Despite Rishi Sunak’s boast that his Budget constituted the largest increase in department spending this century, there is less to this Budget than may appear.
Mr Sunak’s announcement of a 3.8 per cent increase in spending is actually not the largest this century, not even the largest since last year, when spending rose in real terms by six per cent.
The Budget is a mixture of tax increases, many of which have been pre-announced, and spending which is both new and old.
The largest drain on the Budget remains Covid-19 spending, which by far and away dwarfs any other increase in spending for next year. The new funding for health and social care comes in a close second and way off in comparison is the adjustment to the taper rate of Universal Credit, which will reduce the tax that those on Universal Credit pay while working.
On the other hand, the new health and social care levy is by far and away the largest increase in tax, with changes to the pension triple lock also contributing a significant amount to Treasury coffers.
The central theme of this Budget, beyond popular innovations like reforms of alcohol tax, is an unprecedented increase in health and care spending not seen since the 1960s.
The Budget comes at a time of extreme economic uncertainty. The OBR, which is responsible for giving independent economic advice, has forecasted that inflation will jump all the way to four per cent, well above the Bank of England’s target figure of two per cent.
At the same time, the OBR forecast that the tax to GDP ratio will be at its highest level since the 1950s.
Together these mean that the cost of living is set to continue to rise, dragged up by both taxes and higher prices.
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The OBR hopes that this will only be transitory and that inflation will subside once the supply crisis and labour shortage ease.
At least in the short term, there will be large increases in the cost of living, particularly for those on the lowest income who will see their incomes fall as a result of the cut to Universal Credit but won’t benefit from the fall in the taper rate.