Jeremy Hunt’s Budget Is More Radical For The Country Than It Looks

Rishi Sunak started the budget week with a speech on a construction site with cranes and diggers in the background. This was a typical week for the Prime Minister of the UK in the budget week. Economists can’t help but wonder whether this is the start of a period of more economic growth and confident renewal. Or is it that several years are left of acute uncertainty that can leave the economic picture to be permanently diminished? The chancellor on the other hand relies on voters, hoping they would realize their glasses are half-full, rather than half-empty. Economists of the country agree on one thing about the budget week, it is radical, more radical than it appears to be.

The cuts to National Insurance (NI) along with the decision to freeze income tax thresholds by 2027 could raise taxes. For every £1 NI cut, £1.90 will be raised by 2027. This is a “fiscal drag” which means there will be more than three million more higher-rate taxpayers along with close to four million more low-earning taxpayers in the country. According to the current trends a recipient who is of the full basic state pension is also on the course to becoming a taxpayer and most probably will fill out a tax return in 2026 or 2027. The government on this new budget is shifting the tax burden from the shoulders of the workers to all forms of income holders, including pensions and savings. This is the new strategy of Chancellor Jeremy Hunt that could lead to the final abolition of the Nation Insurance (NI). On the other hand, Prime Minister Rishi Sunak is trying to sell this as a simplification of the tax system of the government and the end of the “double taxation” of work.

According to the calculations of the OBR, this week’s 2% NI cut along with last November’s  2% cut in the Autumn Statement, however, do not cancel out the added income tax that was being paid as a result of the frozen tax thresholds. However, the fact that the taxes on the overall income are being raised means that the pensioners will get higher tax bliss with increasing income. There is already a backlash against this, but that is due to the income rising as the state pension is set to increase in April by 8.5%.

Looking at the overall budget, this is not a tax cut, especially with the fiscal drag being equal to the biggest tax rise in nearly 45 years. The last of this kind was seen by Mrs Thatcher’s Chancellor Geoffrey Howe when the rate of VAT nearly doubled in 1979. There is one significant reversal which is on how to fund the rising public service cost of the country. Long long ago, Mr Sunak was arguing for raising spending on the NHS along with social care by increasing  National Insurance to 13.25%. The policy has now taken an “u-turn” as it has become the new policy to decrease National Insurance to 8% while the adult social care plan is officially on ice.