Jeremy Hunt is rapidly giving the air of the classroom teacher who has had to step in to snatch back all the treats and prizes that the trainee teacher unwisely handed out. We now know that he is reversing two things.
First, he is reversing most of the tax cuts from his predecessor’s mini budget. Because people had begun to plan for these in their own household budgeting, this will feel a bit like a tax increase although perhaps not quite as bad as if he had found that he needed to reverse the cuts at a later date. Secondly, he has cut short the proposed energy price freeze, it will no longer last for two years but instead only until April 2023. This means that people will not know how much their energy will cost going into next winter.
In effect, Jeremy Hunt has acted to deal with market uncertainty by adding to uncertainty for the average household. I suspect that he is going to be a deeply unpopular Chancellor of the Exchequer and that today’s emergency statement has cemented in place the likelihood of a landslide defeat for the Conservatives whenever the next General Election comes.
Politically, Liz Truss has through a series of unforced errors managed to score a hattrick of own goals and every time her team has the ball, it seems more likely that they will put it in their own net! This is remarkable because as I’ve mentioned a few times, the Government didn’t really have to do too much. If they’d introduced their energy measures and left things at that, they could now be setting out a longer-term low tax vision and I suspect would be competing on even terms with the opposition.
As it happens, whilst ending the energy price freeze early will increase uncertainty, I’m not sure that’s the worst decision to make. The risk is that prices will go up again heavily next year, particularly if Vladimir Putin remains in power and continues to use control of gas and oil as an alternative means of fighting war. I’ve personally taken a pessimistic view of the possibility of the energy crisis ending quickly. Having said that, if this is a long-term crisis then we still would have had to face the problem of what to do when the price freeze finished if prices had not come down.
At the same time, the risk with fixing prices is that interfering in the market also means that the end consumers don’t benefit when costs come down. We’ve seen petrol prices falling back from their previous high as alternative sources have opened up. However, gas prices remain high, even though wholesale prices have in fact fallen over the past few months and could fall further. If wholesale prices continue to fall back, then households may find that the 2023-24 winter proves less challenging than feared.
Having said that, we can still expect the next few years to be tough for many households with the cost of living crisis continuing to bite. I believe that the chancellor will still need to act in order to help households that are likely to struggle. If his immediate actions and statements have bought him some space then here’s what I would prioritise as and when funds become available.
- I’d introduce a new lower rate of tax at 10p. This would target financial help to those earning between £13000 -£20,000 per year.
- I’d seek to reduce indirect taxes such as fuel duties and VAT in order to help tackle inflation and reduce the cost of living.
- I’d ensure that benefits are properly uprated in line with inflation.
- Given that our primary domestic dependency upon gas is for water and heating, it seems obvious that investment in helping households shift away from traditional gas boilers would make economic and environmental sense.
In order to enable some of those measures to happen, I would probably have also chosen to revere the Stamp Duty freeze as I expect most buyers to calculate that savings on not paying this are balanced out by increased interest rates. Personally I would also be cautious about completely cancelling the National Insurance increase without answering the question “how are we going to pay for the increased cost in social care over the long term?”
But so much for politicians. The aim of Liz Truss’ statement a few weeks back was to give people hope and certainty as we entered into a tough winter or two. Her plans and proposals have unraveled in weeks.
If we needed to learn the lesson again that we cannot rely on human powers and authorities for hope and certainty then we have certainly been taught it well. We cannot put our trust in human leaders. Their plans fail, their proposals are reversed and their promises are broken even when they do not want to break them.
As believers we are reminded again that our trust is in the Lord and in him alone.
Faithroots 