ALEX BRUMMER: UK would be in far better place to shoulder its burden without Chancellor’s tax assault: High gloss has tarnished for Rishi Sunak
- Sunak misjudged economy emerging from Covid crisis and embroiled in Ukraine
- Chancellor’s celebrated reputation rested on smart pandemic response
- Sunak’s error has been to be swayed by Treasury orthodoxy
How quickly the high gloss has tarnished for Rishi Sunak. As a Treasury minister, and then Chancellor, he had no other choice but to make sure that his tax affairs, and those of his heiress wife Akshata Murty, were above reproach.
It is not a question of whether Murty’s non-domicile status is permissible but whether as the partner of a Chancellor, bombarding the nation with tax increases, it is appropriate.
To suggest some kind of smear or political plot when the disclosures were there to be discovered is unworthy.
Error: Rishi Sunak has badly misjudged an economy emerging from the Covid crisis and embroiled in another in the shape of wartime in Ukraine
That said, the bigger case to be made is that Sunak has badly misjudged an economy emerging from the Covid crisis and embroiled in another in the shape of wartime in Ukraine.
The Chancellor’s previously celebrated reputation rested on his smart and generous pandemic response. Less than two weeks after he delivered his first budget in March 2020, the country went into lockdown, and Sunak came up with emergency measures which preserved UK jobs and kept much of British business intact.
Whether it might have been better for productivity if some zombie enterprises had been allowed to fail is a different issue.
Sunak’s error has been to be swayed by Treasury orthodoxy. Fiscal rectitude, in the shape of tackling deficits and debt, is in keeping with traditional Tory values. But allowing decisions on the public finances to be suborned by the mandarins is a wholly different thing. In uncertain economic times it is more prudent to follow the lead of Grand National jockey Rachael Blackmore and take the fences carefully.
Gordon Brown and his main economic adviser Ed Balls (later a minister) were, in their early days at the Treasury, wary of the advice of officials. They would plan policy initiatives in a private room in an effort to avoid them being polluted by conventional rules. Mistakes were made, as when the much admired late governor of the Bank of England Eddie George came close to resignation after he was not consulted on a decision to shift supervision of the banks to the new Financial Services Authority.
Who precisely was responsible for the egregious mistake of the NHS and Social Care levy, announced in September 2021, is unclear. What is certain is that what began as an initiative to try to fix social care was used as an excuse to pile on the taxes for consumers and business.
Sunak tacitly acknowledged that it was damaging in his recent March 2022 budget when he gave back £6.2billion, almost half of the levy, by raising the threshold at which it is paid.
No one disputes the need to fix social care, but the idea that throwing huge new resources at the NHS is the answer to under-performance, without fundamental reforms, is simply wrong.
It was already evident at the time when the tax was imposed that inflation was surging as the world emerged from the pandemic. The Bank of England may have reached the naïve conclusion that the price rises were ‘transitory’, but one might have hoped that the Treasury offered a counter view. Officials were concerned, as early as the summer of 2021, about the impact which rising inflation was having on the Government’s interest rate bill.
It was among the reasons why the Treasury wanted to bank the faster-than-expected improvement in the public finances.
Sunak could not have been expected to anticipate Vladimir Putin’s assault on Ukraine and the dramatic impact it would have on the global economy.
He should have recognised, however, that piling on the tax pain through the freezing of thresholds, the 1.25 per cent jump in NIC for workers and employers and raising company taxes in 2023 – as the Bank of England embarked on monetary tightening – would risk stagnation or slump.
All of this was possible to see before this year’s barbarous Russian invasion of Ukraine, which has sent commodity prices, including energy, wheat and nickel, soaring. Surging inflation acts as a tax on consumption and business.
The March budget was Sunak’s chance to beat a hasty retreat from a series of tax hikes which would drag the UK back to the 1940s. Energy sanctions are the heavy penalty that the West must confront in punishing Moscow.
The UK would be in a far better place to shoulder its burden without the Chancellor’s tax assault.