Chancellor admits Budget targets will be a challenge

The Chancellor acknowledged that hitting his new Budget targets would be a challenge but told MPs on the Treasury Committee that taxes will reduce before the next election

In the two-hour meeting, Rishi Sunak defended the Autumn Budget that was released last week stating that ‘voluntarily’ raising taxes was ‘the last thing’ he wanted to do but he had to take measures to ‘fund what we needed to do’.

Dame Angela Eagle pointed to the figures from the Resolution Foundation which stated that the tax burden is expected to rise on average £3,000 a year per household throughout the 2020s.

In response to this Chancellor Rushi Sunak said: ‘The purpose of raising taxes is to fix the damage that coronavirus has done. Yes, people are paying more. No one is pretending otherwise. That is why in an ideal world I would prefer not to put taxes up on people. But you do get something for that money. It's all very well to just look at the taxes without looking at what you're getting.’

The Chancellor reiterated that the spending announced in the Budget is aimed to aid the quality of life for the public asserting that the statement made was ‘slightly unfair’ because ‘people's quality of life is also influenced by the quality of the public services that they get’.

In the meeting, Sunak pledged that his main aim going forward was to reduce the tax burden to align back with his party’s usual stance on taxation and he denied the accusation from the Committee that he had risen tax in order to cut it before the next election to help gain votes.

The Office of Budget Responsibility (OBR) chairman Richard Hughes suggested that the Treasury may struggle to hit its new deficit targets, especially if interest rates rise, and would be in for a ‘wild ride’.

Hughes stated: ‘The Chancellor set himself some new fiscal rules in this Budget and they are to get debt falling as a share of GDP by 2024-25 and balance the current budget. The headroom he set aside to reach those targets is the second-lowest headroom that any Chancellor has had when setting fiscal rules. Just a 1% interest rate rise could easily wipe out the Chancellor’s headroom.’

The committee heard that the OBR modelling put the likelihood of the government meeting the targets set out in the Budget as being 55-60%. Treasury Committee chair Mel Stride said: ‘The OBR didn’t say not a cat in hell’s chance of hitting his targets, it does appear there is a strong risk those targets will not be met.’

The Chancellor described the statistics as being ‘slightly better than a cat in hell’s chance’ but admitted that he had ‘slightly less headroom’ than previous chancellors. When questioned, the Chancellor stated that there was no official plan B if interest rates, or inflation was set to continue to rise but that the government had ‘levers they could deploy’ if the situation needed it such as the national living wage.

After giving the example of the new tapering rules for Universal Credit, Labour MP Siobhan McDonagh interrupted to say: ‘That’s not a tax cut, that’s a benefit change.’

Sunak said it was a ‘combined approach’ but McDonagh said: ‘That really isn’t a tax cut. You’re just desperate to find a tax cut’ with McDonagh stating that the government is emulating Ted Heath’s ‘low growth and therefore high tax’ approach from the 1970s.

Sunak replied: ‘Actually, we’re forecast this year to grow at, well, historically very high rates as we recover from the pandemic.’

Defending the scrapping of the triple lock on state pensions, Sunak said there was ‘lots of other support for pensioners that comes through the system’ specifically pointing to winter fuel payments and free prescriptions as examples.

Sunak said: ‘There’s lots of other support for pensioners separate to the state pension and pensions relative to earnings in this country are the highest they’ve been in over 30 years’ and that reducing the pension triple lock to a double lock for a year from 2022-21 was ‘a reasonable and fair thing to do in the circumstances’.

Sunak also called out the Committee stating that their comments on the cost of financial fraud during the emergency rollout of schemes during the coronavirus pandemic were ‘slightly unfair’ as it was a time of ‘national crisis’.

In response to Labour MP Eagle’s comments on the possible £27bn lost to fraud under Covid-19 support schemes, Sunak stated ‘that is what it is, and I said it at the time when you’re in a crisis you’re going to end up casting the net wider than you would in peacetime’.

Alison Thewliss, Scottish National Party, MP, asked the Chancellor why he had decided to cut air passenger duty on short-haul air travel, while the country is currently hosting COP26 in Glasgow to promote a green drive towards net zero.

Sunak defended this decision stating that the net impact on emissions of the increased long haul flight air passenger duty would ‘just about offset each other’. The Chancellor corrected Thewliss on her figures stating that carbon emissions from aviation are 8% of the UK total, and only around 5% of that is from domestic flying.

The Chancellor also added that the government had announced £180m worth of funding for sustainable fuel, when challenged on why he chose to subsidise air travel and not rail, Sunak stated that the policy is likely to cost ‘merely £20m’.

Follow the progress through Parliament of Finance Bill 2022 using the Croner-i Finance Bill Tracking Service. 

Ruby Flanagan |Reporter, Accountancy Daily

Ruby Flanagan is reporter on Accountancy Daily. Contact her on ruby.flanagan@croneri.co....

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