Comment: The Budget was a mixed bag for taxpayers
The Budget provided some relief but there were hidden nasties.
By John O’Connell
The Budget was a mixed bag. As we know, times are hard for families right now. Inflation is way above target and it’s expensive to drive to work, or take a holiday. So there was some good news, especially for motorists, that perennially overtaxed group. The reversal of the planned hike was topped up with a 1p cut in duty, which will be welcomed in households across the country. Drivers already pay significantly over the odds for what they might reasonably be expected to, so this was a good measure. Air passenger duty is frozen for now, but it is important to bear in mind that aviation’s inclusion in the EU Emissions Trading System is coming soon and will mean flights are double-taxed, so this is only temporary medicine. Finally, the increase in the personal allowance is great and hasn’t been matched by sucking more people into higher marginal rates for once.
Reducing corporation by a further one per cent than planned is also welcome, although there is scope to go further here.
But this is all being paid for in ways that will hurt taxpayers. And no, not through the bank levy, which will make little lasting difference to the tax burden on financial institutions. The biggest tax hike is the new floor on the carbon price. A £1.4 billion tax by 2015-16 will be added to electricity bills for families and struggling manufacturing industries – the very ones that Osborne waxed lyrical about yesterday. If the government wants to help rebalance the economy away from financial services this is not the way to go about it. Higher electricity bills will also hit poorest people harder. There is also the new tax on oil production, which risks reducing the incentive to invest in the North Sea.
What’s more, there are other long term policy commitments that will place a huge burden on already hard-pressed taxpayers. After a decade of over spending – during which time taxes went up and not down – a significant fiscal consolidation is necessary. On top of this, Citigroup Investment Research estimates that £80 billion of capital expenditure is needed in the energy sector, which will increase energy bills, along with £20 billion worth of environmental targets to meet. Ofwat’s estimates for capital investment required in water networks come to £22 billion. These are huge pressures that need to be taken into account when assessing spending reductions and tax changes.
And of course, the much mooted plan of a merger of income tax and national insurance is now subject to a consultation. In doing so, Osborne said that he would not abolish the contributory principle, which was rather odd. One would think getting rid of national insurance means accepting the death of the contributory principle, which could be killed off by Iain Duncan Smith’s changes to pensions anyway. Whatever the result, this attempt at tax simplification cannot create more complexity.
There were plenty of measures to like in this Budget. The cut in corporate tax is a good signal to investors, and motorists will get some relief at last. But there were some hidden nasties in there. Two of the principle means by which the tax reductions and spending increases proposed in the Budget are financed over the medium term are changes to energy policy which look like more burdens for businesses and families to contend with.
John O’Connell is research director at the TaxPayers’ Alliance.
The opinions in politics.co.uk’s Speakers Corner are those of the author and are no reflection of the views of the website or its owners.
