Taxes, Smoke & Mirrors

While we were all still a little dazed by the unexpectedly clear result of the 7 May General Election, the Queen was giving her annual speech at the state opening of Parliament. This is the grand occasion where she outlines the government’s legislative agenda for the next year.

As expected, the proposed bills concerning the EU Referendum and the further devolution of powers to Scotland and Wales have dominated the subsequent discourse. But there was much more, including measures to deliver 3 million more apprenticeships and 2 million more jobs; limit industrial action – especially in essential public services (health, education, fire and transport); lower the benefit cap to £23,000 per year from the current £26,000; freeze rates of working-age benefits, tax credits and child benefit; create a “Northern Powerhouse” by improving transport links between Northern cities; give England’s 1.3m housing association tenants the right to buy their homes at a discount; further limit immigration and introduce a new offence of illegal working which can result in wages being seized as the “proceeds of crime” and increase powers to crack down on “extremist” groups.

But arguably the proposal which brought about the most severe bout of head-turning was the “tax lock commitment” which will outlaw rises in income tax, VAT, and national insurance during the course of Parliament.

At first blush this sounds like a “no more tax rises” pledge. But in reality the items which passed through Ms Windsor’s lips account for only around half of all government revenues. It’s no accident that she didn’t mention the raft of other avenues by which the government can squeeze our pockets. These include tobacco, alcohol and air, fuel and stamp duties, rail fares, and university tuition fees. Indeed, the previous government increased many of these so called “administered prices” during the last Parliament.

Such levies are popular because they typically get lost in the overall price of the product in question. Consequently, any resulting furore is, with a huge exception as Mr Clegg can attest, largely forgotten by the time the next election comes about. Or perhaps not.

Twitter: @marshanalytics

 

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