This column is to make a big simple point, but nonetheless one which sits upon a bed of complexity. Polls, focus groups and everyday experience indicate that the number one issue most people are concerned about is the rising cost of living, including energy bills, and the fact their income, soon to be degraded by tax rises, is not keeping pace with rising costs.
Furthermore, this comes after almost two decades of very little growth in take home pay. As the chart below from the Bank of England shows, following the go-go years of the Thatcher and early Blair era, came steadily rising taxes, then the financial crisis, then austerity, then the uncertainty of Brexit and now (wrongly in my view) the highest tax burden since the 1940s, post tax real incomes are falling.
The situation is especially unfair for labour, including younger workers, who are being hit with national insurance rises, frozen allowances and even higher student loan payments, from which retirees are exempt. Though many of the latter have annuities which do not keep pace with inflation.
This, I would suggest is the killer chart, the big simple point which explains so many of our discontents.
After two decades of mishaps, rumpuses and policy failures, Boris Johnson and Rishi Sunak have an opportunity to fundamentally reform the economy and put it on a path to faster growth, prosperity and investment. But they are failing to do so. A combination of excessively loose monetary policy, high spending, Treasury dim-wittedness, general lack of imagination, no pro-business investment case and general laziness in the City, means we are in a position where most people’s income is actually down in real terms.
This is despite the fact that we live in an era of abundance and innovation, with the economy recovering strongly from the pandemic.
Soon to come will be a penal rise in corporation tax from 19% to 25%, which will have the effect of taking a chunk out of the free cash flows – which is to say what is left over from profits when all taxes are paid – of UK companies. Do we think that will result in more investment, more innovation and faster pay rises? Er, no. It will not.
The Government is also contemplating triggering Article 16 of the Brexit treaties, suspending aspects of the Northern Ireland protocol. I cannot help thinking this would have unforeseen consequences and do nothing to encourage foreign investment. I hope they find a way round it.
Declining real incomes connect to the ‘sleaze’ allegations currently obsessing the media and the Opposition. The reason Tony Blair was so able to capitalise so powerfully on similar issues which emerged under John Major in the 1990s is it fed into his wider narrative that it was “time for a change”. He did not say Britain was corrupt, merely that the Conservatives had been in power so long they had become greedy and self-regarding. This had the merit of being true.
Twenty five years later, if people feel that they are being made to pay costs inflicted on them by a spendthrift, privileged class in Parliament and Government, who are themselves shielded by second jobs, generous pensions and inflation-linked pay rises, there really will be political trouble. Unless, of course, it does not come to pass because the Government changes both its conduct and economic policies or Labour develops a programme of its own.
George Trefgarne is CEO and founder of Boscobel is an independent strategic communications firm, providing clients with bespoke financial PR & public affairs advice.
