James Carville got it right. The strategist behind Clinton’s successful presidential campaign has gone down in history for four words – “it’s the economy, stupid”.
If there is any point where we are reminded that the UK’s security and ability to be a force for good in the world is inexorably linked to the strength of our economy, it is now. The criminal war in Ukraine and our continued response to it is only possible because our economy remains strong. But steps we are taking to sanction Russia are not cost free for us at home: the biggest impact will be on the cost of living.
This set the scene for the Chancellor’s Spring Statement. Just over a month ago it would have been set on a very different stage – thanks to decisive action, the economy was recovering well from coronavirus with record job vacancies and unemployment back at pre-crisis levels. But, to quote another political cliché, we are at the mercy of “events, dear boy”.
In that context, it is important to note that the Chancellor was not able to pull all his economic levers this week. The Spring Statement is not the Budget, and not subject to the same massive legislative process that follows. That’s why many, including myself, were surprised by the scope of the announcements proposed. In short, it delivered the biggest net cut to personal taxes in over a quarter of a century.
As part of a full new tax plan, something I welcomed that day on the floor of the House, the Chancellor set out how he will help families with the cost of living, creating the conditions for private sector-led growth, and sharing the proceeds of growth fairly.
The billions keep adding up. Cutting fuel duty by 5p for 12 months, the largest fuel duty cut ever, represents a £5 billion cut. Raising the threshold for paying National Insurance adds £6 billion in cuts to that, making a real difference for 30 million working people across the UK from July. And this is all before a historic cut in the basic rate of Income Tax to 19p from 2024 – the first income tax cut for 16 years, representing a £5 billion tax cut for millions of workers, savers, and pensioners.
Homeowners will also benefit from a cut to VAT on energy saving materials like solar panels and heat pumps. And those struggling will have access to a doubled Household Support Fund, that ensures local councils have a share of £1 billion to support the most vulnerable.
Small businesses also benefitted from a cut in business employment taxes - the Chancellor raised the Employment Allowance to £5,000, cutting tax in the region to £1,000 per business. To offer some context, the Chancellor has already created the ideal conditions for private sector-led growth through Autumn Budget cuts on business capital investment and R&D.
And it is worth taking these substantial measures in context, as I did on the Jeremy Vine show last week. So far this year we’ve seen huge interventions, such as the council tax rebate coming in April and a £9 billion package of measures to combat rising energy bills. We have also seen changes to the Universal Credit taper rate, helping those who are on low income in work.
The question remains – can more be done? Of course, the opposition would say so, it being their job to oppose, but anyone who watched the Shadow Chancellor crossing out huge swathes of her speech would see how small that opportunity would be. In the end, the Spring Statement received support across the house. That is because it is only this Government that can take those tough but responsible decisions to fix our public finances – all while taxes are being cut, debt is falling, and public spending is increasing.