The Social Market Foundation's response to the mini-Budget 2022 follows below.
On the energy bill relief package – Amy Norman, Senior Researcher at the Social Market Foundation, said:
“The Energy Price Guarantee is both necessary and welcome support for households facing rising energy bills over the coming months and years. The scale of this intervention means that the amount of energy people use is no longer just a private matter, but now one of fiscal responsibility. With every unit of energy consumed now costing the taxpayer, to the tune of £31 billion in just its first year, it is regrettable that the Government has done little* to encourage demand reduction that could save families and the government money.
“This winter, 19 million households will be using more energy than they reasonably need – due to drafty, leaky roofs, walls and windows. The Chancellor missed a prime opportunity today to announce a national mission for demand reduction to give households advice on reducing unnecessary waste and increasing their efficiency. The pandemic has taught us that people are willing to do the right thing to help the more vulnerable members of society – when they’re given the correct guidance. It is a pity that a short-sighted refusal to do anything that might be seen as telling people what to do has got in the way of building a cheaper and more secure system”.
On the overall economic outlook of the Budget – Scott Corfe, Research Director at Social Market Foundation, said:
“The Chancellor is making a very high-risk gamble with the economy. If his package of enormous tax cuts and ‘supply side reforms’ fails to translate into significantly higher economic growth, we risk further falls in the pound and surging gilt yields as investors lose confidence in our ability to pay our way in the world. That in turn means higher inflation, an unsustainable trajectory for the public finances and steeper interest rate rises – potentially deepening rather than alleviating the cost of living crisis.”
On Corporation Tax and long-term growth plans – Richard Hyde, Senior Researcher at the Social Market Foundation, said:
“A higher rate of trend growth is a good ambition, but it’s not clear that tax cuts are the best way to deliver it. The evidence of previous cuts in Corporation Tax is that they don’t reliably lead to increases in business investment.
“The best way to increase the long-term productive capacity of the UK economy is to increase the number of highly skilled people working in it. That means investing more in education, skills, and training. The worry for the UK’s long-term prospects is that that the ongoing fiscal costs of today’s announcements will severely constrain government’s ability to support productivity growth for British workers.
“The long-term risk here is that in years to come, ministers struggling to pay the debt interest on a mountain of public debt and fund an increasingly expensive health and care system will find they have less money for schools and skills.”
On benefits changes and labour supply – James Kirkup, Director of the Social Market Foundation, said:
“Ministers are right that the UK economy needs to get more people working more hours: labour shortages are a constraint on growth. But by making Universal Credit less generous, they are aiming at the wrong target. The real story of the tight labour market is not welfare claimants working too little. It’s around 1 million people becoming economically inactive since the pandemic. Benefits reform won’t do anything to encourage them back into work, but it may make life worse for workers on low wages.
“A better approach would have been to leave Universal Credit alone and focus on supporting the economically inactive to come back to work. The focus should be on supporting the long-term sick and those who have forced to stop work in order to care for children or elderly relatives.
“Getting economically inactive people back to work should be an economic and social priority. Penalising working welfare claimants should not.”
On stamp duty tax – Scott Corfe, Research Director of the Social Market Foundation said:
“Stamp duty is a bad tax – it discourages housing transactions and reduces the number of homes put up for sale each year. In this sense, today’s permanent increase in the stamp duty threshold is welcome.
However, a stamp duty cut should have been complemented with reform of ongoing property taxes, such as Council Tax, to ensure that wealthy households pay a fairer share of taxation.
Moreover, with mortgage interest rates rising and these reforms eroding the tax advantage enjoyed by first-time buyers, the risk is that the financial gains of those that already own their homes will be entrenched, making it even harder for others to get onto the property ladder.”
On alcohol duty – Aveek Bhattacharya, Chief Economist of the Social Market Foundation, said:
“With inflation running so high, in isolation the Chancellor’s decision not to enforce planned increases in alcohol duty rates to maintain them in line with inflation is understandable. The problem is that this compounds a decade of real-terms cuts, with the result that some rates will have fallen by more than a quarter. The cost to the Treasury has been substantial – around £3 billion a year that could have come in handy in the current fiscal context. The ongoing toll on the nation’s health is likely greater: recent alcohol duty cuts have been linked to over 2,000 deaths – a figure that is likely to rise after today’s announcement”
* updated at 12:47 PM today
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