Yay! Four Pence Off Gherkins

I believe most people start out in politics because they want to make the world a better place. Better might mean more socialist, more Conservative, more Liberal, doesn’t matter. They want to make the world better, whatever their idea of better happens to be. Maybe I’m just naive thinking that.

In any case, very few ever get any real chance. I once heard a jaded MP describe the House of Commons as, “the crucible of broken dreams”. Hundreds of people arrive to change the world and leave years later barely even having affected parking in their own constituency.

But what if you’re one of the lucky few? You keep your head down, stay out of trouble, the winds blow in your favour and suddenly you’re in government, Chancellor maybe, or even PM. Now’s your chance. What would you do? What if you were Prime Minister for a day?

How many times have you heard someone once in a position of power, shortly out of office, pontificating about what the government should be doing? You had the gig! Why didn’t you do it when you had the chance?

Today’s candidate for that future memoir is John Healey. An MP since 1997, former housing minister (mind you anyone can be a housing minister) and Defence Secretary, nearly 30 years working his way up the greasy pole. Now he’s got the Chancellor gig. Here was his chance to make the world a better place - as he sees it.

And what did he do? He decided to not rock the boat. He kicked the can. He did not make a single hard choice. In a crowded field of toothless budgets this was surely the most gummy.

All this budget does is reinforce what was already there, a system that pretty much every end of the political spectrum agrees isn’t working.

He could have begun the job of undoing the 40 years of neoliberalism Andy Burnham came to power promising to undo. Instead, as our Kemi put it, we got 4p off gherkins.

I’m travelling, fortunately, so I was able to avoid the speech. But I’ve had my minions look through the deets. 98 separate measures, a record, and every single one of them tinkering around the edges, adding yet more complexity to what is already bloated. A few points here, a frozen threshold there, even a “modernisation” somewhere else. It all adds up to very little, and almost none of it lands before 2029-30. By then the forecasts will have be proven wrong and the world will have moved on.

The number that matters most

That would be the interest on the national debt. Next year the government will spend £130-150 billion servicing its debts. We’re talking the education budget or more. It has eaten up the “headroom”, the Treasury’s much vaunted cushion against the fiscal rules. It is going to eat a lot more.

We now owe more than £3 trillion. Remember if you spent a million pounds every day since the year Zero, you would still not have spent a trillion pounds. We owe three. Thank goodness we don’t have to pay it back in sterling silver. Thank goodness for currency debasement.

We will borrow another £133 billion this year, plus there’s the refinancing cost of debt being rolled over, and student loans, so in fact that number is more like £260 billion. Borrowing over the next five years is £65 billion higher than the OBR said in March. Seven months, £65 billion. Indeed why does the OBR even exist when we have AI? That’s one budget that could have been slashed.

Debt stays above 95% of GDP in every single year of the forecast. But the debt doesn’t just sit there, it compounds. Healey’s plan? More spending now, more taxes later. Another £7.6 billion in giveaways this year. The tax rises that pay for them don’t arrive until after the next election. Funny that.

A £100 payment lands in your bank account in January. The VAT cut on electricity runs until July. Both straddle next May, which is when Burnham probably calls an election, even if it means contradicting himself, which would be nothing new. The direct debits, the instalments, HMRC in your bank account: all 2029 or later. Sweets before the vote, bills long after.

Who pays for the £100? Banks, supposedly. The bank surcharge doubles from 3% to 6% for 15 months. But as the IEA’s Dan Hannan points out, banks can only collect taxes, not pay them. It comes back to you through dearer mortgages and worse savings rates. They put £100 into your account with one hand and take it out with the other. And come 2029, HMRC will be able to do that literally. More on that in a moment.

If you live in a third world country such as the UK, I urge you to own gold or silver. The pound will be further devalued, as will the euro and dollar. The bullion dealer I use and recommend is The Pure Gold Company. They deliver to the UK, the US, Canada and Europe. More here.

Punish the productive

The tax rises fall almost entirely on the people who might create some growth. Again.

The allowance for business investment is cut. The relief for people who build a business and sell it is halved. Owner-managers are pushed onto higher dividend rates. The minimum wage rises 4%. The result will be less hiring and more unemployed.

Landlords, meanwhile, pay another 2 points on rental income, on top of last year’s 2 points. This will push up the cost of renting, a cost which is already rising due to Labour’s attack on landlords.

More landlords will exit the game, as a result, meaning fewer homes to rent and higher rents. The ones who remain will pass the costs on either through higher rents or a boiler that doesn’t get fixed. Either way, the tenant pays. They always do.

Healey kept Rachel from Accounts’ freeze on income tax thresholds all the way to 2031, thereby raising more than £55 billion by 2030-31 according to the always wrong OBR. That’s several times everything in this Budget put together. Fiscal drag is a stealth tax extraordinaire, as bad as inflation, if not worse.

The tax take is heading for 43% of GDP. Badenoch says it will be the highest in British history. It might also be the least productive.

Hands in your account

Then there’s the bit that should worry everyone, except the unbanked.

HMRC has had the power to take money straight out of your bank account since 2015, another legacy of that awful Conservative government, which was everything but conservative. That precedent came with safeguards: only for debts over £1,000, a face-to-face visit first and at least £5,000 left in your accounts. It barely got used. This budget changes the game. From July 2029 HMRC will be able to take “lower value” debts directly from your account, in instalments, from anyone it judges “can afford to pay” but misses payments. Who decides? HMRC. What are the safeguards? We don’t know yet. They’ll be written up later in a “Code of Practice”. The power comes first. The protections come afterwards, if at all.

From April 2029 every business filing VAT or PAYE returns will have to give HMRC a direct debit, which HMRC will use to collect “any unpaid balances”. Every business. HMRC decides what you owe, then takes it.

What happens when HMRC cocks up, as it will? You’ll have to contact them. Good luck with that.

PAYE removed the ability of the tax payer to withhold payment of taxes. This is as bad. It is an enormous power shift.

Put together with debanking, already a very real problem, and the picture is grim. Money in the bank is not yours as much as you thought it was, and it certainly isn’t your private property.

Yes, it raises revenue for HMRC. The instalments grab alone raises £1.35bn in 2029, and every pound that goes to HMRC early is a pound that could have been re-invested. In other words it acts as a leash on growth. They are so dim.

And the other side of the ledger?

Not much as far as I can see. The benefits bill keeps rising. So does unemployment. Household disposable income per person falls this year. I can’t see any serious attempt to get the millions of working-age people on out-of-work benefits working again. The ticking PIP timebomb is unaddressed. This Budget taxes the productive and subsidises the unproductive, so as a result we will get less productivity and more non productivity.

What you tax you get less of. What you subsidize you get moe of. It really is that simple. This was hidden away on page 111. “The government is providing £150 million capital investment in 2027-28 to fund additional large sites to accommodate asylum seekers”. So we will get more asylum seekers. Just what Britain needs.

But even the socialism is feeble. £1.5 billion for 10,000 homes, less than 1% of the 1.5 million they promised. There’s no vision on the left and no vision on the right. Just managers managing decline.

For years, growth has come via more people - mass immigration - rather than output per person. Immigration makes the economy bigger. It doesn’t make individuals richer (unless you’re in the housing illegal migrants game). GDP per head is roughly where it was in 2019. Productivity, output per hour, grew by 0.1% last year. Now with mass migration coming down, the headcount trick has stopped working, so what’s left is the real figure of 0.9% next year. That’s with an AI revolution supposedly sweeping the world and making us all more productive. There ain’t no growth a coming.

They are coming for your money

Healey has just raised tax on savings interest again, to 24%, 44% and 49% - two points on top of last year’s two points.

Say you get 4% on your savings and you’re a higher-rate taxpayer. The state takes 44% of the interest. You get 2.24%. Inflation next year is forecast at 3.4% (their number, reality is much higher). You’ll lose more than 1% a year in real terms, and that’s by their dodgy numbers, plus you’ll pay taxes for the privilege. You’re paid in a currency that’s losing value, and then taxed on the nominal gain. It’s theft by spreadsheet. Financial repression, or what? It’s as though they’re forcing you to buy gilts instead.

Anything left in your account will probably get lifted by HMRC anyway.

I know Martin Lewis is a really good guy and stuff, but you will be robbed if you keep your money in sterling: whether by devaluation or by taxation or both. There’s no fiscal discipline in this country, doesn’t matter which flavour of government we get. Debt interest is growing twice as fast as public spending as a whole. There are three ways out: growth (not happening, see above), default (not yet), or debasement. Further debasement of the pound is not a risk, it’s policy.

Own gold, own bitcoin, own stocks and shares, own stuff they can’t print and will struggle to steal.

Meanwhile, all those many ways by which Healey could have made the world a better place? Another time.

You know that neoliberal, crony capitalist, bloated bureaucratic state, ever expanding, ever-invasive government that we’ve had for the last 30+ years that everybody’s sick of? We just got a load more of the same, but with cheaper gherkins.

Thanks for being a subscriber to the Flying Frisby.

Until next time,

Dominic

PS Here is Sunday’s piece ICYMI