Sly stealth tax rises are ‘economically idiotic’ as inflation soars

A cascade of misery is being unleashed on households as the cost of living crisis begins to bite. By ANDREW FISHER

Happy New (financial) Year. Here’s to a 2022-2023 of tax rises, eye-watering energy bills and soaring inflation.

Inflation is at a 30-year high of 6.2per cent and is forecast to peak at more than 8per cent.

We can argue over the relative contributing factors of global energy prices, post-pandemic aftershocks and Brexit red tape, but the reality is that inflation is impacting people now.

The smuggest MP: wealthy Rishi Sunak

Energy bills are rising by an annual equivalent of £690 from this month, and are forecast to rise by a further eye-watering £890 in October. The country’s wealthiest (and smuggest) MP, Chancellor Rishi Sunak, has offered a £200 loan in mitigation.

If you’re on Universal Credit or Employment and Support Allowance your income is being cut in real terms – a 3.1per cent rise in allowances is more than eaten up by the rising cost of the weekly shop and energy bills.

The Office for National Statistics calculates inflation is higher for poorer households – because they spend a greater proportion of their incomes on essentials, and when those costs goes up it hits them harder.

Market analysts Kantar have found that the cost of milk is up 19per cent; a quick check at the check-outs shows that one pint of a basic part of most shopping baskets that cost 44p in 2020 costs 60p today. Jam has risen by 30per cent and pasta is up 30per cent. The £2 weekly rise in the standard allowance of Universal Credit will do little to help.

Last year the government suspended the triple lock uprating of pensions – despite a manifesto pledged to maintain it – meaning more pensioners will fall into poverty this year.

It’s no surprise then that the Resolution Foundation, chaired by former Tory minister David Willetts, has estimated that 1.3million Britons will be pushed into absolute poverty this year, as incomes fall below inflation.

In Croydon, that means an additional 6,500 people in poverty – putting more strain on emergency housing and the patchwork of food banks and other agencies and charities in our borough.

Stealthy: by deliberately not increasing tax thresholds in line with inflation, the Chancellor has given most workers a tax increase

It’s not just inflation hitting incomes, but tax rises too. From yesterday, millions of hard-working people are paying 1.25p more in the pound in National Insurance with every wage packet – a sly tax increase of more than 10per cent – taking an extra £250 or so from someone on the average salary.

This while the stealth rise in Income Tax (through freezing the thresholds which usually rise with inflation) means that another £150 is being taken out of the pockets of the average worker.

The Conservatives won the 2019 election pledging no rises in National Insurance or Income Tax – another two of Boris Johnson’s promises ripped up.

The Chancellor has promised a cut in the basic rate of Income Tax, but that won’t come until just before the next election. That does nothing for people now, but he hopes it will look after the Conservative Party.

A similar stealth tax also hits debt-laden recent graduates this month. The Chancellor is cutting the threshold at which graduates start repaying their student loans in a move that will net another £35billion over five years by taking more money out of graduates’ pay packets.

In Croydon this month, as with most local authorities across the country, Council Tax is increasing by around 4per cent – meaning a Band D property in our borough is now paying 10 monthly instalments of £197, compared with £189 last year.

If you’re a council tenant, your rent has gone up by 4.1per cent too – also in line with government guidelines.

In the private housing sector, average rents in London are now £24,000 per year, and rising. London is one of the few major cities in the world without any form of rent regulation, despite London Mayor Sadiq Khan asking for such powers from the government. Those on tracker mortgages will be hit by rising interest rates, too, as the Bank of England makes further increases this year on top of those in the last few months.

As inflation hits and people’s finances are squeezed, rising homelessness is inevitable as people struggle to make ends meet. Something has to give.

In his Spring Statement last month, Chancellor Sunka made great play of cutting fuel duty, but the 5p cut to fuel duty is worth less than £2 a month for the poorest households, many of whom can’t afford to run a car anyway.

But even for the average motorist the 5p cut only takes the price of petrol back to where it was just a week before. The cost of a litre of petrol has risen from £1.23 a year ago to around £1.63 today – a 30per cent increase. Much like Sunak’s £200 loan for a £690 energy bill rise, his 5p cut following a 40p increase is deeply inadequate.

Incomes were squeezed before the current bout of inflation hit. More than 4.8million workers in the country earn less than the real living wage (£11.05 per hour for London, £9.90 in the rest of the UK), and despite the national minimum wage rising by 6per cent this year, it still languishes at just £9.50 per hour – and even that increase will now be overtaken by inflation.

Public sector pay settlements appear to range from 1.75per cent to 4per cent – all well below inflation, meaning real cuts in living standards. At best this is likely to mean the NHS staff shortage will remain unresolved, as few are likely to jump at the chance to fill the 100,000 vacancies in a sector with rising workloads and declining real terms pay. In order to clear huge backlogs, including for those starting cancer treatment, the NHS needs to be attracting more staff. These pay cuts are likely to drive many more away.

The same is true in social care where pay is disgracefully low to begin with: 3-in-5 social care workers are paid less than £10 per hour, according to the TUC.

And with employers’ National Insurance also rising, the cost of employing staff has also increased – which is an economically idiotic thing to do at a time of falling consumer demand.

If jobs start being cut too, we could be facing the perfect storm in this 2022-2023 financial year, with rising unemployment, falling wages and rising inflation.

Buckle up and look after each other, it’s going to be a tough year.

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News, views and analysis about the people of Croydon, their lives and political times in the diverse and most-populated borough in London. Based in Croydon and edited by Steven Downes. To contact us, please email
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