The Autumn Budget has paved away for an all-time-high tax burden, but isn’t that just what we all expect now, writes Valentin Boboc

This Budget confirms that the tax burden is set to reach new historic highs and remain there in the years ahead. That can happen without the Chancellor announcing any increase in income tax rates as fiscal drag will do all of the work. 

With income tax thresholds frozen, for example, rising wages mean more earnings are taxed and more people move into higher tax bands. The OBR’s March forecast estimated that freezing the personal allowance and higher-rate threshold brought £34bn to the Treasury’s coffers this financial year alone.  

Beyond this rising tax burden, the Budget contains a familiar mix of smaller changes to tax and regulation. Some are welcome, particularly measures to reduce red tape and encourage more housebuilding, albeit in limited ways. Consumers will also benefit from lower customs duties, although targeted excises on things like gaming machines will not do consumer choice any favours. 

On energy, it is good to see the government acknowledge the role its own regulations and levies play in making energy expensive. The myriad of policy costs, such as energy levies and standing charges are only made worse by our generic inability to build new infrastructure in a timely fashion.  

We have also seen some reasonable progress towards making devolution more meaningful and government less centralised. Allowing mayors to retain business rates and a share of income tax will give local governments across the country a stronger incentive to pursue economic growth and local development. 

The same approach

But elsewhere, the Budget falls back on a familiar approach that risks doing more harm than good. A lot of measures announced in this Budget fit the familiar British formula of  limiting supply whilst subsidising demand. For instance, housing remains hard to build, but a new First Time Buyer ISA will subsidise deposits, drive up prices and deepen the housing crisis.  

The same pattern is evident in the labour market. Minimum wage increases risk reducing the number of people hospitality businesses can afford to hire, but business rates relief will give them some compensation. This comes in the context of youth unemployment being already above 15 per cent. It is unclear how far small apprenticeship programmes and other subsidies can help young people find work if the labour market is too overregulated to absorb them. 

The British tax system already suffers from unnecessary complexity, with a complicated system of reliefs, exemptions and differentiated rates. This Budget adds further complications, including a separate Pension Tax Allowance. This creates what is effectively a quadruple lock on old age benefits, which will only drive up welfare spending in the future in a way which is likely unsustainable.  

Taken together, this is what business as usual feels like. The tax burden rises to an all time high to accommodate the historically large costs of managing a historically large national debt burden. The Chancellor claimed that these measures could deliver a balanced budget by the end of this parliament. Given the Office for Budget Responsibility’s (OBR) significant downgrade of economic growth estimates for next year (down sharply from 1.6 per cent to 1.0 per cent) and the lack of commitment to a serious programme of fiscal consolidation, all we can do is hope.

Valentin Boboc is a senior economist at the Institute of Economic Affair