a saving account to cover unforeseen extra expenses (again, as far as possible).
