Granny tax, 50p tax rates and VAT on 'hot grub': Fleet Street responds to George Osborne's political Budget.
For each tax giveaway the chancellor awarded, he made one tax or spending takeaway. In the jargon this is termed a "fiscally neutral" budget – and the politics of making any changes in one of those means that your priorities are immediately exposed. So it was with Mr Osborne's budget. He showed just who and what he thinks deserve the biggest handout; and the answer is a dismaying one.
Going by his budget, the chancellor – and by extension the government as a whole – thinks that the super-rich deserve lower taxes while pensioners should hand back more to the Treasury. He believes business ought to get a helping hand through lower corporation taxes, even while Britain's army of 2.7 million unemployed got barely a mention. All in it together? It was notable that this formerly much-used phrase was not uttered by the chancellor.
Politically, the Chancellor certainly had his work cut out for him. So far, the Coalition has just about retained public support for its cuts programme. Mr Osborne's greatest political challenge is to ensure he keeps it, and to do that he must convince voters that the pain is being spread widely and fairly. Cutting the 50p top tax rate was, therefore, risky. But it was still the right course to take, given the hit to entrepreneurialism and the minimal revenue it was raising.
According to yesterday's forecasts, growth will crawl in at a measly 0.8 per cent this year. Meanwhile, unemployment is not far off three million and is yet to peak, and thousands of young people in particular cannot find work. There was nothing new in the Budget for those people, and nothing about how to encourage companies to hire them. Nor was there anything about how to persuade business to spend the billions they are currently too wary to invest. For all his soaring claims, the Chancellor left the most important questions unanswered.
What should certainly help to stimulate growth is the politically courageous – but economically essential – decision to cut the top rate of income tax. The 50p rate was a last-ditch stunt by the outgoing Labour government, designed to place the incoming administration in a quandary: why should the rich get a tax cut when public sector pay was being squeezed? Mr Osborne was right to highlight the measure’s economic illiteracy, and to focus on alternative means of clawing back revenue via tax avoidance and stamp duty increases. Yet ministers must be clear that this reduction is a staging post on the road back to 40p: we worry that the new level of 45p (in reality 57p, when National Insurance is added) will become the default upper rate of tax. This is too high.
The reception for this Budget has been shaped by unprecedented levels of pre-briefing, and weeks of unfortunate bash-the-rich rhetoric. Yet some good appears to have come from the negotiations within the Coalition, with the mansion tax, the removal of higher-income pension relief and council tax revaluation all meeting a merciful demise.
The decision to cut the top rate of income tax from 50p to 45p from April next year will no doubt generate much political heat. While this newspaper would not have made this change at this stage, we acknowledge that the economic case for the higher rate is weak. It has not raised much money, and it is out of step with Britain’s other major competitors in the G20.
But the move risks undermining the coalition’s claim that the burden of austerity is being shared fairly. Mr Osborne, encouraged by Mr Clegg, has sought to deflect this criticism by raising other taxes, closing loopholes and sounding tough about curbing avoidance.
These latter measures are mainly a watered-down version of the “tycoon tax” originally championed by Mr Clegg. Their centrepiece is a sharp hike in stamp duty, combined with a crackdown on those who shelter expensive properties in corporate structures. The victims will be mainly the super-rich and foreigners who tend not to vote in elections. However the losers also include pensioners, whose personal allowances are being frozen. The coalition’s enemies will be able to characterise this as a “granny tax” to finance a giveaway to the rich. True, pensioners have so far been sheltered from austerity. But this is a hard case to sell politically.
George Osborne is a deeply political Chancellor, but yesterday he did not deliver a political Budget. He delivered one that was principled and consistent, with a clear view of the economy that he wants to encourage.
The political risks are large, and they are obvious. Cutting the highest rate of income tax, lowering business taxes and shifting the balance of tax between low-paid workers and pensioners are all bound to be controversial. They are, however, the right decisions. In particular, the deterrent to investment and enterprise that is represented by the 50p tax rate has been underestimated. Acting to remove it is good for business.
Showing a degree of courage was not merely welcome, it was essential. Britain is in danger of drifting steadily downwards, incapable of showing enough ambition to remain a leading economy, unwilling to keep its tax rates competitive or invest in future success. The Chancellor sat down leaving plenty still to be done and said; but his speech showed that he at least understood the problem and was prepared to make difficult decisions that set the country on the right course.
But by and large, this was a workmanlike Budget. With only one or two glaring exceptions, its measures push in the right direction. And they are likely to do the country more good than harm.
But this Budget also contains measures that are simply wrong.
Take the ‘granny tax’. How, when pensioners are suffering so grievously from minimal returns on their savings, can he justify scrapping age-related income tax allowances, leaving 4.41million an average of £83 worse off next year?
To put it bluntly, it was dishonest to present this as a mere ‘simplification’ to spare the elderly paperwork. We hoped spin like this had gone with New Labour.
What did George Osborne do about the soaring fuel prices crippling family finances? Nothing.
In one stark sentence he waved away the desperation of our hard-up readers and Britain's struggling firms.
So not only will pump prices remain at obscene levels, but we will soon fork out 3p a litre extra.
It would have been even dearer under Labour, George said. Forgive us if we hold back on the applause.
The blows kept coming — 37p on ciggies, VAT rises on hot grub, even on holiday caravans. Pensioners stung. Another 300,000 workers dragged into the top tax bracket.
The national debt is more than £1 trillion.
In that context, George's announcements are small beer.
Which coincidentally is all Sun readers can now afford.
The Chancellor of the Exchequer and Prime Minister were caught completely by surprise yesterday when the Budget began unravelling before Mr Osborne had even sat down, and Labour leader Ed Miliband tore it to shreds.
The truth is that neither Tory is as good as his self-generated publicity would have us believe. If they were, this pair of well-heeled muggers would’ve realised that stealing the pensions of the elderly, while stuffing the wallets of the wealthy, would go down like a lead balloon.
Britain needed a Budget for jobs and growth but we got cash for the rich and a dose of austerity for ordinary people who’ve worked and saved all their lives in the hope of enjoying a comfortable retirement.