The last few days gave seen plenty of discussion of UK tax cuts. There are various issues with that which one can start with why are they are good idea in 2023 when we were told they were such as bad idea in 2022 under the Liz Truss/Kwasi Kwarteng experiment? Let me take you back just over a year to the 9th of November 2022 when the Financial Times was full of fiscal black hole rhetoric.
Not this autumn: allies of chancellor Jeremy Hunt have said he is considering tax rises and spending cuts worth about £55bn a year, with one Treasury official warning that “after borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bills support, we won’t be able to fill the fiscal black hole through spending cuts alone”.
Sounds awful doesn’t it? Regular readers will know that I was arguing at the time against this. Because if the Office for Budget Responsibility is not the worst forecasting organisation in the world it is not for want of trying.
Hunt will shortly receive forecasts from the OBR revealing how big the hole is due to be when he wants to meet his main fiscal rule — most likely in 2027-28.
This figure is thought to be somewhere between £30bn and £40bn. On top of this figure, Hunt is expected to add so-called fiscal headroom of between £10bn to £15bn.
Indeed the subsequent 12 months have been even by its poor standards an awful performance as its forecast of a deep recession involving a 2% fall in GDP was the equivalent of a footballer shooting at goal and the ball going out for a throw-in.
Tax Cuts are back on the menu
There has been a litany of tax cutting suggestions over the past few days as enough kites to keep any child happy have been flown by the government.
Mr Hunt is finalising the government’s spending plans as he seeks to revive a stagnant British economy.
The chancellor is believed to be considering reducing taxes on income or national insurance…….While the chancellor had considered cutting inheritance tax, sources said the focus of the Autumn Statement would be to promote growth – on which inheritance tax has minimal impact. ( BBC )
Apparently the Prime Minister thinks this.
Prime Minister Rishi Sunak has said the government is now able to cut taxes, after the pace of price rises eased.
If these two are valiant tax cutters then they need to speak to two gentleman who raised taxes so much last year. Their names are Rishi Sunak and Jeremy Hunt so they should not be too hard to find.
Tax levels in the UK are at their highest since records began 70 years ago ( BBC)
Much of it was via changes in personal allowances is called fiscal drag as inflation is ignored.
If successive Chancellors had obeyed the law instead of getting Parliament to rescind it year by year Jeremy Hunt would be announcing on Wednesday a personal allowance of £15,230 from April (instead of frozen £12,570)and higher rate threshold of £61,030 instead of frozen £50,270 ( @paullewiamoney)
Let us now move on from the logical problems here as we note that in another failing the OBR style analysis has led to a traditional electoral cycle. Government’s raise taxes away from an election and then cut them in the run-up. So supporters of the OBR have another question to answer.
Today’s figures
These pose an immediate problem for tax cuts being awful last year but fine this one.
Public sector net borrowing excluding public sector banks (PSNB ex) in October 2023 was £14.9 billion, £4.4 billion more than in October 2022 and the second highest October borrowing since monthly records began in 1993.
Can you imagine the media and think tank storm if the Liz Truss regime had produced such numbers? Yet Reuters open their analysis with this.
LONDON, Nov 21 (Reuters) – Britain borrowed less than predicted by its budget forecasters in the first seven months of the financial year, data showed a day before finance minister Jeremy Hunt is expected to announce some pre-election tax cuts.
Very neutral which is hardly what we were being told last autumn. That is even more of a change of tone if we note that October was pretty consistent with the year so far.
PSNB ex in the financial year-to-October 2023 was £98.3 billion, £21.9 billion more than in the same seven-month period last year,
Again we are borrowing more than last year. Indeed if we return to the October figures and look at the detail we see grounds for lower borrowing.
Of this £76.9 billion, tax receipts were £57.9 billion, £2.7 billion more than in October 2022, with Value Added Tax (VAT) receipts increasing by £1.2 billion and income tax receipts increasing by £1.1 billion.
So revenue was up and some one-offs have now ended.
Subsidies paid by central government were £2.2 billion in October 2023, £2.6 billion less than in October 2022. This is largely because of the cost of the Energy Price Guarantee (for households) and Energy Bill Relief Scheme (for businesses) affecting this month last year…….Payments recorded under central government “other current grants” were £1.7 billion in October 2023, £2.0 billion less than in October 2022, largely because of the cost of last year’s Energy Bills Support Scheme.
One of the issues on the other side of the coin was debt interest.
In October 2023, the interest payable on central government debt was £7.5 billion, £1.1 billion more than in October 2022……
You can argue whether we should count the capital uplift on UK index-linked bonds in this way but at this time we do and there was something else from this area.
Central government net investment was £14.2 billion in October 2023, £9.7 billion more than in October 2022. This increase was largely a result of payments to the Bank of England Asset Purchase Facility Fund (APF) from HM Treasury under the indemnity agreement. These payments, recorded as capital transfers, began in October 2022 and occur every three months. This month saw a payment of £9.1 billion to the APF, £8.3 billion more than in October 2022.
It is hard not to have a wry smile because this was a result of the Chancellorship of one Rishi Sunak who was very profligate. Indeed if we stay with today’s theme of how things are perceived there are lots of questions now being ignored about that era. The most basic is were the lock downs necessary which the official Covid enquiry seems determined to avoid? The economic consequences of closing an economy soaring borrowing and debt combined with the Bank of England buying a huge number of bonds at the top of the market get ignored to. After all many of the “experts” wanted more of the above and presumably more inflation and public borrowing issues now.
There is also an enormous elephant in the room via our national energy policy which has been a disaster where we have spent ever more for ever less.
Comment
There is a lot of ground to cover as we note the way the UK public finances have developed over the past few years. In a broad sweep we have been told that the tax cuts of Liz Truss were awful but the public spending surge and lock downs of the previous regime were just fine. As I have just pointed out, back in the day the UK government was being pressed to spend even more. Now apparently tax cuts are just fine again.You do not have to be a supporter of Liz Truss to think that the playing field has been far from level.
Next up is a body that over the next day or two will be treated as a public oracle with is the OBR. How did it do in today’s public finances release?
but £16.9 billion less than the £115.2 billion forecast by the Office for Budget Responsibility (OBR) in March 2023.
The first rule of OBR Club is that the OBR is always wrong and perhaps I need to add a second rule which is that the media and “think tanks” will ignore it. Maybe because the “think tanks” are in on it too.
We have held useful discussions with the Bank of England, International Monetary Fund, Migration Advisory
Committee, Institute for Fiscal Studies, National Institute for Economic and Social Research, Institute
for Government and the Resolution Foundation about their recent forecasts and analysis.
It took a lot of people to get the UK economy in 2023 so wrong. In modern language one can pit it as “Siri define group think please”?
Continuing the “think tank” theme I can see why Paul Johnson of the IFS was so keen to keep house prices out of inflation measures in his 2015 Inflation Review.
I agree with Sam on cutting stamp duty land tax. Against stiff competition it is arguably among the worst, most damaging taxes we have. Would cost c£6bn to abolish entirely for primary residences.
It would of course ramp house prices.
Let me finish with some better news which is that with the recent falls in inflation and bond yields the trajectory for debt costs has improved recently.
Notayesmanseconomics's Blog 
This article just proves to me that the country is being run by a shadowy cabal of unelected people with a destructive agenda, with the msm being used to justify/vindicate any policies and to attack anyone who opposes them.No better example of this hypocrisy is the Truss Kwarteng budget and Sunaks spend spend spend policies during covid and now yet again its ok to spend borrowedmoney,that I have also highlighted along with Shaun.
Also the decision to cut taxes is political as they want to boost the economy and house prices before the election.
Hi Kevin
These bodies run quite a lot of unaccountable power. The “think” tanks are often simply pressure groups dressed up as independent bodies. Also they are hardly likely to be too critical of the OBR after being involved in its analysis.
Meanwhile as you point out we remain driven by the electoral cycle.
I have often said, “Independent does not mean impartial.”
Thieving scum:
https://www.bbc.co.uk/news/uk-politics-66786874
I’m afraid the state pension has gone, neither party are committing to maintaining its value with inflation – the people who REALLY run the country haver made the decision it has to go(see my comment above), It’s fiddling with a workers bonus now, but then it will be something else, and then something else, and each time the real value will slip away.and so like the rest of our savings it will be constantly inflated away until it is worth virtually nothing. Our state pension is laready the worst in europe, and it in years to come going to be even worse.
Yet again another DEFAULT by HM government that is never acknowledged by anyone.
How come an office of responsibility is never held responsible for its own failings.
The OBR is accountable to Parliament, and since Parliament is accountable to the People ……
[The 3 most powerful words in the US Constitution- We the People ]
The sad fact is, as Kevin points out, most of the people think there’s nothing they can do about it
I wish, I wish, I wish it was true.
Talking of inflation, I saw recent annual increases in prices and looking at them wondered how anyone could analyse them, add them, multiply them, moderate them, adjust them, apply factors and then come up with a figure for
our inflation rate of 4.6%, see if you can do it:
Food
Sugar 49.6%
Olive oil 50.2%
Sauces and condiments 20.6%
Pasta products and couscous 9.1%
Eggs 17.1%
Pork 14.7%
Vegetables 10.8%
Cheese and curd 9.7%
Ready-made meals 8.6%
Fish 11.3%
Bread 12.2%
Fruit 5.6%
Jams, marmalades and honey 5.1%
Low-fat milk -1.8%
Whole milk -5.3%
Butter -6.1%
Drinks
Cocoa and powdered chocolate 12.3%
Tea 15.1%
Fruit and vegetable juices 10.9%
Mineral or spring waters 9.1%
Soft drinks 7.7%
Coffee 9.5%
Beer 12%
Spirits 9.5%
Wine 9%
Electricity, gas and other fuels
Electricity -15.6%
Solid fuels -2.1%
Gas -31%
Liquid fuels -18.3%
Clothing and shoes
Repair and hire of clothes 10.7%
Garments for infants and children 6.9%
Garments for women 7.6%
Garments for men 5.6%
Footwear for women 1.7%
Footwear for infants and children 8.1%
Footwear for men 5.5%
Household items and furniture
Carpets and rugs 8.7%
Cookers 6.9%
Garden furniture 3.9%
Lighting equipment 1.2%
Household furniture 2.2%
Bed linen 2.1%
Refrigerators, freezers and fridge-freezers 3.5%
Vehicles and passenger transport
By air 7.9%
By sea and inland waterway 9.9%
By bus and coach 8.8%
By train 6.9%
New cars 3.8%
Bicycles 1.6%
Secondhand cars -3.6%
Motorcycles -3.5%
Diesel -11.8%
Petrol -5.2%
Hospitality and recreation
Holiday centres, campsites and youth hostels 15.6%
Fast food and takeaway food services 8.3%
Restaurants and cafes 8.8%
Hotels and motels 3.5%
Museums 7.3%
Cinemas, theatres and concerts 4.7%
https://www.theguardian.com/business/2023/nov/15/uk-inflation-which-goods-and-services-have-changed-most-in-price
The problem is that the results aren’t evenly spread,
for example my hovis bread has gone from £1.15 – £1.45, that’s 27%
Morrison’s Scotch morning rolls (tiny) 6 pack 67p – 99p, almost 50%
My friend also told me, so I checked, a 500ml bottle of Guinness original, £1.75 – £2.50 that’s over 40%
Schweppes soft drinks (tonic/ginger ale etc) £1.30 – £1.70 over 30%
Everyone and everything uses energy, its in the weighting.
Which is why its utterly barmy to think inflation is licked when it only needs a still cold period in the winter across much of northern Europe to reverse those energy numbers ( or an Aussi strike, or China buying less coal and more gas, or a fire at a US LNG export terminal, or ……).
Im surprised the media haven’t picked up on the vast transfers (33.2B YTD) being made to BoE to neutralise losses they are making on making selling gilts back they don’t need to do. Yes they will make a cash loss when they are redeemed but all they are doing is sucking money out the economy. You would have thought Tories would have leaned on Hunt to stop this and use the money for tax cuts or spending.
Separately i see revisions have increased nett borrowing for the first time this year as Tax & NI income hasn’t been as a good as previously forecast. Doesn’t chime with positive employment and earnings numbers.
Re Im surprised, why? most MP’s and the general public don’t even know these transfers are going on, and even if they did what are they going to do about it? try and stop them?
The sums are collosal, the latest figure for losses I have seen is £180 billion – and when you think of the cuts being made to services and pensions it is simply outageous that not one MP is even raising it as an issue, but then again anyone who knows that they don’t actually run the country isn’t the least bit surprised.
I see the Bank of England have got the five year yield down to 4.1%, anyone think inflation is going to be 4.1% or less over the next five years given the prices listed above? Well insurance companies and pension funds that have got your money to invest and are buying them certainly don’t care. But who knows they are up to the gills in gilts? If they did, do they know they are being royally screwed, even if they did what would they do about it anyway? AS people at work keep telling me when I point out all the things on here, there’s nothing we can do about it so there is no point going on about it, with that attitude by most people is it any wonder the massive changes and destruction of our country taking place are accelerating?
They are forced to buy some, by that kind man Gordon Brown – as he said at the time, they are much safer!
Shaun,
As you write the OBR is always wrong.
So why do people like the BBC slavishly laud them?
The Labour party wish to enhance the powers of the OBR.
So a non democratic organisation will be taking even more power over elected politicians.
If I had my wish, I would scrap all the regulators, such as Ofcom etc – off they would go!
Steve Barclay the new environment secretary
is married to Karen who happens to be the
head of regional engagement for anglian
water. Will he do anything or put his nookie
rations at risk? Answers on a postcard!
Hello Shaun,
more power to the faceless bureaucrats is not a good sign in economics because they are illiterate in it . And all bureaucrats alway need more powers and more money until they bloodsuck the rest of the economy dry.
They can’t help it , its their nature.
How to stop it? collapse as per Roman and Byzantine .
Great show eh ? more popcorn please !
Forbin
Hi Forbin
As I am going to watch the latest BBC Four episode of Yes minister in a bit let me reply with this from the authors in 2004.
To: Bernard Woolley
From: Sir Humphrey Appleby
REDUCTION IN CIVIL SERVICE NUMBERS
Thank you for your note. I understand your concern at the recent Budget announcement of cuts in the service, but I assure you that there is no need to distress yourself in any way. This has all happened before, and there is an established procedure for dealing with it. We simply follow the infallible seven-stage plan.
1: Welcome the announcement, praise the Chancellor and say that such a procedure is long overdue.
2: Set up an internal Manpower Reduction Unit. This unit will be responsible for identifying areas where reductions in personnel numbers should be sought. These areas will, of course, be those where reductions would cause the maximum press outrage and parliamentary embarrassment. This will, of course, entail a gratifying increase in the size of the Cabinet Office.
3: Arrange for each threatened department to set up an Informal Response Unit to show why any specific proposed cuts are, in fact, administratively impossible, legally inadmissible, financially unjustifiable or politically unacceptable; preferably all of these. Since these units are informal, there is no need to reveal their existence to the Cabinet.
4: When there is extreme pressure to show actual reductions, turn government units into independent bodies. This removes all personnel from the government payroll, but their salaries continue to be paid by means of a grant-in-aid. You will remember that this worked very well with Kew Gardens some years ago; the scam is still not worked out.
5: Where trusts are inappropriate, create agencies. Those, too, can have staff who are not on the government payroll, financed by fees for specific tasks.
6: If it starts to look as if there are too many trusts and agencies, encourage staff to leave and form small companies. These companies can then be awarded contracts for training, research, accounting services, data-processing, booklet production and the like, on which they are currently employed and which will secure their existing salaries, allowances and pension arrangements.
7: Turn full-time jobs into two part-time jobs. This will enable you to brief your minister to claim dramatic reductions in full-time posts.
This strategy has never failed us yet. Since our colleagues in the Treasury have already persuaded the Chancellor to spin the process out until 2008, we can be sure that, by then, there will be a new chancellor, a new prime minister and, quite possibly, a new government. At that point, the whole squalid business can be swept under the carpet. Until next time.
Humphrey Appleby
https://www.civilservant.org.uk/misc-humour-sir_humphrey.html
Brilliant stuff. So true. These programmes should never have been filed under “political satire” by the BBC, or worse “sitcom” by the BAFTAs.
shaun,
“If successive Chancellors had obeyed the law instead of getting Parliament to rescind it year by year Jeremy Hunt would be announcing on Wednesday a personal allowance of £15,230 from April (instead of frozen £12,570)and higher rate threshold of £61,030 instead of frozen £50,270 ( @paullewiamoney)”
Cannot remember where I heard it but someone suggested personal allowance should be raised to 20k one of the arguments was it costs the treasury one way or another through other benefits.
As for footballers well if they all got together the way they are being paid these days they could get rid of the fiscal black hole !
They wouldn’t cut benefits though. A lower tax rate at least has people invested in helping support society given everyone equally benefits.
Wow Shaun, this is one for Liz Truss to print and stick on her fridge.
A comprehensive indictment of the whole sorry story of double standards, double dealing, incompetence, ignorance and corruption.
Hi Eric
It is a version of the deep state in action or in some cases inaction. But it is in my opinion also an issue for democracy.
Similar democratic issues in NZ., Shaun.
Non-mainstream commentators point out that in NZ’s unicameral Parliament the governing Members get away with doing things they were never given a mandate to do and the Fourth Estate do a pretty poor job of holding them to account.
Here’s a typical critique
https://www.nzcpr.com/six-years-of-failure/