Rachel Reeves’ Budget sent a clear message to young people: work hard and we will tax you
James Childs discusses the impact and consequences of Rachel Reeves’ Budget on young Brits.
Image Credit: HM Treasury via Flickr
As Rachel Reeves stood at the despatch box of the House of Commons last week to deliver the Budget, Britain braced itself for a tough statement from the Chancellor. After weeks of speculation, The Budget, which was mistakenly revealed forty minutes early by the Office of Budget Responsibility, was revealed.
What has emerged is who the “tough decisions” that had so long been trailed in the media would fall upon, and that was the young and aspirational. The measures announced by Rachel Reeves last week were nothing short of damning for young adults in Britain.
Rachel Reeves could have used her second Budget as Chancellor to tackle Britain’s no end of economic problems, such as the ballooning welfare bill or years of stagnant growth. Instead, she chose to punish hard-working young people and reward those out of work and pensioners.
The decision to continue the Conservative Government’s grave error to freeze income tax thresholds until 2031 will hammer many in the form of fiscal drag. As incomes rise but thresholds stay the same, Britain will see an extra 920,000 people pay the higher forty per cent rate of tax, creating no incentive for those in the twenty per cent threshold to earn more.
Young people, already hammered by extortionate house prices, will now face an extra barrier to buying a house as the Cash ISA tax-free allowance is slashed from £20,000 per year to £12,000, with the remaining £8,000 now reserved for stocks and shares, but only for those under the age of sixty-five.
Despite house prices now being over seven times the average income in the United Kingdom, compared to under four times twenty-five years ago, the Chancellor has made it even more tricky for those hoping to save for a house deposit to do so.
Rachel Reeves also made the utterly self-defeating decision to punish those saving for retirement by capping the tax-free salary sacrifice limit to a mere £2,000 per year. With an ageing population and an ever-unaffordable state pension bill, the Chancellor should be incentivising young people to make the fiscally prudent decision to save now for a retirement which may seem a long time away.
The Budget reared the ugly head of one of Britain’s perennial issues, the inability of politicians to make long-term decisions. Stifled by short-termism and the natural focus of re-election, one of the biggest issues facing the country was again ignored – the ballooning welfare bill, including the state pension.
Instead of taking the brave and bold decision to take the welfare bill head-on, Reeves decided to follow the status quo – avoid a difficult task at the expense of those who succeed.
Britain’s welfare bill will now increase by over £16 billion by the end of the decade, partly because of the decision to lift the two-child benefit cap, a decision incredibly unpopular with voters, and the commitment to the triple lock.
Last year we spent an eye-watering £349.2 billion on welfare, including the state pension, an amount three times that of the education budget. Over 8.3 million people now claim Universal Credit, of which four million are under no obligation to find work at all.
No matter what any politician may tell you, this is not sustainable and has to be tackled sooner rather than later. The continuation of borrowing to fund welfare spending has led to a situation where 11.3% of all public spending is now spent on servicing the national debt.
The decision to continue the triple lock, the policy whereby the state pension rises by either inflation, average earnings or 2.5%, whichever is higher. I was pleased to see the Father of the House, Sir Edward Leigh, stand up in the Commons after the Budget and admit that the triple lock is not sustainable and the only responsible thing would be for the major parties to make an agreement to scrap it as a unifying policy.
An alternative for the Chancellor would be to adopt the Australian model, where we peg the state pension to a proportion of average earnings. This currently stands at 30% in Britain and would seem a reasonable percentage to maintain.
The decisions by the Chancellor are having real-world consequences for the ‘working people’ the Government insists to represent. Last year, over 110,000 British people aged 16-34 emigrated from the country to seek better opportunities overseas.
The continuing rise in the minimum wage and the choice to implement a rise in employers’ national insurance last year are stifling business and causing unemployment to rise.
I’m afraid the Government’s ‘pro-growth’ mantra now stretches credulity when at every opportunity the Chancellor has chosen to implement measures which only harm growth, not encourage it.
Young and aspirational people in Britain now no longer have any reason to work hard and do well. If they succeed, they know that this will only be taxed away as politicians refuse to have difficult conversations and tackle issues head-on.
Words by James Childs