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Posts Tagged ‘Budget’

Less Tax, Less Spend

In Economy, Home Affairs on March 21, 2012 at 9:55 am

By polarii for The Daily Soapbox –@polar_ii

Today is Budget Day. All Westminster is on tenterhooks, looking forward to a relatively dry state from George Osborne about the state of the nation’s finances and his plans for the next few years. Anyone who’s been vaguely following the political news, whether in newspapers, in blogs or on TV will know the key issues in this Budget. Should Osborne cut the 50% upper rate of income tax (more specifically, can Osborne survive the political backlash by pointing to more revenues)? Should we introduce a new sort of wealth tax, either directly on wealth or on property? Should the income tax threshold be raised, and by how much?

I’m going to leave most of the economic arguments to one side and look at three political shifts since the last Budget.

1) The Liberal Democrats no longer have much influence at the Treasury

This year, the Liberal Democrats decided to make their positions on the Budget public. Essentially, they conducted Budget negotiations in full view. This has turned out to be a poor move. By tabling proposals for a mansion tax before anyone else had proposed anything, they had plenty of time to be savaged. The wisdom was once that the Lib Dems would not permit Osborne to remove the 50% tax rate without a huge concession like a mansion tax. Now, all it looks like Osborne will do is promise to close some tax loopholes on first homes (something he has promised to do before). Although Nick Clegg and Danny Alexander make up half the ‘Quad’ that negotiates the Budget, they have been comprehensively out-manoeuvred by Osborne and Cameron. The Conservatives are much closer to owning the idea of income tax threshold rises. They’ve avoided a mansion or property tax. The ‘Green Agenda’ has almost vanished from view. Unless Osborne surprises us today, there will be very little the Lib Dems can claim as their handiwork in the Budget.

2) VAT is off the table

Remember the heady days of 2010? The UK had its first Coalition government, Clegg and Cameron were making happy love in Downing Street’s Rose Garden, and George Osborne presented his emergency budget. In it, of course, he raised VAT to 20%, much to the consternation of the Labour party. Labour still want to reverse it, but only temporarily (at least, this is what they’re five-point plan says). Given that VAT is a regressive tax (the poor pay a greater share of their income in VAT than the rich) and it’s a tax on consumption (i.e. buying things), you would have thought that there would be widespread consensus against it becoming higher with a stagnant economy. However, someone has clearly won the argument for it – whether it’s the extra revenue it brings in for comparatively little impact on people’s pockets or the need to rebalance the economy away from consumption and towards production – and now Labour backs, in the long term, the 20% rate. It’s a U-turn they have managed with considerable deftness. But no-one is seriously suggesting cuts in VAT. Osborne’s won the major tax policy battle of the 2010 Budget with comparative ease. Perhaps this has emboldened him with the 50% tax rate?

3) No-one wants to talk about the cuts

As we know, this government is cutting. There are arguments about whether it is cutting too much or not enough, too fast or not fast enough, whether its cutting in the wrong place etc. George Osborne enjoyed a surplus of about £5bn since his last budget, meaning he has cash to throw around. And everyone seems to want him to throw it at tax cuts of one sort or another. Admittedly, in the grand scheme of things, £5bn is not a huge amount of money. It’s 1% of government expenditure, worth about somewhere between a half and a third of the international aid budget or maybe 1 in every 40 pounds spent on welfare. But there are certainly things Osborne could do with it. He could reverse the planned 20% cut to the non-means-tested disability benefit DLA (a cut which, incidentally, there is absolutely no evidence to suggest is desirable or sustainable) – this is planned to save just under £2.2bn. Admittedly, Osborne cannot do much with regard to reversing his cuts. But he could use the option to do something totemic but relatively inexpensive. Such as preserving the DLA budget as benefits for disabled people are reformed. But again, no-one is making the case for public spending cuts to be reversed over tax cuts. Maybe this is because people enjoy the idea of a tax cut more than they enjoy the idea of disabled people having enough money to live on, but this is perhaps too cynical a view. More likely is that everyone sees Osborne’s mandate is now so closely tied to the cuts set out in 2010’s Comprehensive Spending Review that going back on one element, no matter how good the arguments for going back, will fatally undermine his credibility.

What we can see then is this: Osborne’s Budget 2010 has shaped today’s political landscape. The direction he took in that Budget meant that any discussion about any other Budget before the 2015 election would be about tax and not spending. The Conservatives, as a low-tax party, will always enjoy the advantage over Labour and the Liberal Democrats when it comes to cutting taxes; just as Labour, a high-spend party, will always have the advantage when talking about spending. Perhaps this is why Miliband and Balls feel so out-of-place this year, with the Shadow Treasury Team reportedly having no comeback to Osborne despite practically knowing  his Budget in advance: Osborne has simply moved the debate onto territory with which they are completely unfamiliar and profoundly uncomfortable, and they cannot wrest the narrative away from tax cuts to spending cuts. 

In the long term, of course, Osborne’s reputation is tied to whether Budget 2010 works in the long term. But there are so many factors beyond his control in that consideration that there will be plenty of wiggle room if it doesn’t work. The strategic victory Osborne has brought about is actually to move the debate away from where New Labour had it (i.e. on what do we spend more money) and towards where the Conservatives want it (i.e. what taxes do we cut). If the tax cuts in Budget 2012 are well-chosen, Osborne can entrench this attitude. And that entrenched attitude will be the greatest asset for the Conservative party come election time in 2015.


Disabled People Get Cold Too…

In Uncategorized on June 14, 2010 at 5:50 pm

By polarii for The Daily Soapbox

George Osborne has a small but important opportunity to underline the coalition government’s committment to fairness in his upcoming budget. Part of this budget, undoubtedly, with Iain Duncan-Smith at the helm at DWP, will be benefit and welfare reform. One benefit that is in need of some reform is the winter fuel payment. This is made to OAPs who are house-bound to help them heat their homes, since they are often less wealthy than other groups in society and more vulnerable to afflictions like pneumonia.

However, severely disabled people are also house-bound and vulnerable to these afflictions, yet don’t receive this payment. Many severely disabled people are dependent on incapacity benefit to support themselves and on their carers, who, again, are often drawn from the poorer sections of society, as caring for a severely disabled person is a full-time job. By contrast, some OAPs are extremely wealthy and need no additional help in heating their homes, or live in sheltered accomodation where heating costs are kept flat throughout the year. Meanwhile, there are heart-rending stories of severely disabled people still paying off their debts from last winter, and struggling to find the money to stay warm through the next one. Those receiving the higher-rate mobility component of the Disability Living Allowance account for 1.6% of the population; around 1 million disabled people, incorporating 21,000 disabled children and young people.

Therefore, Osborne should consider making this winter fuel payment means-tested, or raising the age threshold for the payment to 65 (as in the Liberal manifesto), thus saving money, and direct some of the savings to providing a similar winter fuel payment to severely disabled people. This would sit well with Nick Clegg’s call for more disabled MPs, the Liberal Democrat manifesto pledge to move severely disabled people onto the winter fuel payments and show that the coalition government did actually care for fairness, the disabled and the poor. At the time of writing, Nick Clegg has not publicly expressed his support for this campaign.

The last government became notorious for its raising of winter fuel payments on the eve of crucial elections, in order to stop pensioners voting for the Lib Dems’ proposed pensions increases or being attracted by the Tories’ social conservativism. The benefit, while a sound principle, needs review. It needs to be and be seen to be a benefit for society and the poor, not the government. Osborne has the chance to make this happen in his upcoming budget. Let’s hope that he agrees with Nick on disabled people.

More details of this campaign can be acquired from the Papworth Trust (http://www.papworthtrust.org.uk/campaigns) and their Facebook page.