London Playbook: Budget air battle — Tax division
— Credit Suisse fears
BY DAN
BLOOM
MARCH 16,
2023 8:23 AM CET
London
Playbook
By DAN
BLOOM
Good
Thursday morning. This is Dan Bloom. Good luck getting to work in the rail
strike — at least the Tube should be up and running by mid-morning.
SPOTTED:
Treasury officials cowered under umbrellas outside Westminster’s Two Chairmen
pub last night as they toasted their budget in the warm March rain, my
colleague Emilio Casalicchio texts to say. Civil servants spilt onto the street
and round the corner. A witness tells your author it was “not as raucous as
after Kwasi’s one in the autumn — the weather played a big role — but the
hangover won’t be as bad either.”
Not
spotted: Jeremy Hunt missed the soggy pub drinks, but did find time to attend a
glitzy event hosted by Bloomberg. Playbook’s Eleni Courea hears he delivered
some “warm words” then held a Q&A with businesses. The ordinarily
U.S.-based Mike Bloomberg was there — hours after his glowing budget praise
appeared in a Treasury press release.
Living the
high life: Not content with getting damp at street level, your author hears
some officials — including a Treasury minister — celebrated across the river at
the rooftop Bar Elba … where they were accompanied by Love Island contestant
Casey O’Gorman.
**A message
from Lowell: The latest update to our Financial Vulnerability Index reveals
that Scotland has seen the greatest improvement in financial health and is now
in a more financially stable position than other parts of the UK. To find out
how your area is faring, explore the tool here.**
DRIVING THE
DAY
AIR BATTLE:
Hunt is setting off on a broadcast round to sell his “the plan is working”
budget to the nation — and defend a near-£1 billion pensions tax cut for the
rich that Labour has just promised to reverse. The chancellor is on Sky at 7.05
a.m. and the Today program at 8.10 a.m., relaxes on the This Morning sofa at
10.35 a.m., then pre-records the News Agents podcast (5 p.m.) and Andrew Marr’s
LBC show (6 p.m.). (Full listings below.)
Rumor has
it … that Hunt has also invited newspaper editors into No. 11 today to give
them the sales pitch in person.
The ground
battle: Many Tory MPs are relieved that boring is back and the economy will
flatline this year, instead of a full-on recession. But as corporation tax and
stealth rises lead to the highest tax burden since World War II — while
disposable income sees a record fall — there’s plenty of time for it to go
wrong. Remember George Osborne’s 2012 omnishambles and Liz Truss’ mini-budget
took days to unravel properly.
SOMETHING
FOR EVERYONE: The papers are a mishmash with not a cringey cartoon in sight —
the Sun (which Hunt name-checked) goes with “Tanks a lot” for the fuel duty
freeze … the Express has a high-fiving Hunt and “We’ll make this work for
Britain” … the Guardian says abolishing the lifetime allowance on pensions is a
“giveaway for the 1 percent” while the Mirror says they’re “pots for the rich”
… the Times noses on the “biggest tax burden since the war” … the i and Mail
both pick the £29.3 billion-a-year stealth hike by 2027/28, which comes from
freezing personal tax thresholds … the Independent has a neutral “what it means
for you” sell … the Metro enjoyed Hunt dropping Es everywhere … and naturally,
the Star says a 6ft 4in jockey wants to win at Cheltenham.
MEANWHILE
IN ZÜRICH: The FT and Telegraph splash on the risk of impending disaster at
Credit Suisse, whose share price has plunged days after the collapse of Silicon
Valley Bank. The Treasury was not commenting last night, but the Telegraph
reports the Bank of England was holding emergency talks with international
counterparts. Bloomberg has a fascinating explainer of what has gone wrong,
from “entanglement in a Mozambique corruption case” to a “spying scandal,” but
says in key ways it’s not as serious as Lehman Brothers in 2008.
ONSLAUGHT
OF THE THINK TANKS: The Institute for Fiscal Studies (IFS), which often sets
the budget Day 2 agenda, kicks off its analysis at 10.30 a.m. … Office for
Budget Responsibility Chairman Richard Hughes, RF chief exec Torsten Bell and
Treasury Committee Chairwoman Harriett Baldwin speak at the Resolution
Foundation at 9 a.m. … and Hughes and IfG experts speak at an Institute for
Government event at 12.45 p.m.
NEWS JUST
IN: The Resolution Foundation’s overnight analysis, released an hour ago, says
real disposable incomes are on track to remain lower by 2027/28 than before the
pandemic — while some departments face 10 percent real-terms cuts.
Squeamish
Tories look away now: The RF says the 37.7 percent tax burden by 2027/28, a
70-year high, will equal £4,200 extra per household since 2019 — yet Hunt only
has a quarter of the headroom the last three chancellors had.
WHAT THE
IFS WANTS TO TALK ABOUT: IFS Director Paul Johnson tells Playbook the tax
burden won’t come down significantly in his lifetime: “Unless we decide to stop
paying pensions or privatize half the NHS or something, it’s very hard to see
how you do that.” Playbook asked him what three questions he’d put to Hunt on
the media round. They were: why hasn’t he mitigated “very big” tax rises coming
in April? … Will he consign nurses and teachers to real-terms pay cuts after
giving no new Treasury cash? … and “are you really going to increase fuel duty
next year?” (Hint: No.)
WHAT LABOUR
WANTS TO TALK ABOUT: The party is giving both barrels to Hunt’s decision to
scrap the £1.07 million lifetime tax allowance on pensions from April, to
prevent doctors going into early retirement. A Labour attack briefing released
an hour ago claims a few thousand wealthy retirees will benefit per year to the
tune of £45,000 — while “basic rate taxpayers face an extra £650 in tax next
year.”
Tax
division: Shadow Chancellor Rachel Reeves — who is on Today at 7.30 a.m. — told
ITV’s Robert Peston that Labour will force a vote on the “tax cut for the
richest 1 percent” in the Commons next week. This morning she also committed to
reversing it if Labour wins the next election. She called it the chancellor’s
45p tax rate moment.
But but but
… Awkwardly, shadow health sec Wes Streeting said in September he’d abolish the
cap (albeit only for doctors). Labour is saying it’d reverse the budget change
and introduce a “targeted scheme” for doctors instead.
Digging in:
Expect Hunt to argue it’s a problem with the tax system that needs fixing. But
his officials were given a rough ride by Lobby hacks Wednesday over the £835
million-a-year price tag by 2027/28 … why he had to scrap the allowance
completely rather than just raising the cap, a nuance which favors the
wealthiest … and why the reform is only predicted to keep 15,000 more people in
the workforce over five years.
Differing
opinions: An expert quoted by the Times fears it will create a “massive inheritance
tax loophole.” Ex-Pensions Minister Steve Webb tells the FT it will “set
millions free.” The Mail quotes a consultant saying it’s an “expensive
sledgehammer to crack a nut” … but also says criticisms are “predictable
attacks from the enemies of thrift and enterprise.”
IN LABOUR
LAND: Keir Starmer is visiting a life sciences firm in Edinburgh and recording
a pool clip at noon, where it wouldn’t be surprising if he jumps on this too.
IN TORY
LAND: Hunt’s 40-minute trip to the 1922 committee of Tory backbench MPs last
night left many content, but eyeing the next fix. Outside the room, Tory MP
James Sunderland said it was a “good day for the party,” but there were “a few
questions about what next.” He said Hunt “was quite guarded but clearly there’s
other ideas in the fire for the next budget.”
About that:
The chancellor remarked on his way in that the budget would help win the 2024
election. But he dodged saying last night if he’ll ease the tax burden before
then, telling Peston: “I’m not interested in playing games.”
The biggest
warning shot: Jacob Rees-Mogg — who is doing more interviews this morning —
said “salami-slicing” next month’s corporation tax rise by having two new
capital allowances to compensate was “not a good approach to tax policy.” He also
told Times Radio he was “worried about the freezing of thresholds” on income
tax. Fellow ex-Cabinet Minister Andrea Leadsom told Times Radio: “As soon as we
possibly can we’ve got to link those tax thresholds to inflation.”
Ones to
watch: Boris Johnson and Liz Truss were not seen in the chamber during the
budget and their spokespeople were tight-lipped last night. But the Telegraph’s
Ben Riley-Smith cites allies saying they are against the corporation tax rise.
Not happy
either: Truss-ally Simon Clarke tells the Telegraph “we urgently need to have a
more Conservative position on tax.” Meanwhile, Tory MP Miriam Cates writes in
the Telegraph to condemn the childcare expansion, saying it’s untrue that
“mothers are more valuable to society in the workplace than looking after their
own children.”
PM IN
COMPETENCE SHOCKER: After securing a Northern Ireland deal and getting small
boats legislation under way, Sunak has sparked shocking talk in Westminster
that he might actually be quite good at his job. If he was hoping for a hat
trick with the budget, he’s not quite there, write my Lobby colleagues in their
stocktake — with warning lights flashing. But “like Ben Stokes and England’s
cricket team, his quiet self-confidence may change what the same team believes
is possible,” said one loyalist.
How’d he do
that? “It turns out working like an absolute maniac and being forensic is quite
useful,” one of his ministers tells my colleague Esther Webber and co. But the
bar is on the floor, as one business lobbyist puts it: Sunak “could stand at
the podium and soil himself, and he’d be doing a better job than his
predecessors.”
MIGRATION
ROW: Beware new Tory rumblings after the OBR said net migration — once promised
to be under 100,000 — will “stabilize” at 245,000 a year. The 160,000 people it
is predicted to add to the labor market are more than the 110,000 from all the
back-to-work budget policies put together. The Times points out Home Secretary
Suella Braverman’s “ultimate aspiration” is to get back to five-figures.
FOCUS!
Pollsters JL Partners carried out snap focus groups with 101 people for the
campaign website 38degrees last night, and said “actively positive views seem
largely on hold” until people can judge the effect on the cost of living.
In their
own words: A Tory-voting health care worker in his 40s from Birmingham said:
“It will make no difference at all, the prices are still high and my wages are
no different.” A Labour-voting quality assurance analyst in his 20s from Bury
St Edmunds said: “It should improve our financial situation as well as many
others’.”
The perils
of snap polling: YouGov asked 3,096 people by 6 p.m. if they supported or
opposed the budget measures; 28 percent supported, 18 percent opposed … and,
er, 54 percent answered: “Don’t know.”
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here.**
INTO THE
SMALL PRINT
CHEATS’
GUIDE: The Commons Library released a 22-page summary of the budget overnight.
Just in case you’ve not woken up yet, key policies included … Freezing fuel
duty … Two tax breaks to business (three-year “full expensing” and the
first-year allowance) worth a combined £9 billion a year … £1.07 million
lifetime allowance on pension pots scrapped … Annual allowance on pensions
rises by half to £60,000 … £2,500 energy bills extended to June costing £3
billion … £600 sign-up bonus for new childminders, or £1,200 through an agency
… Universal Credit childcare costs paid up-front and the cap rises from £646 to
£951 this summer… Beer to have 11p less tax from pubs than supermarkets …
And breathe
… Five construction occupations added to the migration shortage list … Nuclear
energy to be classed as environmentally sustainable … £11 billion more for
“defense and security” spread over five years (the Mail quotes Tory MP Tobias
Ellwood saying it should be more) … £8.8 billion for City Region Sustainable
Transport Settlements covering 2027-31 … A 27 percent investment credit for
R&D firms … £900 million for “an exascale supercomputer” … but corporation
tax still rises from 19p to 25p in April … and no new money for public sector
pay.
LONG WAIT:
Many headline measures will only be fully rolled out after the next election,
including … 30 hours’ free childcare for working parents of kids aged 9 months
to 36 months from 2025 … Full 8 a.m.-6 p.m. wraparound school childcare from
2026 … Defense spending only hits 2.5 percent after 2025 when “circumstances
allow.” A parent waiting for free childcare tells the BBC: “It makes me angry.
I just don’t understand why it can’t be done now?”
Longest of
all: The Work Capability Assessment for sick and disabled people will be
scrapped for new claims from about 2026-29, and existing claims after that. The
PIP assessment will be the gateway to two different payments — details here.
The i’s Chloe Chaplain points out hundreds of thousands receive WCA-linked
support, but not PIP.
NOT OUT THE
WOODS YET: While inflation is projected to fall from 10.7 percent to 2.9
percent in a year, the word “technical” is doing the work in “no technical
recession” — as GDP still contracts by 0.2 percent this year. Debt interest
spending also hits a record £114.7 billion in 2022/23, nearly double the
previous year.
WHAT A
FISCAL DRAG: The extra £29.3 billion paid in income tax and National Insurance
in 2027/28, as people are dragged above frozen thresholds, is the equivalent of
raising income tax by 4p in the pound according to the OBR. The Times says 3.2
million more people will be dragged into paying tax.
NUMBERS
GAME: Many press questions focused on the OBR’s prediction that all the
“back-to-work” measures put together will help between 55,000 and 240,000
people back into the workforce by 2027/28. About half come from expanding 30
hours’ free childcare.
CHILDCARE
SMALL PRINT I: Treasury officials told Playbook that while funding to nurseries
will go from about £6 to £8 per hour for 2-year-olds, the increase for 3 and
4-year-olds is much smaller — from £5.29 to over £5.50. This will infuriate the
Early Years Alliance, which says without proper investment it’ll be a
“disaster.” Hunt last night insisted the policy would lead to “many more
nurseries being set up” but wouldn’t say how many, telling Peston: “It’s not
for government to calculate exactly the number of nurseries, we’re not
Stalinist Russia.”
CHILDCARE
SMALL PRINT II: The IFS says that because parents become ineligible for the
full offer once they earn £100,000, they face a cliff-edge where their
disposable income will fall by £14,500 (£20,000 in London) as soon as they tip
over the threshold. The think tank calls it “one of the most severe distortions
you are ever likely to see.”
GULP:
Despite good news on beer, alcohol duty will rise 76p on a bottle of vodka, 44p
on a bottle of wine, 97p on a bottle of sherry and £1.30 on a bottle of port
from August 1 (h/t the Sun’s Harry Cole).
SMALL PRINT
WIN: The cap on Universal Credit childcare costs had been frozen since 2016 —
but now, after Wednesday’s one-off rise, it is modeled to keep rising with CPI
in future years.
WINNERS AND
LOSERS: The Treasury’s distributional analysis shows the poorest households
gain most overall, but a lot of it’s down to cost-of-living payments.
KNOCK
KNOCK: HMRC intends to “temporarily boost” its debt collection operation “by
increasing private sector capacity” between now and March 2025, netting up to
£395 million extra a year.
WHEN I COME
AROUND: The U.K. will announce a raft of environmental policies in the next
fortnight — nicknamed “Green Day” — to protect British industries from the wave
of U.S. subsidies in Joe Biden’s Inflation Reduction Act, reports the Bloomberg
team.
COMMENTARIAT
ROUNDUP: The FT’s George Parker says Hunt, who prepared with a 19-mile (!) run,
hopes next year “to be showering cash on the voters” … The Guardian’s Pippa
Crerar says the “very narrow path” to victory revolves around the economy … the
Express‘ Sam Lister says it “was the middle act in a trilogy he hopes will end
with a tax-cutting finale” … Sky’s Ed Conway says the big picture is a little
better than in the fall but that’s an “utterly grim” low bar … The i’s Paul
Waugh says the chancellor has been “ruthlessly nicking bits of policy” from
Truss to Labour … ConHome’s Paul Goodman says Hunt is still “shielding a candle
from the wind” … Andrew Neil in the Mail warns the “safety-first” budget may
have been a missed chance to win the election.
LEADERS
ROUNDUP: The Times says Sunak and Hunt “deserve credit for restoring stability”
but “must restore optimism” … The Mail says it can be a “step on the road” to a
surprise election win … The Sun says “taxes remain far too high and growth is
woeful” … the Telegraph says the Thatcherite ambition of a small small state
has “been abandoned” … while the Guardian says the budget is “austerity by
another name” … and the Mirror says it “offered a few botched repairs from the
same cowboy builders responsible for the major damage.”
SKETCH
ROUND-UP: Rob Hutton in the i says Hunt was an “earnest vicar who put the
Commons to sleep” … while the Mail’s Henry Deedes airs delightful claims that
“Mr Padlock-Pockets” Hunt is so tight, he once gave his staff a mousemat as a
company bonus.
MAKE IT
STOP: A “leaked budget” Twitter exchange between two government accounts was so
cringeworthy your author felt like quitting the internet for good.
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