Spring Statement 2022: Think Tanks Respond

Westminster’s wonks have once again whirred into action, poring over every dot and comma of Rishi’s spring statement. Guido brings you the lowdown on what Westminster’s think tanks have to say about today’s announcements:

Unsurprisingly the Centre for Policy Studies are the happiest of the bunch, given they’ve been campaigning for Rishi’s NIC-Income Tax threshold parity for four years now – a report first launched by Theresa May herself. Tweeting an immediate reaction that no doubt Rishi’s advisors will be delighted with, director Robert Colville said the Chancellor had “decided to go full Lawson.”, with the wonks’ full reaction saying:

“We are delighted that the Chancellor has adopted our proposal to increase the National Insurance payment threshold to match the Income Tax threshold and create a Universal Working Income. It is great to see CPS ideas continue to make their way into Government and help reduce the tax burden for millions of people.”

The Adam Smith Institute isn’t so impressed, claiming the statement “leaves a lot to be desired” despite a welcome rise to the NIC threshold. ASI Director of Operations Morgan Schondelmeier writes:

“At a time when gas prices are only getting higher, we don’t need to be gaslit by a Chancellor who continuously claims to be a low tax fiscal conservative… In an ideal world, the Chancellor would have scrapped the planned National Insurance Contribution rise, although it is encouraging to see that he plans to raise the NIC threshold in line with income tax thresholds… All in all, the Spring Statement leaves a lot to be desired. There are promising mentions of a review of full expensing policy and increasing private sector investment, but more immediate relief for the rising cost of living and our oppressive tax burden are needed.

The Taxpayers’ Alliance calls it a mixed bag, praising the NI threshold hike while claiming the planned income tax cut is “taking with one hand to give away with the other”. Chief Executive John O’Connell says:

Taxpayers suffering through a cost of living crisis will welcome wins on fuel duty and income taxes. Soaring inflation has given the chancellor extra wiggle room, but this tax plan needs to come alongside an efficiency drive to eradicate waste and tackle the colossal cost of covid. Rishi must get a grip on spending if he wants to restore balance to the public finances while boosting growth and letting taxpayers keep more of their own money. Though a cut in income tax is welcome, in reality the Treasury is taking with one hand to give away with the other.”

The Centre for Social Justice also welcomes the NI threshold rise, though inevitably added they wanted to see uplifts to Universal Credit. A spokesperson says:

“We welcome the measures the Chancellor announced today to shield those on lower incomes from the impact of the National Insurance rise. But the reality is this cost of living crisis is just getting started – and today we needed to see a strategy for those struggling the most.

Resolution Foundation Chief Torsten Bell doesn’t mince his words, calling the statement “badly designed” and nonsensical. He writes:

“It’s crazy to raise National Insurance so you can cut Income Tax. Really not clear to me that what 21st Century Britain needs is to make things harder for workers and easier for pensioners/landlords… It’s even crazier to only have £0.5bn of support for lower income households in the face of the biggest cost of living hit for generations – contrast with the £10bn real terms benefit hit they face in the year ahead. This is a bigger package than many are saying, but it’s a really badly designed one.”

The Institute of Economic Affairs praises the promised cuts to income tax and fuel duty, although warned of the dangers of inflation and labelled the statement a “mitigation mini-Budget“. Director General Mark Littlewood says:

“The reduction in fuel duty will make a small difference to households. The decision to raise the National Insurance threshold means workers on an average wage will see their contributions fall, despite the planned 2.5 percentage point rise going ahead. The pledge to reduce the basic rate of income tax is welcome. But the UK will spend £83 billion on debt interest this year – almost double our entire defence budget. The Chancellor will not achieve economic ‘security’ without a commitment to drastically bringing down our tax bill and reducing government spending, which has spiralled out of control. Only then will he boost our anaemic growth forecasts.”

Onward‘s director praises Sunak for protecting the lowest earners against inflation, and dismissed critics for insisting he should have scrapped the NI rise. Will Tanner said:

“Today’s statement was a firefighter’s statement. The Chancellor has warned about inflation since he entered the Treasury and today his warnings were realised. The 5p cut to fuel duty and the rising threshold for National Insurance contributions offer considerable protection against spiralling inflation, especially for those on the lowest incomes – and, from 2024, he ensured that voters will keep an extra penny from every pound they earn. Critics will say he should have scrapped the planned National Insurance rise. But doing so would have meant finding £12 billion elsewhere for the NHS and social care, or explaining to voters why they must wait months for operations in the run up to a general election. Ultimately this left him with no easy choices. 

James Kirkup, Director of the SMF, said:

“Public spending as a share of the economy is at its highest since the late 1970s. The tax burden is at its highest since the 1940s. Higher debt interest payments will cost almost £100 billion in the years to 2027.

Politically, the state is as big as it can get and any politician who wants cash to fund crowd-pleasing policies – be they tax cuts or more spending – will have to think creatively about how to fund them. That means reforming public services to make them more efficient – taxpayers deserve to get more bang for their bucks.”

Connor MacDonald, Head of Policy Exchange’s Economic Unit, said:

“This Spring Statement comes at a time of immense volatility. It is not surprising that the Chancellor stuck to the fiscal rules, given that it is likely that in the Autumn more fiscal firepower will be needed. This is probably the prudent approach, and it should be pointed out that the Chancellor did use more of the fiscal upside from increased revenues that previous Chancellors have done. It is right that the Chancellor simplified the tax code by aligning income tax and NIC thresholds, and it is vital that the consultation on tax that the Chancellor announced today delivers substantial pro-growth reforms. One area that may need to be reviewed is that benefits were not uprated relative to the new inflation projections. Given current volatility, six-month lags in uprating benefits to CPI are probably not helpful. Continuing to uprate at 3.1pc may be particularly problematic for disabled people, a group where there has been a widening employment participation gap since the pandemic, according to the IES. The Chancellor has very hard choices in extremely difficult circumstances, and the decisions made today highlight the extent to which there are choppy waters on the horizon.”

Guido will have his own response coming out soon…

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