...a blog by Richard Flowers

Thursday, March 21, 2013

Day 4462: Gideon Adopts Plan P for Placebo


The mission: cure the patient without spending any money at all. Time to roll out the sugar pills!

Yes it's Budget time again and Master Gideon's set himself the very high bar of not repeating last year's omnishambles.

So it was a very Gordon Brown Budget, I'm afraid.

Lots of hand-waving to "prove" the government's hitting its borrowing targets (by massaging the timing of a few payments and - quite rightly actually - clamping down on the end of year "we've got to spend the budget" splurge); a bit of rearranging the deckchairs; and a rabbit-from-the-hat ending.

It's possible that the Budget might be more interesting in the detail (or even unravel the way last year's did) but so far the story is that it's a non-story. People are more enervated by the fact that it got "leaked" to the Standard. Or rather the Standard broke the embargo - comparisons with the "leak to an evening paper" as the BBC coyly puts it are silly: this came out minutes before the Chancellor stood up rather than 24 hours ahead, and was hardly going to trip the markets or cause a rush on beer!

Unlike Mr Frown, of course, Master Gideon doesn't have the benefit of a universally benevolent economic climate (haha) and so had to take it on the chin a couple of times for yet again reducing the expected growth for 2013 (halved to a mere 0.6%) and yet another year's deferral in the time when the debt mountain hits its peak.

The main measures for growth were:
(a) unifying the Corporation Tax rates at the 20% level. Does very little for home-grown start-ups but is designed to lure bigger corporations to move or stay here;

(b) a bit of Enron-style off-balance-sheet accounting, where the government guarantees the deposits for buyers of new build houses (quite clever that - costs almost no money, apart from a few cases where they default in negative equity, but presses the banks to lend for new construction, rather than merely driving more money into existing houses); and

(c) an extra three billion for capital investment programmes (although that's rather more Brownian smoke and mirrors, because in order to not spoil the progress on the borrowing front - and in order not to give the tedious Bully Balls another stick to beat him with - that money doesn't start until 2016, which is a bit late in the cycle if the economy is supposed to be in full recovery by 2017!).

The additional help for childcare (announced before the Budget) is welcome and might help get parents who want to work back into the economy. And (couple of smaller wins for the Lib Dems) no further cuts in the welfare budget and we will keep to the international aid target.

The magician's rabbit this year came in the form of a £2000 off Employer's National Insurance (paid for in a robbing Peter to pay Paul way by increased National Insurance payments arising from the abolishing of "opting out" of the state second pension that comes with the new flat rate universal pension). In a reverse of the main beneficiary, this time he is giving more to small business, since two grand from a company the size of Starbucks or Amazon or Royal Bank that We Own of Scotland is peanuts off their NI bill, but could be quite significant to someone employing just one or two people.

And he bought some - literally - cheap popularity by taking a penny off a pint. (Actually it costs more like 7p off because he cancelled the +6p escalator.) That's surely a nod of apology for last year's "pasty tax" fiasco. 'Cos Gideon's deffo got the "common touch" back now. Sigh.

Likewise, he cancelled the 3p rise in duty on fuel. (Though bear in mind that increasing fuel prices pay a windfall in VAT so he's most likely getting the extra revenue anyway – after all, why screw the public yourself when you can let the energy companies do it for you.)

The tragedy is that even after all the austerity (or at least the whining about austerity - where "cuts" mostly mean below inflation rises, so "less" really is "more"!) there is still a gap - a deficit - of £108 billion. For an idea of the scale of the problem, that's about as much money as the government raises in VAT. Or in National Insurance. So, a VAT rate of 40% or +10% on the NI should cover it(!)

Mr Milipede responded with just another tiresome rant about economic failure. And a childish five minutes where he stood there saying "hands up if you don't benefit from the millionaire's tax cut" (and "no, it's not about me" when challenged on his own earnings by hecklers). I think I'm right in saying that the Cabinet DON'T benefit from the 50% to 45% tax cut because the first thing the Coalition did on coming to power was to cut ministers' salaries so now none of them earn more than £150 grand plus they're all banned from moonlighting while they're in the Cabinet.

Labour really are gambling on their recession continuing indefinitely now. The time for them to develop any other rational critique or alternative plan is fast running out. If the economy does start to upturn before the election then Labour will have not left themselves time to introduce or explain what their plans in response to the economy getting better would be. Mr Balls had a piece in the Standard last week which he introduced with that old saw about "the definition of insanity is doing the same thing over and over and expecting a different outcome" and then went on without irony to suggest once again the same "plan for jobs and growth" that he's been pushing since 2008 (i.e. "cut VAT, borrow more, go on a spending spree").

Within the bounds of what is possible given the state of the economy and amount of debt and deficit that we inherited, the Coalition actually HAVE been trying to vary the response to the ongoing lack of recovery, trying to shift spending around to invest where we can. It's millions rather than billions, of course, because unlike Labour we don't have the money to splash.

The idea, I'm sure you remember, is to try to find that ELUSIVE SPARK that will relight the economic fire, to hit that MAGIC FORMULA where confidence starts to return, and once confidence returns then we get the growth and recovery.

In that way the house guarantee scheme "Help to Buy" is more than just a clear echo of the "Right to Buy" slogan; it's an attempt to repeat the accidental success of the Eighties policy that started the yuppie revolution. Get more people buying new houses, meaning more people BUILDING new houses, maybe that will get the money circulation pumping again.

Oh, and there was something about achieving a key Liberal Democrat promise a year early.

Next stop: raising the personal allowance so that no one on minimum wage pays any income tax at all.

(Mind you, and I'll just float this out there, I might prefer to start pushing people back into paying tax by RAISING the minimum wage to the level of the LIVING WAGE. There's certainly evidence that the minimum wage is so low that raising it won't hit jobs, and an increase in minimum wage is of more benefit to the very lowest paid than raising a tax allowance that they don't earn enough to reach. Plus sharing the proceeds of that increase 80:20 with the government might improve tax receipts and so help close that deficit a bit too.)


Richard Gadsden said...

On Cabinet income tax, you've forgotten unearned income.

Plenty of the Cabinet have seven digits of savings, which will be invested in various ways that bring in an income that will increase their income tax liabilities.

Andrew Hickey said...

The 'common touch' stuff worked, though. For that kind of thing, I always look to my dad's response. He's a lifelong Labour voter, who likes a drink and who runs a small taxi company employing three or four people. Between the NI, fuel and beer changes he was practically ecstatic...

(He did then go on to give me a long lecture about what we *should* be doing about drinking that sounded like a Greg Mulholland speech...)