It’s true that the Chancellor’s pre-election splurge unveiled in this week’s Autumn Statement was the largest discretionary fiscal loosening (outside of the Covid period) since 2010 and at £20.3bn (0.6% of GDP) in 2018/19, it was the biggest tax-cutting package since 1988.
What the Chancellor failed to mention is that these tax cuts reversed only a quarter of the 2.5 percentage point (ppt) increase in the tax to GDP ratio between 2019/20 and 2018/19 caused by previously announced tax rises. Those include the then-Chancellor Sunak’s policies to raise corporation tax from 19% to 25%, introduce a health and social care levy and freeze income tax thresholds until 2025/26.
So, despite the Chancellor’s tax-cutting rhetoric, tax revenues are on course to reach 37.7% of GDP by 2028/29. That’s a full 5.2ppts higher than in 2019 and the highest tax burden since the early 1950's. In fact, the Chancellor’s tax cuts did no more than to prevent the tax burden from reaching an all-time record high of 38.3%.
It was just more meddling at the edges rather than plain and simple tax cuts and trusting the individual and employer to decide how they wish to spend their income, rather than the State.
Capital Economics Forecasts:
Comments from James Scott-Hopkins, Managing Director, Irongate. Incorporating data from Capital Economics source 24/11/2023.
The views are those of the author only. The article is not intended to be a recommendation to buy. The value of investments can fall as well as rise.