George Osborne says he will set out more details of the Tory economic policy in the coming weeks. There are some key questions he needs to answer.
In his media round this morning after yesterday’s disappearance, George Osborne outlined that the Conservative party would set out more details on their economic policy in the coming weeks. With speculation already rife, there are some key questions he needs to answer.
First, Conservative Home reads the tea leaves this morning and speculates that Osborne will “cancel Labour’s NI increase as part of pre-election promises”. The National Insurance Contribution increase will kick in in 2011-12 and equates to a 1 per cent increase for employers, employees and the self-employed. According to Tables A2 and A11 of the Budget, the total rise will come to £9.0 billion in 2011-12 and £9.4 billion in 2012-13.
Will George Osborne cut Labour’s NICs rise? If so, will he pay for it with additional spending cuts or alternative tax rises, perhaps a further rise in VAT?
Second, on Sky News this morning and elsewhere, George Osborne attacked Alistair Darling’s stealth tax. But as Dharshini David of Sky News points out:
Tax allowances are traditionally linked to RPI (inflation) in the September before. In Sep 2009, RPI was negative (-1.4%) so there was nothing unusual about freezing thresholds for the coming year … inflation may now be rising by 3.7% but wages are only rising by 0.9%, according to the last figures..
But if the Tories had, as the claims infer, raised the tax thresholds by 3.7% now, it would have effectively have been a tax giveaway, with more money in our pockets – and bill to the public sector of £2.2bn.
Will George Osborne raise the income tax threshold by 3.7 per cent? If so, how will he pay for it?
Third, George Osborne reiterated again on the Today programme that a Conservative government would begin cutting in 2010-11 and would eliminate the “bulk of the structural deficit over the lifetime of the Parliament”. But he could not say how much further he would beyond the Government’s plans to bring the cyclically-adjusted deficit down from 4.8 per cent this year to 1.3 per cent in 2014-15. Ken Clarke gave more detail last week when he agreed with the European Commission that the Treaty Deficit, a separate measure, should fall to 3 per cent by 2014-15 (it is projected to hit 4.2 per cent).
Analysis by Left Foot Forward yesterday showed that achieving Clarke’s goal would require a fiscal consolidation of £78 billion by 2013-14, compared to Labour’s plans to remove £57 billion. Given Osborne’s indications that spending cuts would make up 80 per cent of the consolidation, there would be £62 billion of spending cuts compared to £38 billion under Labour.
Does George Osborne share Ken Clarke’s view that the Treaty deficit should come down to 3 per cent by 2014-15? If so, what else will be cut to make up for it?
UPDATE 11.32
Fraser Nelson has written a thoughtful piece on “Osborne’s weak response” for the Coffee House blog.
33 Responses to “After the Budget, the questions for George Osborne”
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[…] too great by Mr Darling and co. A shame, but no great political hit taken; Mr Osborne’s attempts this morning to distinguish his own vague plans from those of the government were even weaker than could have […]
El Sid
Mr Sensible – I don’t speak for Osborne, in fact I’m not even a member of his party. Given that he hasn’t even said that he’s going to reverse the increase in job tax, it would be surprising to hear him saying how he’s going to pay for this thing he hasn’t proposed yet. But no doubt he will have a modest proposal for single mothers to sell their babies to be eaten by hedge fund managers or something.
Personally – I would reverse the increase. In fact, if I was Chancellor, we wouldn’t be looking for ways to inflict £9bn/year of extra taxes on a struggling economy, because I wouldn’t have wasted money from the structural deficit on a one-off reduction in the price of plasma TVs that created a boost of at most 30k jobs for one year. And I’m not just saying that with hindsight, at the time I had a list of several things that would have made for a more efficient stimulus with greater long-term benefits.
However, we are where we are. I would treat this £9bn just like any other £9bn of the structural deficit. I think we can agree that the priority is to minimise the damage on the economy, no? In turn that means an 80/20 split of reductions in spending and tax. In some ways, I don’t care _where_ the £1.8bn of extra tax falls, just about anything would be better than taxing job creation. But the simplest way to do it would be to replace a penny of employer NIC with a penny on income tax, thus giving employers the flexibility to easily pass on their saving to employees or create new jobs as best suited their needs. I don’t like increasing income tax, but it’s still less bad than increasing the job tax.
In fact if I was Chancellor, this would be small scale stuff, I’d rip up most of the tax system and redesign it from scratch. A long-term aim would be to get rid of employer’s NICs altogether, you could try to do it counter-cyclically, say 1% in each year that the ‘economically inactive’ number are forecast to be >7 million. I’d merge employee NI and income tax – these days there’s little to distinguish them so you might as well just be honest about it and call it all income tax – plus turn coucil tax into local income tax. Gets rid of another bureaucracy and matches tax better with the ability to pay. I’d increase the threshold to £8k-ish initially (and ideally ultimately to £10-11k) to reduce the marginal tax rate on those going from benefits into work, paid for by synchronising the VAT rate with France and Germany, up in the 19-19.6% range.
And a whole load of other changes, but that’s really by the by. The question was asked about the £9bn of job taxes, a complete overhaul of the tax system is going a bit beyond a “mere” £9bn…. 🙂
At the moment it would be better to tax just about anything than tax jobs. If you’ve got to raise £9bn from somewhere then even 2.6p on the basic rate of income tax would be less bad than increasing employer NICs. There’s certainly logic in synchronising our VAT rate with that of Germany and France in the 19-19.6% range. It’s not nice, but it harms the economy less than a NIC rise.
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Mr. Sensible
El Sid, I believe Osborne has said he wants to scrap it, but hasn’t said how he would fund his pledges.
And on VAT, I believe Ken Clark did support it and now the Tories have a go at it.
That is how all over the place they are.
Mr. Sensible
I would venture to suggest that increasing VAT rates again might do more damage to retail.
Without the VAT cut and the rest of the stimulous our economy would be in more trouble.
Graeme Kemp
Question 1 after the election (if Tories win): george now you’ve messed things up, how long do you intend to stay?
Vote Labour……… !