The budget is full of contradictions, weak gestures and does little to address poverty and inequalities.
For the last decade, the Conservatives and the mainstream media have rubbished Labour’s call for investment, but the penny has finally dropped.
The chancellor did not make any mention of the need to reduce public debt, a favourite mantra of previous Conservative governments even though they borrowed to fund tax cuts for corporations and the rich. In April 2010, public debt was £960bn. The government expects it to hit £1,799bn for 2019/20 and rise to £2,031bn by 2024/25.
Despite the higher borrowing, the forecast for economic growth has been downgraded from 1.4% to 1.1% of GDP. A sustainable economy requires an increase in the purchasing power of the masses. It is hard to see any measures for that.
There are no wage rises for firefighters, teachers, nurses, police and other public sector workers to compensate for wage freezes. No abolition of prescription charges, university tuition fees or additional funding for social care to help household budgets.
The increase in the minimum wage to £10.50 an hour by 2024 is too little to make much difference to inequalities, in-work poverty or queues for foodbanks. Still, the government claims that it is showering gifts on the low-paid.
The threshold for paying National Insurance Contributions (NIC) will rise from about £8,632 a year to £9,500, benefitting a typical employee by £104 and a typical self-employed person around £78 in 2020-21, or 28p and 21p a day respectively.
The downside is that non-payment of NIC can reduce right to state pension, unless individuals are entitled to some credits. The chancellor did not say how he will address that.
The government spin is that it has not increased income taxes. That isn’t so because of stealth taxes. Here is an example. The annual tax free personal allowance for 2020-21 will remain at £12,500. Tax thresholds are also frozen. Basic rate of 20% income will be levied on incomes between £12,501 and £50,000; higher rate of 40% will kick-in at £50,000, and 45% on incomes above £150,000.
The failure of increase personal allowances and tax thresholds in line with inflation will mean that many low-paid and middle earners will end up paying higher amount of income tax. Small print in the government announcement says that various measures in the budget will increase taxes by £1.4bn in 2020/21, rising to £12.5bn by 2024/25.
Small businesses get some help. The “Coronavirus Business Interruption Loan Scheme”, the government will provide £1bn lending to small businesses. This works out at an average of £714 for 1.4 million businesses with less than 250 employees.
The extension of statutory sick pay (SSP) is welcome, but the rate of £94.25 per week is far short of even the minimum wage rate. Many employers won’t pay more and vulnerable employees will suffer.
The SSP would be available from the first day for up to 14 days for all those advised to self-isolate. Employers with fewer than 250 employees will have the full cost refunded. However, the miserly SSP extension won’t help self-employed or people caught-up in the gig economy.
The government is still showering gifts on the well-off. The entrepreneur’s relief costing about £2.6bn a year has been abused and a former head of HMRC called for it to be scrapped.
Nearly three-quarters of it went to just 5,000 individuals. It enabled them to pay capital gains tax at the rate of 10%, compared to standard rate of 20%, on gains of up to £10m from the sale of their business.
With higher and additional rates of income tax of 40% and 45%, a lot of creativity went into turning income into capital gains. The Chancellor has not abolished entrepreneur’s relief, but has reduced the lifetime limit to £1m. Tax avoidance games will continue. The government has also extended the tax relief which the rich can get for pension contributions.
The government will provide £5bn in gigabit broadband rollout in the hardest to-reach areas. This is recycling of last year’s announcement made by Prime Minister Boris Johnson.
The contract may well be handed to Chinese company Huawei through Openreach, Virgin and other companies. The resulting assets are likely to be owned and operated by private companies rather than by taxpayers. The income from such assets will fill corporate coffers too. So the £5bn is part of a corporate welfare programme.
There is no new green deal or government led investment in new high-tech industries. The government has committed to spending £27bn on English strategic roads between 2020 and 2025. It will also freeze fuel duty.
However, it sits uneasily with the government’s claims of reducing carbon emissions. A broader national infrastructure strategy with focus on integrated affordable public transport is needed but was not put forward by the chancellor.
The government change of policy is welcome, but it is full of contradictions, weak gestures and does little to address poverty, inequalities or increase purchasing power of the masses.
Prem Sikka is Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex. He is a Contributing Editor to LFF and tweets here.