Wednesday, March 21, 2012
UK budget, a lost opportunity
So it was George Osborne's third budget, and a lot was done about tax. He could have just cut taxes, but instead he cut some, increased others and pandered to the strong red tinge of envy about anyone who earns higher incomes.
What did he do? What should he have done?
- Cut the top tax rate from 50% to 45% (this applies to earnings over £150,000). A pathetic response to a tax rate imposed for political reasons weeks before the 2010 election by Gordon Brown. Almost all of the noise from the left will be about this as they feed the vile hatred of success, the envy of wealth and the lie that this is all about benefiting "the people who caused the crisis". Osborne should have scrapped the top rate altogether, that would have indicated Britain is open for business. Still the evidence from Revenue and Customs is that the 50% rate only earned a third of what was forecast, as high income taxpayers rearranged their affairs to minimise their tax liability - or what I call, property protection.
- Age related allowances for pensioners are frozen, effectively eroding them with inflation. A minor reflection of the soaring cost of the PONZI unfunded state pension. A start, but still a stark failure to remind people that government funded pensions will have be less and later as the years go by.
- Income tax free allowance increased to £9,205 in April 2013 (the amount anyone can earn without paying income tax) with this applying to anyone earning under £100,000. It remains a stingy trend to increase this allowance, but lower the higher tax thresholds to make it so people earning higher incomes don't benefit. This allowance should be at least £15,000 so that those on the minimum wage and slightly above are untaxed.
- Corporation tax immediately cut from 25% to 24%, dropping to 22% by 2014. Osborne should have bitten the bullet and dropped it to 20% immediately and aimed to reduce it to 10% by 2015. That would have made the UK the most competitive corporate tax in the EU, and been a real shot in the arm for business.
- A "General Tax Avoidance Rule" is to be introduced, to make protection of your income and property from tax even more of an offence. This is what is morally repugnant, not tax avoidance, which is morally just - it is an act of self defence.
- Fuel and alcohol duty ARE going up, by the rate of inflation, just the same as Labour had decided before, but tobacco duty is to soar by 5% above inflation immediately. There was no need for this from the point of view of the costs imposed by consumers of those products.
- New gambling taxes, just another grab on people's fun.
- Stamp duty - a tax on purchases of property - will be 15% on residential properties worth more than £2 million transacted through a company, designed to plug a loophole in this tax. For those not transacted through a company it will be 7%. A better move would have been to abolish this ridiculous tax on property transactions. However, this was about hitting the rich.
- Child benefit will be reduced for households where anyone earns more than £50,000 down to zero for those earning over £60,000. All of them are in the second top tax bracket, so this is a welcome cut in middle/upper income welfare. However, he should have been far tougher. Simply announce no new child benefit for children born in one year's time. This would have saved a fortune, and enabled further tax cuts.
- Some more money for railway electrification, tax credits for certain creative industries, money to subsidise broadband networks, planning regulations to be simplified with a presumption "in favour of sustainable development" whatever that means, and a limp wristed waiving of Sunday trading restrictions for eight weeks over the Olympics. In short, some pork, some relief for property owners and "testing" allowing businesses to trade when they wish.
- Despite all of this and claims of savage cuts, the UK government is still seriously overspending. Total borrowing will come in at £120bn next year and £98bn in 2013/14, followed by £75bn, £52bn and finally £21bn in 2016/17. Austerity? Where.
Uninspiring, a few steps in the right direction, a few in the wrong direction, little evidence of serious new spending cuts, and money thrown at activities that would be best left to the private sector.
Yes it could be worse. It could have been Gordon Brown, but it deserved to be braver. Abolishing the 50% tax rate outright would have been braver, not increasing ANY taxes would have been braver. It was a missed opportunity.
There are promising steps on the horizon, like abolishing national wage settlements for the public sector, like reforming highways funding and ownership and the reform of planning laws, but for now, it is business as usual with some tinkering. No reason to get excited. However, for most people it is a tax cut, which is not something to be sniffed at - until you lose it all from increases in fuel, alcohol and tobacco duty.