...a blog by Richard Flowers

Wednesday, July 08, 2015

Day 3502: Budget Summary – Conservatory Vote to Lift Ban on Shooting Labour's Foxes*


Master Gideon's it's-not-an-emergency emergency budget will be hailed as a triumph by all the usual suspects; the "living" wage announcement feted as a brilliant coup.

They'll love the Inheritance Tax cut; they'll delight in raising the Personal Allowance that goes to the well-off (and goes against everything the Coalition did); they'll relish the allowance for dividends (favouring unearned income once again); they'll thrill to the grinding oppression of the working classes.

It's a budget for rent seekers, not workers.

It's a budget for the old, not the young.

It's a budget for the dead rich, not the poor living.

In the Treasury, the Chancellor reviews those final Budget figures

The big flashy "rabbit from hat" moment was that introduction of a compulsory £9/hour "living" wage (by 2020), which – along with action on Non-Dom status taxpayers – was pinched straight from Hard Labour's 2015 manifesto. (In fact Mr Milipede was promising only £8/hour by the end of the decade, so that fox was well and truly shot).

Alongside their COMPLETE CAPITULATION on the Benefit Cap (caving in to the Conservatory rhetoric about "benefit street" culture, even though it's total Boss Hog Wash) leaves the Far Too Loyal Opposition floundering.

Even the "spending someone else's money"-ness of saying "Business must pay for a compulsory living wage!' is tres Milipede. But by foreswearing mere 1% pay rises for the public sector, isn't he saying: "Do as I say, not as I do"? (Clue: yes!)

The living wage according to the Living Wage Foundation should be £9.15 in London and £7.85 everywhere else.

So that £9 is does not sound too bad. (We cannot assume that inflation will be nothing forever, but even if it gets back on the 2% target from next year those figures are likely to be around a £9.90 and £8.50. So still okay for those not in the Capital, if a bit more squeaky for That Londoners.)

There's a sort of circularity to it all.

At the moment the (Tory) reasoning goes: the Government collects tax and then pays it back to people as Tax Credits thus subsidising jobs that do not pay a "living" wage – now they take away the tax credits but will force companies to pay more, and raise the personal allowance so that the income tax on that is well who knows more? Less? The same? All of the above?... but George will cut the companies' Corporation Tax rate to the lowest in Europe... so we are still subsidising the same companies to pay those jobs.

(Of course, I would usually point out that "not taxing" is not the same as subsidising… and that's true here too! If the companies lay off the "living" wage workers… they still get to keep the tax cut! Trebles all round!)

It's certainly not that I'm an enormous FAN of the Tax Credits system. Mr Frown invented it as a fix so that he could count it as "negative" taxation (while also Empire-building, so he could control a share of benefits from the Treasury). They ARE somewhat redistributionist, gathering up tax and giving it to lower income earners.

My main objection is that you have to fit into the right categories, you have to be deemed "worthy" by the Chancellor, in order to qualify and that strikes me as dangerous, handing largely unaccountable power to an office in Whitehall (and all the minions of the bureaucracy, with no offence to the Hon. Lady Mark). Mr Frown gained a moderate amount of infamy from the way that each year his budget would change who the "good" people were in a way that ENTIRELY COINCIDENTALLY reflected his own changing life circumstances – new baby = child trust fund; off to school = extended child tax credits and so on. That's moderately quaint. And also obviously massively corrupt.

(On top of that, I don't like that they're too complicated for anyone to understand, resulting in them going wrong all the time and causing hardship when the Government comes round to snatch back the money they've already given you.)

So I don't think there'd be anything terribly wrong in allowing the Tax Credits system to die a natural death by RAISING WAGES so much that Tax Credits became unnecessary.

What I don't think is a good idea is putting the cart as it were before the horse. And then flogging the horse to within an inch of its life.

As I said about Greece: making poor people poorer does not magically make them richer.

And the cuts to tax credits are a bit EYE-WATERING: currently there's a taper set so that you lose 41% of each pound you earn over £6,420; Gideon has upped that taper to 48% and almost halved the starting point down to £3,850. So – for those who jump through the hoops to qualify – that's an effective marginal tax rate of 48% on earnings at the bottom end, and you start paying it on a much lower wage. Compared to 45% on earnings over £150,000.

How all in it together are we?

And don't even THINK about trying to get out of poverty by working or educating yourself. In a calculated DOUBLE-SNUB to younger people, the living wage ISN'T going to apply if you are under 25 AND he's abolishing maintenance grants – adding another twenty-five grand to your student loans.

It would be TERRIBLY easy to say: "those students who wanted to punish the Lib Dems over tuition fees – how's that working out for you?".

But in truth this is just desperately COUNTER-PRODUCTIVE, undoing the GOOD that the Liberal Democrats in the Coalition tried to do for increasing social mobility, and undermining the ENTIRE COUNTRY by reducing the incentive to educate our workforce to higher-paying jobs.

Similarly, freezing all benefits for five years – billed without irony as "to allow salaries to catch up"(!) – goes against every effort that the Liberal Democrats made in Coalition to protect the most vulnerable. And slashing the Employment Support Allowance that enables people with disabilities to participate in the workforce is just going to damage not just their lives but the amount they contribute to the country.

Oh and he's chopped the cap on welfare payments from £26,000 to £20,000. For what can only be described as "reasons", we happen to know that finding an extra £500 a month is, ahem, "quite difficult" even when you're on Daddy Richard's salary. So goodness only knows how you're supposed to manage when you're on a low income and in-work benefits or no income at all.

And of course his TOTAL COWARDICE of making the BBC decide whether or not to cut the benefit of free TV Licences to the over-75s. (They decided to take the hit.) A kicking for Auntie Beeb always proving a real crowd-pleaser with the rabid right on the backbenches – not to mention the dead tree media barons.

"Hello, I'm George. Pwease can I be leader next!"

So them's the LOSERS; who's the WINNERS?

There are substantial tax giveaways… to the favoured middle-classes. The rise in the Higher Rate threshold on top of the rise in Personal Allowance is a complete reversal of the Coalition years' policy that NARROWED the band so that ALL of the benefit of raising the Personal Allowance went to Basic Rate taxpayers. Now, Higher Rate taxpayers will get TWICE the benefit of basic rate payers, plus extra ON TOP. (Combined I think they're worth about £200 a year.)

Master Gideon has also done a thing with dividends – pretty much making up a whole new tax, in fact, "Dividend Income Tax", separating the taxation of dividends from other income and giving it its own Personal Allowance. He toasted himself for saying that it would be possible to receive up to £17,000 in income without paying any tax, but a lot if not all of that would be from UNEARNED income – so it promotes "rent seeking", rather than working to or investing in creating wealth.

(On the good side, this may have slightly restored the tax credit for pension funds that Mr Frown raided back in 1998; that's good for me – or anyone with a pension – as there a better chance of them not going BUST before we retire. And it's good for City pension fund managers. But less so for the economy more widely, as money that is saved in pensions – i.e. sunk into the stock market – isn't circulating in the wider economy generating profits).

And of courses there's a million pounds free of Inheritance Tax.

It's almost as the though the Baronet doesn't WANT people to earn money. Why bother when he can get it for nothing from daddy?

On top of it all, his target for getting the budget into surplus has slipped another year (since March!) which suggests this really wasn't the time to be throwing tax away. Growth predictions are down as well – not a lot he can do about Greece or China, to be fair – but slashing capital spending on his "Northern Poorhouse" and withdrawing cash from the people most likely to spend it and giving it away to people to put in non-productive investments point very much the wrong way for growth and much more towards a repeat of 2011's short sharp STOP.

Does make you wonder where from his hat he plans to pull the EIGHT BILLION QUID he promised for the National Health Service. Again. And – in another multi-billion bung as a sop to those wingnuts on the Conservatory right – the 2% of GDP he's guaranteed to spend on guns and bombs. Maybe the RABBIT ate it?

On the whole I think it was a flashy and "clever-clever" budget, but lacking in any real substance, biased towards people who already have capital (in large supplies) and with the potential seriously to undermine the country's recovery by prolonging austerity and cutting the money being spent.

As an advertising feature called "What Did the Liberal Democrats Ever Do For Us?" I think this is a work of crazed genius. As a programme for recovery… well, I hear Yanis Varofakis is looking for a job

The proof of the pudding will be in how we all feel in a year's time when we'll know if he's killed growth stone dead. Again.

Or in 48 hours' time if it implodes the way his "Omnishambles" budget did.


*Yes, they tried to bury an announcement on lifting the hunting ban too.

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