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Reeves’ Budget has become the talk of the town, but even KPMG tax expert Tim Sarson thinks we should calm down about it
Hard to believe, but we’re still over a month away from October’s Autumn’s Budget. Never before in the field of fiscal policy have so many speculated over so many tax measures for so long.
I usually struggle to get anyone interested in my pre-Budget predictions until about a week before the event. Not this year. When Chancellor Rachel Reeves decided to tell us all back in July that she and her officials had unearthed a fiscal black hole of £22bn, and that “difficult decisions” were coming, she let loose the doomsters and gloomsters in their multitudes, filling the newsstands with their latest dire prognostications of what bits of your wallet the Treasury might be eyeing up for a tax raid.
I’m not going to spend this column joining the speculation. Still too early. Instead I want to remind you all that what we’re seeing really isn’t unusual. New governments always hike taxes. Not only that, but they always do it on a similar scale to what we’re facing this year. According to the Resolution Foundation, following the past eight elections the first two fiscal events of each parliament have introduced new tax policies that have raised taxes by an average of £21bn per year.
A history of taxing governments
We all remember 2010 and the ushering in of a decade of austerity. Just like now, the new government wasted no time in heaping blame for the difficult state of the public finances on the last lot. But the first budget of the coalition government wasn’t just about spending cuts. It was also a tax raiser: VAT up from 17.5 per cent to 20 per cent, the introduction of the Bank Levy and capital gains tax (CGT) up to 28 per cent. Yes, Osborne raised the rate of CGT. It’s gone up and down like a yoyo over the years. In total that budget raised a further £8bn in tax (equivalent to £12bn today).
What about the last time Labour were new in office? Conservatives talk about the golden economic legacy bequeathed to Blair and Brown. Golden or not, it didn’t stop the new administration from ratcheting up taxes in their first budget or blaming the Tories for it. The flagship tax-raising measure in 1997 was a utilities windfall tax that raised £10bn in today’s money.
But that’s nothing to the doom and gloom of the first Howe budget in 1979. We may remember Thatcher’s governments as tax-cutting but 1979 saw VAT rise from eight per cent to 15 per cent, among other tax hikes and huge spending cuts. The extra tax raised is estimated to have been £4bn, which is roughly £19bn in today’s money – similar to our famous black hole. Then two years later in 1981 he did it again. Another £4bn (£15bn in today’s money) from tax rises in areas like fuel, alcohol and tobacco duty against a backdrop of high inflation and a weak economy. Howe and Brown both prove it is actually possible for a British chancellor to raise fuel duty.
It’s really not that uncommon for governments to raise taxes by substantial amounts in their Budget statements. It also happened in 1993 after the ERM crisis (also around £21bn in current prices), during and after both World Wars, and of course way back in 1799 when Pitt the Younger first introduced a temporary income tax to fund British efforts in the Napoleonic wars.
And who can forget the most significant tax-raising announcements in recent memory under Chancellors Rishi Sunak and Jeremy Hunt? 2021 was the year the Conservatives raised taxes by around £40bn and the 2022 Autumn Statement saw further tax rises of £25bn per year.
So why are we obsessing so much over this forthcoming event, so much so that there seems to have been a discernible impact on consumer confidence in the latest GfK survey? I blame two things: the great sweep of tax rises ruled out in the General Election manifesto which has left commentators scrabbling around creatively to guess what measures might still be up for grabs, and the sheer lugubriousness with which we’ve been forewarned of the bad news. It’s made for a fun couple of months of guesswork, but I’m quite looking forward to getting back to the sort of normality where nobody gives a second thought to the Budget until it’s almost upon us.
Tim Sarson is head of tax policy at KPMG UK
