Overall it argued that a 1.25pc point increase in employer and employee NICs would reduce whole economy wages and salaries by 0.5pc. To raise £40bn in additional taxation it is likely the Government will have to increase employers’ NICs by the equivalent of 2pc, so I expect the impact on wages and salaries will be larger with a significant negative knock-on effect on labour supply and therefore GDP.
Further threshold freezes and a big increase in National Insurance risk killing the jobs miracle we’ve seen in the UK stone dead. But other measures we are likely to see will also put downward pressure on growth.
Any increase in capital gains tax or abolition of entrepreneurs’ relief will damage the UK’s overall level of competitiveness. Likewise closing business relief or Aim relief in inheritance tax will have an immediate negative impact on thousands of companies across the country.
There have also been reports that sector specific taxes will be increased. A hike in gambling or alcohol duties may raise a few hundred million but the knock-on impact for those two sectors, which employ thousands of people, will be significant.
And finally, an increase of 7p a litre on fuel – as will happen if the Government reverses a 5p temporary cut in the duty and unfreezes the inflation-linked escalator – will increase costs for commuters and businesses alike.
Any one of these measures would be damaging in isolation. Do them all together and the OBR will surely conclude that the impact on GDP is significant, durable and additional, and therefore worthy of inclusion in the economic forecasts? The same should be true for the Employment Rights Bill, which the Government’s own impact assessment says will cost business billions.
A Budget that actually reduces GDP below what it otherwise would have been would be quite something for a government whose overriding mission is apparently economic growth. And it is true that they will likely receive some positive scoring from the OBR for any increase in capital spending that they announce.
A recent discussion paper the statutory body published suggested an increase in public sector net investment equivalent to 1pc of GDP could increase growth by 0.4pc in five years time. It sounds like the Chancellor will announce an extra £20bn of capital spending. However, other measures we are expecting in the Budget means she won’t see all of the growth upside you would expect from such an increase.
This is because any benefit should be netted off against the damage that an even bigger rise in the tax burden as a proportion of GDP will do.
Although we don’t yet know for sure exactly which taxes will increase, the Government has been clear they will be increasing the overall tax burden by around £40bn a year.