Alas poor Rishi, in charge of repairing the irreparable

There was a sad little moment in the middle of last year when Shopify CEO Tobias Lutke, fed up with all the social justice demands being made against his company, snapped.

Shopify, he said in an email to staff, “is not the government. We can’t solve every societal problem here. Maybe I’ll come back to email another time (it’s good to know where the limits are with regard to the responsibilities of a company towards the well-being of its employees).

But most interesting about it is the e-commerce company boss’s apparent belief that governments can solve societal problems.

This brings me neatly to poor Rishi Sunak, a man who has at his disposal the whole apparatus of government and a great money-printing machine to power it, yet who seems capable of solving almost any of our difficulties. .

I say poor Sunak because although the press has been tough on him this week, he can’t really blame himself for where we are today. He can’t be blamed for the long period of low inflation that made our central banks so complacent about inflation – they still seem to think they helped keep inflation low when It seems more likely that this is due to globalization and technology. .

He played no role in normalizing quantitative easing as policy, no responsibility for low interest rates that distorted markets, or the runaway ESG boom – itself a function of low interest rates. – which starved a large energy of capital and added to the shortage of supply.

Nor was he the one who decided that locking down the world for years was the right response to the pandemic – or that China should pursue a lockdown-based zero Covid policy indefinitely, indefinitely slamming the lines of global supplies.

Nor did he choose war – and there is no non-inflationary war. This is not to absolve him of all responsibility, of course. The £400 billion spent during the pandemic, the boom in demand it has given us and the creation of the illusion that in extremis the government can find the money to solve all the problems that remain on its doorstep.

But the key point is that all of these things – the things that gave us a CPI of 6.2% and an RPI of 8.2% and the possibility of both hitting double digits this year – are too global to have what anything to do with him. That’s why he has no hope of fixing them, at least in the short term.

So to poor Sunak’s attempts to conceal this impotence. There was an element on which you could, if you wanted to, be positive. The great divide in supply chains should – if properly instigated – accelerate the relocation of all kinds of manufacturing that had already begun before Covid, as costs and risks increased.

The spring statement extended R&D tax breaks to sectors using pure math (AI robotics and quantum computing are expected to benefit). He reiterated a plan to keep the annual capital expenditure allowance at £1,000,000 (from £200,000) until 2023. And he announced a series of reviews of other tax relief schemes for companies – all apparently with the aim of making companies want to spend money on capital expenditure and R&D in the UK.

Much of it was relatively without specifics. But it’s at least possible that if he’s successful, it could help businesses adapt to our new world a little easier than not.

Beyond that, however, the performance was pretty useless. You got your 5p per liter of fuel – which you probably won’t notice given the huge volatility in the market. You got a National Insurance Threshold increase from £9,880 to £12,570 (where income tax starts). You also received the announcement that you could get a reduction in the basic rate of income tax to 19% in 2024 – a date that no longer interests anyone who worries about the 10% drop in their purchasing power this year.

None of this is much help. The tax burden is still heading towards 36.3% of gross domestic product in 2026-2027 – this is the highest since the late 1940s. Household real disposable income is still expected – according to OBR figures – decline by 2.2% in real terms in 2022/23.

Say hello to the biggest drop in living standards since the mid-1950s, when comparable records began. We keep mistreating young people – I don’t know why – and shifting the tax base from income tax, which retirees pay, to NI, which they don’t, unless the shift of the NI threshold to match the income tax threshold is a first step towards merging the two.

Meanwhile, we’re using a rising RPI instead of a more moderate CPI to calculate student loan repayments and increase the money these young people are giving back. It is also an income tax by another name.

Retirees do not escape unscathed. The new health and social levy will apply to dividends but the 2024 tax cut will not apply, says accounting firm RSM. So if you receive dividends of £50,000 a year, you will be £440 worse off in April 2024 than you are now.

But you get the picture – not much has changed as a result of all of Sunak’s conversations and tweets. All that “we’re cutting taxes for hard workers” stuff.

It was kinda all hat, no cattle. In the end, it might make some sense. If you know you can’t fix something, why try – even if the optics of doing it might be better than the optics of not doing it?

Instead, why not privately note that the nation’s finances are not in bad shape: the debt to GDP ratio is down and the cost of servicing that debt is still low by historical standards. And hang on to whatever fiscal firepower you have to persuade voters to let you keep your job in the next election. Although why anyone would want a job that primarily involves fixing the irreparable, I can’t imagine. Tobias Lutke wouldn’t.

Merryn Somerset Webb is editor of MoneyWeek. Opinions expressed are personal; [email protected]; Twitter: @MerrynSW

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