IT was interesting to see #BrexitTax trending on Twitter last week in the wake of Boris Johnson’s announcement of a hike in national insurance.
In contrast to much of what you see on social media, the burst of activity in the wake of the Johnson administration’s tax grab revelation was backed up by some astute observations and solid economic material and reasoning.
Mr Johnson seemed to attempt to portray the national insurance rise as a virtuous thing indeed by declaring the proceeds would be used for health and social care “investment”.
However, many people were having none of it, arguing it was in essence a “Brexit tax”, with households and businesses actually paying for the detrimental impact of the UK’s European Union exit on economic output and by extension the public finances.
The Brexiters would presumably disagree with this interpretation. And Mr Johnson was certainly very specific about the £12 billion a year being raised from the hike in employer and employee national insurance contributions and an increase in dividend tax enabling a £36bn “investment” in health and social care over a three-year period.
Alastair Campbell, best known for his roles as former prime minister Tony Blair’s spokesman, press secretary, and director of communications and strategy, had a very different take on the matter to that of Mr Johnson.
On Wednesday last week, the day after the national insurance hike was announced by the Prime Minister, Mr Campbell tweeted: “Getting a very strong sense that people are seeing right through yesterday’s con. Massive tax rise to cover for economic/Covid/Brexit mismanagement. Dressed up as plan for social care. Which is not a plan. Just a huge tax rise. To cover for economic/Covid/Brexit mismanagement.”
Given Mr Campbell’s undoubted expertise and vast experience in the fields of communication and politics, his view is well worth reflecting upon.
Whatever last week’s move by the Tories was or was not, there is no doubt that what was unveiled was a “massive tax rise”. It would surely also be difficult for anyone to claim the Tories had managed the economy well, if you look back at their woeful track record since coming to power in 2010 and the myriad mistakes they have made, from austerity to their Brexit folly. And the Brexit shambles is plain for all to see (even amid the pandemic) in the form of a labour and skills crisis fuelled by the Tory clampdown on immigration from EU countries and supply-chain woes which have triggered delays and shortages. We can see the impact of the supply-chain woes in supermarkets but they are affecting myriad sectors, with manufacturers and construction companies among those facing huge challenges amid the prevailing post-Brexit shambles.
Attempts by the Brexiters to try to pin the blame for the whole mess on the pandemic are ridiculous, although also entirely to be expected in the febrile times in which we find ourselves.
Last week’s social media response to news of the Johnson administration’s tax hike also included pictures of that big red bus deployed by the Leave campaign, emblazoned with the following message: “We send the EU £350 million a week…let’s fund our NHS instead…Vote Leave.”
James O’Brien, author of How Not To Be Wrong: The Art Of Changing Your Mind, presenter on radio station LBC and an astute observer of the Brexit folly throughout, tweeted last week: “If I’d voted Brexit to secure £350 million a week for the NHS…I’d be very cross/confused about this tax rise.”
If the repercussions of the Brexit folly for hard-pressed households and businesses were not so serious, the sequence of events in this Tory farce would be almost comical.
However, this is sadly no laughing matter, even if Brexiters in the Johnson Cabinet seem at times to be grinning their way through the crisis they have visited upon the country with their foolish separation from the EU and ideologically based clampdown on immigration.
The fact of the matter is that the UK’s ability to fund the NHS was hampered, not boosted, by Brexit. This is because Brexit is damaging the economy and will continue to do so, to the detriment of tax revenues.
The Theresa May government’s forecasts, in November 2018, made plain the hugely detrimental effect of Brexit and crucially of leaving the single market, with the loss of frictionless trade and free movement of people between the UK and EU.
However, the Tories were determined to leave the single market and customs union, regardless of the damage, and the Johnson administration’s refusal to accept regulatory alignment has of course exacerbated what was already a dismal shambles.
The November 2018 projections from the May government showed Brexit would, with an average free trade deal with the EU, result in UK gross domestic product in 15 years’ time being 4.9% lower than if the country had stayed in the bloc if there were no change to migration arrangements. Or 6.7% worse on the basis of zero net inflow of workers from European Economic Area countries. We have since seen the Tory clampdown on immigration from EU countries and the broader EEA so sadly the 4.9% projection, alarming enough in terms of the scale of the forecast decline in economic output, now looks over-optimistic.
Colin Borland, director of devolved nations for the Federation of Small Businesses, this week made some very pertinent points about the challenges created for firms by the national insurance hike and the likely repercussions.
Writing in The Herald, Mr Borland said: “The more you look at them, the less the UK Government’s plans for hefty national insurance hikes make sense. The bottom line for small businesses across the UK is that they’ll need to find another £5.7 billion to hand over to the Treasury every year. And every one of those pounds is one that can’t be spent investing in the business, or hiring staff, or increasing pay, or paying down some of the new debt that firms have taken on during the pandemic, which amounts to £4bn in Scotland alone.”
He noted smaller firms are “already battling against fragile turnover, spiralling input prices, supply-chain disruption, a deepening late payment crisis, rent arrears, loan repayments and more”.
This is indeed a most unpalatable cocktail of challenges for such firms. The last thing these businesses need is the UK Government deciding to impose a huge tax rise on them.
Mr Borland said: “There is so little breathing space in these businesses that any longer-term plans for expansion through workforce growth will now firmly be on ice. And, if they can’t make the sums add up, this could just be the final straw and cuts will be on the way.
“No employer – especially in a small business where staff are like family – wants to say goodbye to a good employee. But analysis [by the FSB] last week estimated that these tax rises could see unemployment rise by 50,000 across the UK – thousands of the job losses in Scotland.”
Mr Borland has a close-up view of the enormous challenges small businesses are facing.
The UK Government should be all too aware of these challenges as well, but its decision on national insurance signals either that it is not or that it does not care.
Another point about the tax grab unveiled by Mr Johnson last week is well worth making. The revenue raised from the increases in national insurance contributions is being ringfenced and called a “health and social care levy”. However, surely this ring-fencing does not necessarily mean health and social care spending will in future be higher than it would have been otherwise by this amount?
The vast bulk of funding for health and social care will not come from this “levy”. So the main, existing budget for these crucial services might, for example, rise by less in future than it would have done otherwise or worse, meaning the levy does not translate into a direct increase.
The idea of allocating a specific tax to particular spending is a somewhat odd one, as can surely be seen from the above example.
In the meantime, the UK economy continues to be hit by the Brexit folly in terms of a very significant dampening of output and this drag will continue over years and decades, putting further significant strain on the public finances.
So was it a #BrexitTax we saw last week? People will need to make up their own minds.