Might Sunak regret his Budget delay?

Given the swift defenestration of his predecessor after her mini-Budget panicked the markets, it is not surprising that Rishi Sunak has delayed the Treasury’s autumn statement until 17 November. No set of fiscal plans will satisfy everyone, but markets and public opinion do seem to be especially sensitive to changes in fiscal policy at present. And there’s this: left-leaning thinktank the Resolution Foundation this morning said delaying the statement for just two weeks will reduce the apparent black hole in the public finances as the cost of government borrowing comes down. The two-week delay could create the illusion of an extra £15 billion in the government’s coffers (or rather £15 billion less borrowing), mitigating the need for spending cuts and tax rises.

But it is inevitable that there will be plenty of bad news for taxpayers and for those whose livelihoods depends on government spending. The Prime Minister has made it clear that he will make fiscal responsibility a priority. The result is likely to be a Budget which pleases the markets – but enrages Labour. It is reported that government departments have been ordered to find savings of 10 to 15 per cent – a red rag to Labour, which will attempt to damn any economic measure as ‘austerity’.

The autumn statement could also anger Conservative MPs – who may end up regretting that they ever rounded on Truss or Kwarteng. If the triple lock on pensions goes (Sunak has refused to guarantee its survival although Nadhim Zahawi this morning suggested that it might) many MPs will fear their voters’ wrath. The over-65s are nothing if not keen voters. Zahawi said the government was aware that pensioners are ‘uniquely unable to work to increase their incomes’ – his idea, it seems, being that those of working age can put in extra hours to protect incomes against inflation whereas pensioners cannot. While this may be true of octogenarians it is surely not the case for pensioners in their late sixties, many of whom can – and do – work part-time.

Will there be tax rises? The return of Sunak’s extra 1.25 pence on National Insurance Contributions can pretty well be ruled out – it was one reason why Sunak lost the summer leadership election. It is hard to imagine that Sunak or Jeremy Hunt will want to touch the main rates on income tax, either – though Hunt could tinker with capital gains tax to bring it closer in line with income tax.

But inflation is on the Prime Minister and Chancellor’s side in that it has presented them with a subtle way of increasing tax revenue without having to announce anything new. In last year’s Budget, Sunak, then chancellor, announced that income tax thresholds would be frozen until 2026. At the time, inflation was 1.5 per cent so it invited relatively little comment. Yet with inflation now above 10 per cent, it is quickly dragging more and more taxpayers into the upper rates of income tax – or into paying income tax at all.

One of the disagreeable aspects of this is that it is fast reversing one of the most popular policies of the coalition. In 2010, then chancellor George Osborne sharply increased the personal tax allowance to take large numbers of workers out of the tax system altogether – the idea being that it would decrease their dependence on welfare. When the coalition came to power the personal allowance was £6,475. It is now £12,570. And the value of £6,475 in 2010 is equivalent to £8,960 now. But if inflation were to remain close to 10 per cent, the personal tax allowance would end up, in 2026, back in real terms to where it was in 2010. That would amount to a huge, surreptitious tax increase, impacting most heavily working people on low incomes.