DESPITE the fantastic weather, the nation’s number-crunchers spot dark clouds ahead.
The Office for National Statistics warned yesterday that economic activity in April was down, with services, industry and construction all stalling for the first time since January last year.
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Growth was down by 0.3 per cent, despite experts expecting a 0.1 per cent rise.
It shouldn’t really come as a surprise.
April saw a triple-whammy of energy bills jumping up by more than half, at the same time as millions were hit with a National Insurance rise and (for many) hefty council tax hikes.
No wonder the economy isn’t firing on all cylinders.
Indeed, the OECD club of wealthy nations has forecast that we will fall behind every other developed economy in growth next year — except Russia.
What’s more, as readers know, the cost of most everyday essentials is on the rise.
Inflation is predicted to hit 8.9 per cent, with rocketing petrol prices and fuel bills.
While this is seeing the taxman pocket extra cash from VAT, things are not much better for the public purse.
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Interest payments on debt will reach £83billion this year — more than we spend on defence.
So the economic dashboard is flashing red. Stagflation — rising prices and sluggish growth — is the last thing we need.
But it’s not all doom and gloom.
The increase in the National Insurance threshold kicks in next month, and the Chancellor’s cost-of-living payments will soon arrive — so there is some help on the horizon.
DASHBOARD FLASHING RED
Politicians are finally talking about cutting Britain’s record tax burden — which the PM concedes is now “very high”.
Yet in almost the very next breath, he says this will have to wait until inflation is brought under control.
Prime Minister, you can’t tax your way to higher growth, and you can’t spend your way out of an inflation crisis.
But you can boost the economy by cutting taxes, letting people spend their cash where they see fit.
That’s good for growth, but also investment and wages — both important in an inflation crisis. So how could it be done?
Without a doubt, the worst recent tax rise on working people has been the Health and Social Care Levy. Chucking money into the system is getting us nowhere, with GP appointments seemingly harder to get than Glastonbury tickets.
Before Boris even thinks about any more cash bungs, he should simply scrap that rise and look at other cures for the NHS’s ills.
The rise in National Insurance thresholds will reduce the extra amount people pay in NICs but overall it is more than offset by the new levy.
Without the levy, the TaxPayers’ Alliance estimates that Chancellor Rishi Sunak’s threshold rise could deliver £14billion of growth over the next ten years as employers and employees pay less.
A company with a lower wage bill has room to hire more staff.
And taking more workers out of this tax on jobs would see another £3billion of productivity- enhancing investment. It’s a no-brainer.
That’s just the tip of the iceberg. If things are as bad as the economic indicators say, now is the time for Boris to be bold.
The Tories have teased a cut in income tax before the next election.
Why wait? Let’s see those cuts now.
Bringing forward the planned one- pence cut in the basic rate would be welcome.
Remember, a typical taxpayer will pay around £153,600 of income tax over their working lifetime.
Doubling a cut to 2p in the Pound would deliver even bigger benefits.
Our economic models estimate this would deliver around £19billion of extra growth.
What’s more, cutting taxes can often see the amount of revenue raised go up — as the Tories used to tell us.
What about rising costs?
Well, a straight VAT cut is the best and simplest way to deliver savings to taxpayers.
RECORD TAX BURDEN
Bringing it down to 17.5 per cent — the same rate as when the Tories came into office — would deliver a whopping £30billion of higher growth.
That’s about the same as the entire annual revenue of Sainsbury’s.
Doing all of these things together would be game-changing.
Never mind the fears of economic stagflation — this package could together see GDP £56billion higher, earnings up by an average £676 each year for every worker and an additional £12billion of investment in a decade.
Growth would go gangbusters, and taxpayers would know we had a government that was on our side.
A record tax burden and endless handouts are not the answer to stagflation.
Politicians should remember that cutting taxes increases economic activity, boosts productivity and puts money back into people’s pockets.
Tax cuts might just give those dark clouds a silver lining.
