Philip Hammond faces acute Budget pressure on three fronts—from his boss, his economic watchdog and a House of Commons wary of supporting tax rises for a volatile electorate. But there may be something he can doby Torsten Bell / November 18, 2017 / Leave a comment
British politics is odd these days. But even by current standards something very unusual looks set to happen in next week’s Budget. A basic rule of British politics is that tax rises tend to happen soon after a general election, with the chancellor betting that we’ll all have forgotten about them when the next election comes around. Philip Hammond may well be about to shred that rule with the Treasury considering plans for tax rises that would take place just a few months before the next general election is due in 2022.
Some Conservative MPs will say that shows the chancellor doesn’t understand the rules of politics. But there is more than one rule of politics. Another key rule, to paraphrase Lyndon B Johnson, is that you never call a vote (in parliament) before you can win it.
Faced with the twin challenges of a looming economic downgrade from the Office for Budget Responsibility and spending commitments from the prime minister, the chancellor looks set to see a significant reduction in the headroom he has against his main fiscal rule to “reduce cyclically-adjusted public sector net borrowing to below 2 per cent of GDP by 2020-21.”
Raising revenue from additional taxation is the obvious way to square that circle without looking like you’ve given up on the whole fixing the public finances thing. The only difficulty is that the self-employed NICs debacle earlier this year showed that the chancellor can’t currently win a vote on even the most innocuous of tax rises.
But while you can’t put up taxes without a vote (something American independence taught us a while back), you can control the timing of one. Here’s how.
The Chancellor is looking at policy proposals for the Budget to freeze the Personal Tax Allowance (PTA) and higher rate threshold (HRT) once he has met the Conservative Party manifesto commitment to raise them to £12,500 and £50,000 respectively. This could raise serious amounts of cash.
If the Chancellor does nothing else those thresholds are set to reach nearly £13,000 and £51,000 respectively in April 2022, due to faster than expected inflation (the thresholds are automatically uprated in line with September’s inflation rate the following April). Instead of allowing that to happen, a policy of freezing the PTA & HRT once they hit the manifesto pledges would raise £3.1 billion a year in 2022-23.