Today’s budget was written to protect working people and boost economic growth, unfortunately it will likely do neither.
Businesses will be the biggest losers. Through the combined measures of increased National Insurance Contributions and a higher minimum wage, businesses of all sizes are being squeezed to fund an expansion of government spending.
This represents a serious shift in the focus of growth creation from the private sector to the state, which is exactly the wrong way around. If the government wants to boost growth, it must lift the burden on the private sector, not add to it.
The increased burden on business will be passed to working people in the form of lower wages, fewer benefits and worse employment prospects; to consumers through higher prices; and to the economy as a whole through slower growth.
The government has been extremely keen to stress that they will not raise taxes on working people. It was the platform they were elected on, and it was one of the core messages that Chancellor sought to land from the despatch box. But they have broken that promise.
The Government fails to fundamentally understand a key principle in tax policy: the person who pays the tax is not always the person who ultimately bears the burden. For example, we all know that businesses pay VAT on transactions, but ultimately, consumers pay VAT in the form of higher prices.
The same goes for employer National Insurance Contribution rises. The Government may claim that this tax will hit employers, but employees and consumers will ultimately bear the burden, whether in the form of lower wages, higher prices, or both.
You can rob Peter to pay Paul, but if Peter can make up for his losses elsewhere, he will – and it’s Paul who is left out of pocket.
Plans to unfreeze thresholds for paying income tax and national insurance, after a few more years, are certainly welcome. But the reality is that working people will be left to pick up the tab from the other measures announced today.
Reeves said that to get growth we need to “invest, invest, invest”, whilst piling burden after burden on businesses meaning they will inevitably slash investment. The Government’s plan for growth relies too much on Whitehall and central government instead.
The Chancellor is right that investment is vital, but wrong to think that she should be the one controlling that investment. The government had the opportunity to take a bold new approach, to implement the radical supply-side reforms and pro-business measures necessary to get our economy whirring again, to unlock private sector investment, reduce the burden on the taxpayer from its record high, and deliver real prosperity to the British people.
But the budget that was supposed to protect working people and put growth first has sacrificed both on the altar of misleading political signalling and bad economics.
Callum Price is the director of communications at the Institute of Economic Affairs
