On taxes, Johnson said:
We are all by now aware that employers National Insurance contributions (NICs) are set to rise, and to rise a lot. Given the scale of the tax rise required it was inevitable that one of income tax, VAT or NICs would have to increase in order to pay for higher spending, and so it has transpired.
Choosing employer NICs has some downsides. They are of course largely incident on wages. Increasing them increases the wedge between employment and self-employment, and between employment income and other income. But this is a better choice than trying to get big increases from a range of smaller taxes.
Unusually the NHS is not scooping the pool. It is getting about the average spending increase. Equally unusually local government is doing rather well, as is the justice department, reflecting the severe pressures each is facing.
I am willing to bet a substantial sum that day-to-day public service spending will in fact increase more quickly than supposedly planned after next year. 1.3% a year overall would almost certainly mean real terms cuts for some departments. It would be odd to increase spending rapidly only to start cutting back again in subsequent years.
She chose to increase borrowing in order to increase investment spending – or at least to stop it falling as a fraction of national income. Given that the growth benefits of this take some time to arrive, this is a courageous move and a welcome focus on the long term. This was the right thing to do.
She chose a sensible new primary fiscal rule – that the current budget should be in balance in five years’ time, with that shortening to a three year rolling target after 2026-27. She chose to keep the rather less sensible rule that debt should be falling in the same year of the forecast, but redefined debt to a measure which will treat the National Wealth Fund more favourably, and more generally gives her a bit more headroom to borrow for additional investment.
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