‘Soak the rich’ surprise from Spreadsheet Phil
Budgets are usually much more political than economic. Chancellor Philip Hammond – referred to in Westminster as ‘Spreadsheet Phil’ – is generally seen as a dullish ‘safe pair of hands’ type of chap. But it seems his political antennae are on the blink. He is getting it in the neck not just from the left-leaning media but from from the Tory press (especially the Daily Telegraph) and his own Conservative Party backbenchers, many of whom want him to backtrack on two tax changes he announced in his Budget.
The very modest tax changes he announced on 7 March were not giveaways to help the JAMS, the Just About Managings (copyright T. May). Everyone would have applauded that, and he could have got away with it on the basis of better economic forecasts that anyone expected a year ago. Instead his changes were tax increases in the rich.
The reduction from £5,000 a year to £2,000 a year in the tax-free dividend allowance (from 2019) will result in high-earning business owners (paid mainly through dividends) paying £975 to £1,143 a year more income tax. The 2% rise in Class 4 National Insurance (from 2019) will result in nearly 3 million self-employed people paying an average £240 per year more in NI contributions, with much bigger increases for high earners.
For the vast majority of lower earners, the results of both changes are so insignificant that they probably won’t even notice them. But, as usual with Budgets, that isn’t the point. It’s the symbolism that counts, and Hammond’s changes undoubtedly raise money from exactly the kind of people the Tories usually see as ‘theirs’ – wealth creators and entrepreneurs. Set against another cut in corporation tax for the benefit of the top international UK businesses, these changes are, as the backbenchers point out, sending the wrong message.
The reason Hammond will probably get away with it is that the people whose tax bills he has just raised are still overwhelmingly more likely to vote for the Conservatives than for any other party at the next election. The fact that the opposition parties will struggle to attack tax rises for the rich means that Spreadsheet Phil probably has a secret smile.