WE are to have a “fiscal event” in the Westminster parliament next week. This is a little surprising as parliament will, at most, sit from Tuesday to Friday next before then taking yet another break, this time for party conferences. That leaves no time for serious debate of any announcement, let alone a vote on it.
So what is a “fiscal event”? It usually refers to a budget, but we know we are not going to get one of those. There has not been time to prepare one, especially with the Prime Minister being out on tour to grab every photo opportunity available to her to upstage the royal family, Nicola Sturgeon, and anyone else she thinks an obstacle to her passage to the pages of Vogue.
Instead, this “fiscal event” would seem to be a stage managed announcement that the UK will be having tax cuts. These will, of course, be the fulfillment of a promise Truss made repeatedly over the summer to cement her appeal to the Tory faithful. They then dutifully elected her, such is their collective hatred of tax and all things to do with government, which is a strange trait that is common amongst Tory politicians that distinguishes them from most others.
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The expectation is that Truss will next week, at the very least, abolish the £13 billion National Insurance increase put in place by Rishi Sunak (below, remember him?) earlier this year. This was supposedly required to provide essential funding for the NHS to tackle its many problems including record waiting lists in England. Whether that commitment to the NHS (part of which was supposedly shared with Scotland) survives the tax cut is anyone’s guess.
The other anticipated cut is to abolish the planned increase to corporation tax from 19% to 25% for all companies, due for next year. This would, it was estimated, have raised £17bn. This will now be foregone. It is also thought possible that more cuts to this tax might be possible.
A £30bn tax cut at a time of national economic meltdown, when the government’s finances are already stretched by massive new commitments arising from the energy crisis, seems remarkably generous, to the point of being foolhardy. Though that is too kind an interpretation when you consider who benefits from the cuts.
In pure cash terms, most National Insurance is paid by the best-off employees, simply because they earn the most. Overall the tax as a whole is regressive, but the way this cut will work will deliver by far the biggest gains to those on high earnings.
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The cuts to corporation tax will do exactly the same thing. It’s an accepted economic fact that not all the benefits of corporation tax cuts go to shareholders, but the evidence that the vast majority do is fairly compelling. In that case the wealthy, and those who own their wealth via pension funds, get most of the benefit of these cuts too.
Put this together and it’s clear that Truss is giving her Tory party electorate the most massive bung, at cost to us all.
How will we feel the impact of that? It’s really not hard to work that out. With maybe a £150bn+ bill to pay for energy measures and this £30bn bung on top it is very clear what the impact of all this on the public finances will be: we are very obviously going to see bigger government deficits.
And as surely as night follows day, Truss and Kwasi Kwarteng, her Chancellor (above), will then say that these deficits will require austerity to clear. The result will be cuts to public services – and Scotland could not be protected from these.
Meanwhile energy companies are to pay no more tax on the profit they are making from exploiting shortages created by Putin's war, and that is another Truss choice.
The reasons why Scotland needs to make its own decisions on its own finances are becoming clearer by the day. September 2022 was not scheduled to deliver so much clarity on so many issues. But it seems that it will. Looking back from history it may well look to be pivotal.
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