The above is a quote from Kemi Badenoch’s reply to Rachel Reeves’ Budget measures, and unless you’re a Labour MP or have a house full of kids and are on some form of benefits, the feedback from a recent YouGov poll which targeted ordinary working taxpayers, is that they pretty much agree with the comment.
I will not bore you with an itemised list of all the tax changes, as you will already have had this information in spades from a variety of sources, including of course MJ&Co Accountants; no, today I’m going to delve into the financial data behind the headlines provided in various reports from the OBR, IFS, ONS et al.
The Office of Budget Responsibility (OBR) and the Red Book
So, just what is ‘The Red Book’, this is an in-depth statistical analysis of the Chancellor’s budget measures prepared by the OBR for the Chancellor prior to the budget. It is not however the real name of the publication, which is officially called ‘ Briefing Paper No.10 – Accounting for the supply-side effects of policy’; but what does this actually mean in practice?
In essence ‘Supply-side’ measures are economic policies designed to increase the economy’s productive capacity by improving the supply of goods and services. These policies focus on incentivising production through measures like tax cuts, deregulation, and investments in areas like education and infrastructure. The goal is to improve productivity and efficiency, leading to long-term economic growth and more jobs.
The Red Book also provides a full background to all of Dear Rachel’s measures, together with detailed calculations on the costings and what effect they were likely to have in a variety of areas. These include the expected tax take and the likely effect on growth and inflation.
Whilst there were some measures to improve investment in infrastructure projects and education these were rather modest in nature and there was precious little in the way of tax cuts and deregulation.
The Institute for Fiscal Studies (IFS)
The IFS is a highly respected independent economic research institute, specialising in UK taxation and public policy. In their budget report they explained that economic growth is driven a number of factors, the most important of which are increased consumer spending, business investment, government infrastructure spending and tax cuts. These measures collectively increase the production of goods and services, measured by metrics such as Gross Domestic Product (GDP).
The IFS report concluded with their opinion that this year’s Budget will result in ‘A truly dismal increase in the disposable income of most people, with economic growth only marginally above stagnation levels’.
The Office for National Statistics (ONS)
The ONS produces huge amounts of data each year and it is universally trusted by both the Government and the general public. One of the biggest chunks of data is on government income and expenditure and it transpires that in the 2024/25 tax year the UK government spent a grand total of £1.23 trillion.
Of this massive total the ONS estimated that a mind-boggling £107 billion was spent on interest payments on government debt, which currently stands at is around 8.7% of total Spending. To put this in perspective, it is a similar amount to the total annual spend on schools & education and more than double the total defence budget.
So, who are the main losers in this year’s Budget?
Now that the dust has settled on the Budget, it’s slowly becoming clear that whilst businesses are relieved that they haven’t been hammered again, the group who will be hardest hit by Rachel Reeves’s measures are middle-class, middle-aged, middle-earning millennials. In other words: if you’re in your 30s, 40s and early 50s and have a decent job, you’ll have less disposable income and it’s become harder to retire.
Taxes have clearly gone up on this group and it’s not just because of the ‘fiscal drag’ effect of pushing more and more of them into the 40% tax band. The income tax rise is on top of other tax increases, including new/increased taxes on EV’s, income from property and pensions.
Regrettably, these measures have been accompanied by reductions in cash ISAs and reductions in the overall tax free element of savings income. But what makes the pension tax raid so invidious is the fact that the new and/or increased taxes will be paid mainly by people who have always striven to do the right thing by properly saving for their retirement.
Accountant’s view
I was very frustrated by the Budget, not just because of the raft of tax raising measures, but mainly for the fact that whilst the Chancellor stated that growth was the key to solving the country’s financial issues, she did precious little to encourage it.
She announced that businesses can now claim a 40% first-year allowance for leased assets, but she’s also reducing the writing down allowance (WDA) for all other assets by 4%. Allowing businesses to recover the full cost of investment is one of the most cost-effective ways to both encourage more investment and thus boost economic growth. A reduction to the WDA is an unnecessarily harmful way to raise £1.5 billion in tax
The other traditional way to encourage growth, is to boost consumer spending in the economy, but as both the OBR and IFS have demonstrated, her tax raising measures will result in consumer spending to flatline over the next five years.
My final point is Dear Rachel has done nothing to implement her promised root and branch revision of the tax system. If she’d done so, many of the unintended consequences of past tax measures, could have been addressed, thereby raising the tax take by greater efficiencies and through simplification. Regrettably Dear Rachel appears to have abandoned this pledge.
