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• Lower inflation has translated into lower interest rates, delivering a fiscal benefit that averages £14 billion a year. But the public finance improvement fades over time as lower inflation and wages brings tax receipts in below previous expectations.
• The Chancellor pressed ahead with big tax cuts, just under a third of which is funded by new tax rises, including the non-domicile tax regime and extending the windfall tax on energy firms. But borrowing takes most of the strain, funding two thirds of the tax cuts, and reducing the Chancellor’s headroom against his fiscal rule to have debt falling by 2028-29 to just £8.9 billion, the second lowest since the OBR was founded.
• An extra 2p cut in the basic rate of NI takes it to its lowest level since the 1980s in April, handing workers gains of up to £750 next year (2024-25) with 78 per cent going to the top half of the household income distribution. This will be partially offset by the latest set of threshold freezes this April, leaving the majority (79 per cent) of employees paying less tax as a result. Gains will average £450, with the largest net tax cuts going to those earning £50,000 (who will gain £1,200) while taxpayers earning £19,000 or less will be worse off, losing more from threshold freezes than they gain from rate cuts.
• The Chancellor raised the threshold at which Child Benefit starts to be tapered away to £60,000, and halved the rate of that taper. This welcome move will reduce some of the highest effective tax rates, benefitting almost half a million families who gain an average of £1,260 each.
• Taking all the changes to personal taxes announced in this parliament together leaves workers on middle and slightly higher earnings (£26,000 to £60,000) the net winners by 2027-28, with lower and higher earning taxpayers worse off. 55 per cent of employees gain overall.
• Looking beyond employees, personal taxes are still going up significantly, with threshold freezes exceeding value of NI rate cuts by £20 billion, thanks to freezes to thresholds for employer NI, which in time should feed through into lower pay levels for employees, and an £8 billion collective hit for pensioners.
• This will be the greatest tax-raising Parliament since the Second World War, with tax relative to GDP rising from 33.1 per cent in 2019-20 to 36.5 per cent in 2024-25, and 37.1 per cent in 2028-29 (the highest since 1948). The rise since 2019-20 amounts to £3,900 per household.
• Even with loose fiscal rules, the tax cuts announced by Jeremy Hunt are only affordable by pencilling in major spending cuts to come. Real per-capita day-to-day spending for unprotected departments is set to fall by 13 per cent between 2024-25 and 2028-29 – equivalent to cuts of £19 billion and amounting to a plan to repeat three-quarters (71 per cent) of the cuts inflicted on these departments in the first austerity parliament (2010-2015). The idea that such cuts can be delivered in the face of already faltering public services is a fiscal fiction.
• More plausible, but deeply undesirable and damaging for growth, are plans to cut Public Sector Net Investment to 1.7 per cent of GDP by 2028-29. This cut of one third is equivalent to a £26 billion decline.
• This remains a country where taxes are heading up not down, and one where incomes are stagnating: they are set to remain below their level at the last general election when voters return to the polls, the first time this has happened on record.

   

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