The shafting commences.
Today George Osborne spent just about an hour delivering the budget. He could, had he wanted, summed it up in two short sentences and saved his breath. "For all those earning more than £150,000, I'm going to cut the amount of tax you pay by 5p in the pound, despite having said last year that while those less off are being asked to make sacrifices it would not be the right time to reduce it. As for the rest of you, just how hard and how fast would you like to be shafted?"
For all the supposed deals and battles within the "quad" (the unfab four, as they won't be known) over what and wouldn't be in the budget, this was about as ghastly it gets. It was also completely and utterly underwhelming as almost every major detail had been leaked and briefed, to the point where you wonder whether they really were "leaks" and battles being fought in public or instead a week long spin operation, designed to ensure that once the "bad news" was broken that almost everything that could be said against the rises and cuts had already been gone through endlessly. The one major change that wasn't announced prior to today was the end of tax allowances for new pensioners, which Osborne incredibly dressed up as being a positive change, with poor old dears no longer having to fill in complicated forms every year. You could call it Brownian, but not even Gordon Brown, 75p pension rise taken into account, was as contemptuous and patronising as Osborne was today.
It also doesn't get more ideological than the incredible rush to ditch the 50p rate. Four months ago, as the Graun points out, Osborne gave no indication that one of the major factors holding the economy back was that after the first £150,000, half of what you earn goes to the Treasury. Osborne is basing his entire policy on just the data from the very first year of the tax's operation, when as it's become clear a large percentage of those about to be hit moved windfalls forward a year as to avoid it, something they won't be able to do again. It's true it's still given their accountants plenty of time to come up with new dodges, but anyone who was genuinely interested in seeing if it will bring in more money than the £1bn it did in the first year would have stuck with it.
Moreover, if Osborne had replaced it with something equally totemic, or even just additional tax rises that are certain to bring in the same amount as the 50p rate was projected to, it would have softened the blow. Instead what he's done is close to being laughable, and far easier to sidestep: increasing stamp duty to 7% on houses over £2m is only going to affect the stupidly wealthy, and those who simply have to live in London, as Chris points out. Will it raise as much as the Treasury hopes? If we continue to attract oligarchs who want to sue each other in our courts, possibly. If we don't, it's going to fall dismally short. The other measures on tax avoidance, while laudatory, are fairly minor and it's impossible to forecast how much they'll bring in.
All this is to raise the money needed for the pet Liberal Democrat policy, the raising of the income tax personal allowance to (eventually) £10,000. As has now been repeatedly pointed out, what on the surface does look to be a truly admirable idea, taking the lowest paid out of tax altogether, has the additional effect of giving the most back to middle earners. If you want to specifically help the lowest paid, there are two main ways to do it: either you target them, as Labour did, with tax credits, or you can cut VAT, as those on lower incomes spend more than they save. Tax credits is (very arguably) the preferred way, as cutting VAT also helps out those on high incomes who spend equally high amounts. The coalition rejects the idea of cutting VAT, possibly exactly because it's exactly what Labour having been calling for, while from April you'll have to work at least 24 hours a week before you can claim tax credits, something that single parents are finding especially difficult.
We have then a well-meaning but fundamentally flawed policy that is meant, somehow, to make up for a nakedly ideological one. Osborne's thinking, as further developed elsewhere in this budget and last year's is that by further cutting corporation tax, slashing regulation, reforming the planning laws, setting up enterprise zones and handing out cash to teenagers with entrepreneurial inklings, doing everything he possibly can to encourage business, he'll create the growth we need to bring down the deficit and eventually, in his dreams, share the proceeds of it as the Tories originally said they would. And frankly, it will be amazing if all of this doesn't generate growth, even if it's completely unsustainable and will simply set up the next crash; the problem is that it's going to take time, time he doesn't necessarily have. The OBR's growth prediction for this year has been re-estimated at 0.8%, which is pitiful. Next year, supposedly, it's going to be 2%. The Eurozone, meanwhile, will shrink by 0.3%. All the growth therefore has to come from exports and investment, as private consumption is overall going to fall slightly. Is this going to happen? Probably yes, in the long term. Is it going to start in earnest next year? Extremely doubtful.
This, as before, is what happens in the best possible circumstances. It's more than a possibility that either this year or next Israel, or the US and almost certainly ourselves will launch an attack on Iran's nuclear programme. Even if Iran doesn't then shut the Strait of Hormuz or retaliate against Israel, the effect on the price of oil can only be guessed at. While a Greek default has been averted for now, the idea that Greece can be kept inside the Eurozone for much longer is a fantasy. Osborne has put all his money on a recovery led by the already rich, incentivising them beyond their wildest dreams, while at the other end of the scale he's doing the exact opposite. Anything that spooks the former will kill growth stone dead.
Incredibly, the Liberal Democrats have gone along with it. Nick Clegg and Danny Alexander must know they're propping up a Conservative party that is relying on the same old failed voodoo economics that got us in this mess and that the "concessions" they've extracted are pitiful. Why are they carrying on regardless? They're terrified that if the coalition breaks down that they'll be wiped out in an election, and they're probably right. They must also know though that a Conservative victory is hardly assured. The party should be thinking tonight about what it wants to do: does it want to continue to be the fig leaf for the Conservatives, and for the most regressive agenda since the 1980s? Or would it rather take the chance of stopping this in its tracks now, and potentially going into a new coalition with a party closer to its values? Fraught with risk as such a break is, it has to be better than waiting until 2015 and the same end result.
For all the supposed deals and battles within the "quad" (the unfab four, as they won't be known) over what and wouldn't be in the budget, this was about as ghastly it gets. It was also completely and utterly underwhelming as almost every major detail had been leaked and briefed, to the point where you wonder whether they really were "leaks" and battles being fought in public or instead a week long spin operation, designed to ensure that once the "bad news" was broken that almost everything that could be said against the rises and cuts had already been gone through endlessly. The one major change that wasn't announced prior to today was the end of tax allowances for new pensioners, which Osborne incredibly dressed up as being a positive change, with poor old dears no longer having to fill in complicated forms every year. You could call it Brownian, but not even Gordon Brown, 75p pension rise taken into account, was as contemptuous and patronising as Osborne was today.
It also doesn't get more ideological than the incredible rush to ditch the 50p rate. Four months ago, as the Graun points out, Osborne gave no indication that one of the major factors holding the economy back was that after the first £150,000, half of what you earn goes to the Treasury. Osborne is basing his entire policy on just the data from the very first year of the tax's operation, when as it's become clear a large percentage of those about to be hit moved windfalls forward a year as to avoid it, something they won't be able to do again. It's true it's still given their accountants plenty of time to come up with new dodges, but anyone who was genuinely interested in seeing if it will bring in more money than the £1bn it did in the first year would have stuck with it.
Moreover, if Osborne had replaced it with something equally totemic, or even just additional tax rises that are certain to bring in the same amount as the 50p rate was projected to, it would have softened the blow. Instead what he's done is close to being laughable, and far easier to sidestep: increasing stamp duty to 7% on houses over £2m is only going to affect the stupidly wealthy, and those who simply have to live in London, as Chris points out. Will it raise as much as the Treasury hopes? If we continue to attract oligarchs who want to sue each other in our courts, possibly. If we don't, it's going to fall dismally short. The other measures on tax avoidance, while laudatory, are fairly minor and it's impossible to forecast how much they'll bring in.
All this is to raise the money needed for the pet Liberal Democrat policy, the raising of the income tax personal allowance to (eventually) £10,000. As has now been repeatedly pointed out, what on the surface does look to be a truly admirable idea, taking the lowest paid out of tax altogether, has the additional effect of giving the most back to middle earners. If you want to specifically help the lowest paid, there are two main ways to do it: either you target them, as Labour did, with tax credits, or you can cut VAT, as those on lower incomes spend more than they save. Tax credits is (very arguably) the preferred way, as cutting VAT also helps out those on high incomes who spend equally high amounts. The coalition rejects the idea of cutting VAT, possibly exactly because it's exactly what Labour having been calling for, while from April you'll have to work at least 24 hours a week before you can claim tax credits, something that single parents are finding especially difficult.
We have then a well-meaning but fundamentally flawed policy that is meant, somehow, to make up for a nakedly ideological one. Osborne's thinking, as further developed elsewhere in this budget and last year's is that by further cutting corporation tax, slashing regulation, reforming the planning laws, setting up enterprise zones and handing out cash to teenagers with entrepreneurial inklings, doing everything he possibly can to encourage business, he'll create the growth we need to bring down the deficit and eventually, in his dreams, share the proceeds of it as the Tories originally said they would. And frankly, it will be amazing if all of this doesn't generate growth, even if it's completely unsustainable and will simply set up the next crash; the problem is that it's going to take time, time he doesn't necessarily have. The OBR's growth prediction for this year has been re-estimated at 0.8%, which is pitiful. Next year, supposedly, it's going to be 2%. The Eurozone, meanwhile, will shrink by 0.3%. All the growth therefore has to come from exports and investment, as private consumption is overall going to fall slightly. Is this going to happen? Probably yes, in the long term. Is it going to start in earnest next year? Extremely doubtful.
This, as before, is what happens in the best possible circumstances. It's more than a possibility that either this year or next Israel, or the US and almost certainly ourselves will launch an attack on Iran's nuclear programme. Even if Iran doesn't then shut the Strait of Hormuz or retaliate against Israel, the effect on the price of oil can only be guessed at. While a Greek default has been averted for now, the idea that Greece can be kept inside the Eurozone for much longer is a fantasy. Osborne has put all his money on a recovery led by the already rich, incentivising them beyond their wildest dreams, while at the other end of the scale he's doing the exact opposite. Anything that spooks the former will kill growth stone dead.
Incredibly, the Liberal Democrats have gone along with it. Nick Clegg and Danny Alexander must know they're propping up a Conservative party that is relying on the same old failed voodoo economics that got us in this mess and that the "concessions" they've extracted are pitiful. Why are they carrying on regardless? They're terrified that if the coalition breaks down that they'll be wiped out in an election, and they're probably right. They must also know though that a Conservative victory is hardly assured. The party should be thinking tonight about what it wants to do: does it want to continue to be the fig leaf for the Conservatives, and for the most regressive agenda since the 1980s? Or would it rather take the chance of stopping this in its tracks now, and potentially going into a new coalition with a party closer to its values? Fraught with risk as such a break is, it has to be better than waiting until 2015 and the same end result.
Labels: budget-2012, Conservative-Liberal Democrat coalition, economics, George Osborne, Liberal Democrats, politics, spending cuts, the budget
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