New year, new era: tax and spend in 21st Century Britain

a post by Torsten Bell for the Resolution Foundation blog

Eras of Britain’s political economy come and go. They ebb and flow, driven by political and economic cycles. Sometimes shifts are hard to see at the time, particularly when they are obscured by the political fog of war. Or Brexit, as it’s currently known. But noticed or not, the financial year starting this Saturday will mark the end of an era – bringing the curtain down on the post-financial crisis austerity of David Cameron and George Osborne.

It will mark the end of an era because it will be the last year we see the three components of the post-crisis economic policy framework in action – cuts to many public services, a retrenchment of social security, and significant income tax cuts that increase the heavy lifting required of the first two.

On public services the year to come is the final one of George Osborne’s Autumn 2015 spending review. This means unprotected departments, not prioritised like the NHS, continuing to see major cuts. The Ministry of Justice and HMRC both face cuts in spending per capita of just over 8 per cent, on top of reductions of 48 and 37 per cent respectively since 2009-10.

On Saturday the Income Tax Personal Allowance (PTA) and Higher Rate Threshold (HRT) will increase to £12,500 and £50,000 respectively, at a cost of £2.8 billion. These build on a series of such tax cuts since 2011. This year’s will, however, be particularly heavily skewed towards higher earners – with the large HRT rise taking up almost half the long-run cost.

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