The Economist - UK (2022-03-26)

TheEconomistMarch26th 2022 21

Britain

Thepublicfinances

Spring in his step

W

ith british households  facing  a
cost­of­living  crunch,  the  “spring
statement” on March 23rd, an occasion for
the  chancellor  to  course­correct  between
autumn  budgets,  offered  several  eye­
catching  giveaways.  Fuel  duty  will  be  cut
immediately.  From  July  national  insur­
ance, a payroll tax, will kick in at a higher
income  threshold.  And  in  2024  the  stan­
dard  rate  of  income  tax,  paid  by  30m
Britons,  will  fall  by  one  percentage  point.
As Rishi Sunak spoke at the despatch box,
Conservatives  brayed  their  support.  But
the measures add up to less than billed.
Alongside the spring statement came a
new set of forecasts for the public finances,
produced by the Office for Budget Respon­
sibility  (obr),  an  official  fiscal  watchdog.
Those supported the case for some kind of
relief  for  hard­pressed  households.  Since
October, when such figures were last pub­
lished,  inflation  had  increased  by  more
than expected, eating into household bud­
gets. As incomes fell behind rising prices,
the obr predicted that disposable income
per  person  would  fall  by  over  3%  in  real

termsoverthecomingyear,unlesspolicies

changed to mitigate the impact. That

wouldhaveconstitutedthebiggestannual

dropsincerecordsbeganin1956.

Theworseningeconomicoutlookhas

notpinchedthepublicfinances,however.

Revenuesfromtaxesonincomesandcor­

porateprofitshavebeenbuoyant.Thisis

partly because inMarch 2021 MrSunak

froze income­tax thresholds. Sincethen

earningshaverisenfasterthanexpectedin

cashterms.Theresultingfiscaldragmeans

thatmorepeoplearepaying tax,andat

higherrates.LastOctobertheobrexpected

that0.9mmorepeoplewouldbecaughtby

thehigher40%marginalrateinthe2023­

24 fiscalyear;it nowthinksthat1.3mwill.

Asrevenueshaverisen,publicspend­

inghasnotkeptpace.Economicdevelop­

ments such as higher inflation have

pushedupprojectedspendingattheendof

thisparliamentbyonlyabouttwo­thirds

oftheexpectedriseof£37bninrevenues.

Mostofthatishigherbenefitsanddebt­in­

terestpayments.(Morethana fifthofgov­

ernmentgiltsarelinkedtotheretail­price

index,a measureofinflation.)A changeto

thetermsforstudentloansannouncedin

Februarywillsavearound£5bninthesame

year.CostshavealsobeencontainedbyMr

Sunak’srefusaltoincreasethebudgetsof

government departments beyond what

wasagreedlastOctober,eventhoughthey

willbepummelledbyrisingenergycosts,

justashouseholdswill.Intimesofhighin­

flation,chancellorsareabletomakestiff

spendingcutsbystealth.

HadMrSunakchosento donothing,

then,expectedborrowingwouldhavebeen

about£20bnlowerin2024­25thanprevi­

ouslyforecast.Insteadheoptedtocuttax­

es—compared withwhathadpreviously

beenpencilledin,thatis.Hesoothedmo­

toristsupsetaboutrisingpetrolpricesby

Rishi Sunak longs, but does not deserve,tobeknownasa tax-cuttingchancellor

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23 Lockedupinlockdown

24 Standardisingnuclearplants

26 Threatstoacademicfreedom

27 Bagehot:Scotland’snationalistTories

Dropping pennies

Britain, real household income

% change on a year earlier

Source:OBR

1

FORECAST

8

6

4

2

0

-2

-4

1956 2620102000908070

Fiscal years starting April