Assuming that the Chancellor of the Exchequer had stabilised the money market last month, his main task was to try to ensure we are in recession for the shortest period possible by reducing inflation while not deflating the economy. Therefore his biggest concern should have been the energy price increases forecast for next year. He failed to deal with this issue adequately. He has said that ending the price cap freeze would increase inflation by 5%.
He has increased the energy price cap from next April by £500 to £3000 and this means that every household has to find this £500. This will also allow inflation to increase by 1% – see page 15 of the OBR report (PDF). He has failed to provide enough support for households for next year. He has scrapped the £400 for every household and the £150 for those in Council Tax band A to D properties. List of the help available next year and current support (PDF).
These means that a pensioner if they have the average household energy bill will have to find a further £1050 to pay for their energy. However the new state pension is only increasing by £972.40 for the year. Where are they supposed to find the extra money to pay the £1,050 extra energy bill and the increased prices of everything else?
A couple on Universal Credit will have to find a further £800 to pay for their energy but the 10.1% increase in Universal Credit is only £637 for the year. Where are they supposed to find the extra money to pay the £800 extra energy bill and the increased prices of everything else?
Someone on average earnings will have to find £1050 to pay for their energy. Even if we include £186 for the amount of National Insurance they are saving from this year because of the cut in the rate by 1.25%, this still leaves them trying to find £864 as well as the money to pay for everything else that is going up.
To help everyone with an income less than average earnings we should be calling for:
- the restoration of the energy price cap back to £2500
- the restoration of the £400 for all households
- increasing the £300 for pensioners to £450
- increasing the income tax personal allowance and the National Insurance threshold to £13,040 which will provide those earning above £13,040 with £150.40.
This would mean that someone on average earnings would receive £1,050.40 and a pensioner £1,050 more than currently planned.
To help pay for this support and to reduce it for those with above average earnings we should call for:
- the introduction of a temporary new income rate of 22% for those earning more than average earnings (£38,000)
- increasing temporarily by 2% the higher tax rate to 42% and the additional tax rate to 47%.
These rates could be decreased by 1% when the energy price cap falls below £2500 and the whole increase be abolished the following year.
Someone earning £100,000 would pay an extra £996.60 from this change to the higher rate, which would nearly cover the cost of their energy cap of £2,500. Someone earning £250,000 would pay an extra £2478.40 from only this change to the additional rate, which would not only cover the full cost of their energy price cap but would cover the cost of their £400 cost-of-living support. The government would have more than £1,000 left over from the revenue from this change, which would pay towards someone else’s energy bill support.
We should also be calling for the extension of energy support for businesses for another 12 months until 31st March 2024, and this should reduce inflation by further a 2%. If the energy price cap is kept at £2,500 and the energy support for business is continued, then CPI inflation which is forecast by the OBR to be 7.4% could be reduced to 4.4%.
* Michael Berwick-Gooding is a Liberal Democrat member in Basingstoke and has held various party positions at local, regional and English Party level. He posts comments as Michael BG.
Follow @LibDemVoice on Twitter
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Weekly Road Report - West End Ward #dundeewestend
Sue Gray: Beware of beat-sweeteners and source-greasers
Is Kemi Badenoch still in the lead? - The Week in Polls
Belljar
England urged to bring in minimum unit price on alcohol as deaths rise 10% a year
Peter Martin
Katharine Pindar
Mary Reid
Ken Westmoreland
6 Comments
I agree with most of this, but I would make the income tax rises permanent
Might the abolition of tax havens help our country?
Michael shows clearly how the Chancellor’s proposed handouts to ordinary people from next April are inadequate to help everyone deal with the frightening increases in the cost of energy. He proposes, as seems sensible, rather higher taxes for the better-off which will not penalise them harshly but also help with the reduction of inflation.
I would like to see us also take up the question of Council Tax, where it is now proposed that Councils can increase the local tax by up to 5% more. It seems that people living in Council Tax A-D properties who are not on benefits will lose £550 of support for next year compared to this year, while Benefit recipients living in similar properties will lose £300 comparatively for next year. As with the Chancellor’s current small handouts, it seems as if this government is unable to perceive how the giving or the taking away of £300- £500 is actually of great importance to small-budgetting households, of which there are very many. It is also a sad irony that the richer counties will make much more out of increasing Council tax in their areas to be able to improve services than will the poorer counties who will probably need the services improved more. I would like us to be campaigning for major reforms of Council taxation, including a long-needed revaluation of household property, as well as for Land Value Taxation.
This is so refeshing. Well said.
I have been saying for a long time that ‘you get what you pay for’ is so true.
Conservative wins based on low taxation inevitably means that we get into the situation where the NHS, the general Finances, the Country cannot be properly supported by the Govt.
Honesty and good Policies well explained are my way forward. As an ex care worker I am absolutely behind the Carers work we are doing but we need hearts and minds on the main concerns of the moment too.
Income tax was introduced as a temporary emergency measure in the Napoleonic wars, briefly abolished after Waterloo and then reinstated about the time of the repeal of the corn laws as a temporary measure again. It has to be enacted each year by Parliament by approval of the finance act. Gladstone tried to repeal income tax on several occasions but was never able to do so.
This is the fate of temporary tax increases. They invariably become permanent unless they are genuinely a windfall tax.
The OBR tells us that the tax yield will rise to 37.5% from 33.5% over the three years principally as a consequence of the freezing of tax allowances. That will largely offset the large stimulus being introduced by energy support.
There is a good social justice argument for increasing energy support, but the impact of further increased support on overall inflation will be quite low. On current levels of support, Page 15 of the OBR report notes “The EPG limits the contribution of household gas and electricity bills to around 2 percentage points in 2022 and 2023 (so, CPI inflation is 2 percentage points lower in the final quarter of 2022 and around 1 percentage point lower on average across 2023).
Council tax increases are likely to be a major problem for many as Katherine writes. However, richer counties tend to have proportionally lower council taxes than poorer counties. It is a key reason why council tax is so badly in need of reform.
Thank you for everyone who has commented.
Mick Taylor and Joe Bourke,
The purpose of the temporary increases in some income tax rates is to reduce the benefit for the better off, from providing energy bill support for everyone. However once the energy bill support is no longer needed they could be looked at again to see if we would prefer them rather than freezing the allowances for income tax and national insurance.
Katharine Pindar,
I support our policy of replacing Business Rates with a Commercial Landowner Levy which is a Land Value Tax. However, in the 2018 paper our Commercial Landowner Levy costs the government £1.4 billion for just England and Wales. We should reform Council Tax into a property tax with one rate for all properties. Currently the higher the value of the property the lower the tax rate is.
Joe Bourke,
Robert Peel re-introduced income tax in 1842 a few years before the repeal of the Corn Laws.
In the second paragraph of my article I state that the reduction in energy support for households will increase inflation by 1% as stated by the OBR on page 15 of their report. I also suggest at the bottom of the article that the scrapping of the energy bill support for businesses from April might increase inflation by a further 2%.