Osborne won an election on the basis of promises he thought he would never have to keep
Budgets are deeply political events, but George Osborne grabbed his only chance of having a workable majority in this parliament to deliver a complex, large and massively political statement.
That said he was not averse to stealing Labour’s clothes. First on the non-dom rule, but he would have been so much better off adopting the Labour plan lock, stock and barrel (but then, I helped write it).
Second, on some avoidance measures like penalties on the general anti abuse-rule, that I have argued in favour of for so long, he again did the right thing. And on restricting interest relief on buy-to-let properties (which must now trail more general restrictions on interest relief) and on the abuse of single owner companies, where I have been a lonely voice for a very long time, he also made the right moves.
So here, and on the national living wage he has taken Labour’s mantle, but he has done so for good reason because inside this budget is a man who is also being deeply divisive. He will concentrate wealth, and boost house prices, by his new inheritance tax rules that allow a few to preserve wealth for generations to come and exclude many from housing in the process. And his measures on benefits are draconian, especially for third children and on the withdrawal of tax credits, which may create massively unfair tax burdens for some.
He’s also no friend of the young. They do not benefit from wage increases but they will pay more for their education and suffer the effective penal tax rates that apply to so many on quite low wages who have to repay student loans. This is deeply depressing on an inter-generational basis.
The cut in corporation tax is also bad news. Why on earth should multinational companies now have a lower tax rate than those earning a little over £11,000 a year in the UK? And this will be abused: the differential between a 45 per cent top income tax rate and an 18 per cent corporation tax rate will encourage the wealthiest to shelter income in companies and so get a wealth advantage by being able to roll up income at low tax rates.
And that hints at another problem in this budget: there was almost no real boost for business bar some road building that is now clearly very much more in favour than rail investment. So whilst wages may be pushed up at the bottom and 3 million apprenticeships will supposedly be created (although it is not really said how,or of what quality they will be) there was nothing to actually get Britain to work in this package that I heard.
Despite that the OBR forecasts a rise in employment of 1 million in the next five years and Osborne says he wants to make that 2 million. That could physically only be done by mass immigration. I do wonder if this is this the secret at the core of this budget? Growth will be delivered by an immigrant workforce who do pay tax traditionally and do not claim benefits and they will as a consequence deliver his budget balance.
I have a strong feeling that has to be the case because what the budget also admitted in failing to announce any new departmental cuts is that George Osborne does not really know how he can find more of them: he’s already at the bone and can only restrain spending by making public sector employees take below average pay rises.
So, for all the bluster this budget may reveal a deep dark secret, which is that Osborne won an election on the basis of promises he thought he would never have to fulfil and since re-election he has not found a an answer to the problem he set himself of balancing a budget that may, in the light of financial crisis in China and Greece, stubbornly refuse to behave as he wants.
This was, then, what looked like a smart budget. But it’s also the budget of a deeply worried man who is paddling like fury to show that he has no really big idea. This may be Osborne’s finest day. And soon we might all be paying for the bankruptcy of his thinking that might becoming glaringly apparent over the next few years.
Richard Murphy is the director of Tax Research UK
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9 Responses to “A smart budget – that we’ll all soon have to pay for”
stevep
Good analysis of the budget.
Harriet Harmon`s response to George Osborne`s budget was spot on, too.
Robert Peston, The BBC`s economics editor, asked the question whether raising the minimum wage would provoke as much outrage from the CBI as it did when Labour first introduced it. We`ll see.
Elsewhere, benefit cuts for families and benefit gifts for the wealthy signal the direction and intention of this government.
The Tories the party of aspiration? Not if you`re young and aspire to a decent education. Or trying to raise a family on a zero-hours contract wage with benefit cuts looming.
I fancy Cameron & co. are going to tear themselves apart over the next five years.
The left should take heart and be patient. Our time will come.
Jacko
Yes, probably in about 15 years.
David Lindsay
George Osborne has cut the deficit at the same pace as Alistair Darling said that he would. He seems terribly pleased with himself.
The policy on non-doms is a watered down version of the one for which Ed Miliband was pilloried before the Election. By the way, is Osborne a non-domiciled Irishman? He certainly could be. Has anyone ever bothered to check?
Labour needs to demand that its full policy on non-domicility, that of outright abolition, be implemented, and must put that to a division of the House, along with the proposed deregulation of Sunday trading, and along with the proposed hypothecation of the revenue from Vehicle Excise Duty.
That last might be called Clarkson’s Law. But it is a basic factual error, unique to Britain, that motorists, as such, somehow own the roads because “we pay for them” through road tax and petrol duty, which are not particularly large contributions to the colossal central and local government cost of the road network, nor will they be even under Clarkson’s Law.
In what kind of country can Jeremy Clarkson be regarded as a figure of enormous influence over a key area of public policy, with something approaching a personal veto? As an alternative to Clarkson’s Law, Labour needs to propose a dramatic reduction in petrol duty, and either the same for road tax, or else, quite conceivably, its abolition altogether.
Jeremy Clarkson, of what is now the safely Labour Ward of Chipping Norton, what would you say to that? You would be saying something quite different a couple of years later, when the implications had sunk in. But by then, it would be too late.
Tuition fees do deter people from higher eduction, but it is maintenance costs that really lock people out. The rent to live in a Durham college, which at least in the first year is very much the point of being at one, is significantly higher than the maximum student loan.
Yes, that includes food. But you would need to eat, anyway. And it is not exactly Brideshead Revisited or Porterhouse Blue most, or in some cases practically all, of the time. By contrast, the Bullingdon Club uniform costs more than the maintenance grant that Osborne has just scrapped.
The changes to child tax credits bespeak a complete inability to comprehend that anyone might become poor. People might perfectly easily have been able to “afford” their children. Until they lost their jobs. Or fell ill. Or became disabled.
For we have been here before. The changes to disability provision have already bespoken a complete inability to comprehend that anyone might become disabled, either. This Government had already decided that you can only be disabled if you were born that way to a father who had inherited £30 million and then become Prime Minister.
Now, it has decided that you can only be poor if you were born that way and you therefore determined, from a very early age and with no possibility that anything might not always turn out as planned, to have no more than precisely two children.
If the rich are to have lots of children, but the poor are to restrict themselves to two each, then there will come to be far more rich people than poor ones, at least born in this country. But the never-born workers would not even be made up by immigration. To such a regime as that, immigration from where? Immigration by whom?
Would they come here nevertheless, having been lured by the Living Wage? Osborne has promised nothing more than 2011’s Living Wage in 2016, with a lower age limit that gives yet another demonstration of his total lack of understanding of ordinary middle or working-class life. The changes to tax credits will render the whole thing meaningless and worthless.
So, there are two more points on which Labour needs to divide the House: no minimum age at least above the school-leaving age, since Sixth Form Saturday jobs and so on might indeed require a different provision; and the real Living Wage, as very carefully calculated by the specialists in the field, a calculation which most certainly does include, in great detail, how businesses are to bear the cost.
No small part of anyone’s pay will always go on housing costs, and the restriction to the standard rate of mortgage interest tax relief on buy-to-let properties will be pointless without rent controls. Landlords will simply put up the rent in order to make up the loss.
There is no point in saying that, “They couldn’t.” That rents are already as high as they are, more than demonstrates that indeed they could. There is nothing wrong with being a landlord, any more than with having a business in general. But, especially when there are fiscal privileges but not only for that reason, there has to be regulation of this or any other line of business.
Rent controls. As in those noted Stalinist basket cases, Germany and the United States. And beginning with a ban on any passing on in rent of this change to mortgage interest tax relief. Yet another thing on which the Commons needs to be given a vote.
Come on, Labour. Over to you.
Harold
Even if it is 15 years, the time will come, but Labour does need to start putting forward policies which the working class and middle-class can support, which the Country as a whole will benefit from. Too many people vote Tory because they believe hitting the poorest, who are all scroungers, over seas aid, which is all corrupt and immigrants who all do nothing, will somehow make their lives better. While we are at it lets scrap our Human Rights and Finnish off the Trade Unions. If we as a nation did all of the above, would it pay the rent or make a new home more affordable or even cut their tax bill?
JAMES MCGIBBON
Liz Kendell refused to say if she would reinstate tax credits.