George Osborne once ran the country’s economy; now he runs the British Museum. And it seems the present Chancellor Jeremy Hunt may have his eye on another institution, the Victoria & Albert Museum.
The V&A is lending back to the Asante King in Ghana just a few of the golden crown jewels which British soldiers stole from his ancestors in 1874. And Hunt seems likely to copy its approach – sending back money he took from us in the first place.
He has already been dropping the broadest hints that there will be tax cuts in his Budget on 6 March. Such pre-election changes are often called bribing us with our own money. But Hunt plans far worse. He is bribing us with a very small part of money he, like those Victorian soldiers, has already taken. Politicians promising pre-election giveaways is a part of democracy dating back at least to the Romans.
The first hints have been for a statement change on inheritance tax. Many people are surprised when I tell them that if you see a funeral and people are weeping then on only one in 20 occasions will the relatives be shedding tears because of the tax they must pay. Nineteen out of 20 estates pay no IHT and the heirs inherit all that the dead person left.
The number would be even lower but for the fact that the basic threshold where IHT begins has been frozen at £325,000 since 2009/10. If it had risen with inflation it would be over half a million from April – catching even fewer bereaved heirs.
Many find it hard to believe that only one in 20 pay this hated tax. But the latest figures from the Office for Budget Responsibility – which marks the Chancellor’s homework – show that in the five years from 2021/22 to 2025/25 only 5.1 per cent of estates will pay IHT. That averages 33,400 estates per year. Receipts from IHT are currently running at £7.6bn a year. So if Jeremy’s big IHT reveal is to scrap it the average amount saved per estate would be around £228,000.
By contrast the recent cut in national insurance contributions for employees will cost around £8.7bn a year and provide what the Treasury says is “a tax cut for 27 million working people” with an average of £322 each – although the Treasury also claims the tax saved by those on median earnings will be £450 and of course £754 for anyone earning £50,270 or more.
The Chancellor may have his eye on income tax where a 1 per cent reduction in rates would cost £5.7bn or £7.2bn if higher and top rates were included. A similar cut in VAT would cost £7.85bn though the danger is the shops would keep most of it by maintaining their price points as they did when the tampon tax was scrapped.
And all these cuts pale into insignificance compared to the stealth taxes that have crept into our pockets to steal £27bn from us this year and an estimated £40 billion in 2026/27. That money is taken by freezing tax allowances – the amount we can have before tax bites. That threshold has not changed since 2021/22 so as pay rises – and average pay has risen by £90 a week or 16 per cent since April 2021 – all of that extra pay is taxed.
If the basic tax threshold had risen with inflation since 2021/22 it would be £15,230 from April saving taxpayers £532 in 2024/25. By 2028/29 four million people, whose income was too low to pay income tax, will be dragged into paying tax on some of their income. Three million more taxpayers will start paying higher rate 40 per cent tax. And every income tax payer will pay a share of that extra £27bn next year.
If the Chancellor’s pre-election Budget does not put more than £27bn back into our pockets in 2024/25 it will simply return a little of what he is planning to take from us anyway.
Whatever the Chancellor does give back it may just be a loan. Richard Hughes, chair of the Office for Budget Responsibility, told a House of Lords committee this week that the Chancellor’s economic forecasts – which gave him the billions of “headroom” in the Autumn Statement to cut national insurance contributions – were based on “questionable assumptions” and were beyond “a work of fiction”.
A report from independent economic researchers at the Institute for Fiscal Studies warned this week that whoever is Chancellor in 2025 will have “a thorny inheritance” and will have to raise taxes or make further severe cuts in public expenditure. “These challenges” it says “are entirely predictable”. So whatever Treasury gold the Chancellor gives for us it may not be ours for long. Just lent for a pre-election display and then taken back, like the Asante King’s crown jewels may in future be. A job for Jeremy at the V&A certainly beckons.
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