It’s a new year and a new start. No doubt everyone is hoping this year will be better than the last, especially Boris and his government after the past month. But while you might be feeling a little sore from last night’s festivities, this year’s hangover is going to last a lot longer.
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Where public health once dominated, matters of personal economic health will take over. A cost of living crisis is coming – if it hasn’t already arrived. Continued supply chain disruption has increased the price of everything from pasta to petrol. Now Christmas is out of the way, families already facing expensive energy price hikes are set to see a surge in supermarket bills waiting until after the crucial festive shopping period.
Come April, we really will be feeling the pinch. A heady cocktail of a national insurance hike, council tax rises, and an income tax freeze (effectively a stealth tax hike), will be hitting bank balances stretched by rising bills. This is all on top of the highest average tax burden in 70 years. Nevermind the impact it’ll have on businesses, making the cost of hiring more expensive and slowing down an economy that had only just started to ramp up after a year and a half of restrictions.
It’s a dangerous combination that will hurt those on low incomes hardest. The poorest households already pay almost 57 per cent of their gross income in tax, the largest proportion of any group, so it’s little wonder they overwhelmingly oppose tax rises to pay off covid debt.
But it’s not just tax hikes on the horizon. The last remaining covid tax cut – a 12.5 per cent VAT rate for hospitality and leisure – comes to an end this financial year. After another disappointing December (the busiest time of the year for hospitality), pubs, bars, cafes, and restaurants will still be struggling to make ends meet.
The chancellor’s support package may help the industry over the line to Valentine’s, but once the VAT cut is taken away in April, price hikes could make the cost of going out unaffordable. Nobody wants an economy where drinking and dining out once again becomes the preserve of the well-off.
To top it all off, with the Bank of England predicting inflation will reach six per cent next year, economists are also factoring in further rate hikes. Increasing the cost of debt at a time when households are struggling with the double blow of a cost of living crisis combined with tax hikes will hit families with higher mortgage bills – leaving them with even less in their back pockets.
They say there is no cure for a hangover, but January is a time for cutting back, and cutting taxes and wasteful public sector spending would certainly help people’s bank balances feel healthy again, and remedy this particular blend of economic ailments. So if there is one New Year’s resolution the government should stick to it should be this – we cannot tax our way into prosperity.