The worst job in parliament must be to make the opposition reply to a budget. It takes fiscal experts several days to analyse the details – so what can we now see – the Good the Bad and the Ugly?
Let’s start with the GOOD. The high number of Labour manifesto policies that the Chancellor adopted in his budget are a win for working people. The minimum wage – George Osborne tried to rebrand it as the ‘Living Wage’ - increases to £9.35 an hour by 2020. Employers will have to pay this.
The abolishing of permanent non-dom tax status for wealthy individuals was another Labour win.
Even the pace of cuts was slowed, more in synchronisation with Ed Balls fiscal plans - easing the austerity pain – similar to the last Lib/Con government adopting Alistair Darling’s budget time scales. It was all aimed at occupying the centre ground of politics, presented under Disraeli’s 19th century ‘One Nation’ political slogan.
Other budget measures that were Good? The raising of the amount you can earn before paying tax and the raising of the 40% tax threshold will help low and middle income families. For those with a spare room, an income potential of £7500 tax free from renting it to relatives, friends, private lodgers or tourists is now possible. All good news.
The further reduction in Corporation Tax is also to be welcomed making us internationally competitive, creating new business and increasing wealth creation for our country.
And the BAD? The ‘giveaway’ inheritance tax on homes worth up to a million pounds. So much for Conservative ‘Those with the broadest shoulders’ mantra. That seems to have disappeared. It was a sop to wealthy Conservative supporters in the Home Counties.
Yet despite the Conservative’s new slogan promoting a ‘high wage, lower tax, lower welfare society’ this was a budget that will increase taxes by nearly £50bn – necessary to reduce the deficit - over the course of the next parliament. That is a lot of money, so where is it coming from?
The U-turn on car tax, introduced at £140 a year will capture the majority of new zero and lower tax banded cars.
Insurance premiums for almost everything from pets to homes and cars will also rise substantially to pay for the increased insurance tax.
Young people also take a hit.
The much trumpeted 30 hours free child care for 3 and 4 year olds will not start until September 2017.
Students lose maintenance grants. It is estimated that a three year university degree course will now leave a graduate with a debt of nearly £50k, to be repaid when they earn more than £21k a year. Nearly 50% of graduates today are working in ‘non graduate’ jobs so it is no surprise that top private schools are suggesting that high flying students consider entering the workplace at eighteen.
The new higher minimum wage will not apply to under 25’s – currently they get it at 21.
Back to the GOOD a substantial amount of tax will be raised from ‘Buy to Let’ landlords. The increase in the BTL market since the 1990’s, together with the shortage of houses and stricter mortgage lending criteria (bigger deposits) has made it much tougher for young people to buy their own property. Today BTL accounts for 15% of all new mortgages and the landlords have enjoyed up to 45% tax relief on the interest part of their mortgage repayments. This makes the market unfair as private buyers get no tax ‘offset’ on their mortgage interest re-payments. Ian Cowie, the financial journalist, deserves credit for his campaigning to change this tax policy – especially as over 25% of Conservative MP’s are BTL landlords and have a vested interest. This is a policy Labour should support. There are potential threats, landlords may try to pass the tax increase on to tenants through increased rents but, if resisted, the policy will improve the supply of private housing coming onto the market and possibly dampen house prices. Some good news at last for young people.
However the policies for social housing falls into the BAD category, reducing rents by 1% and selling off homes at a discount will reduce the number of affordable houses. Housing Associations estimate 27,000 fewer new homes will now be built.
Government cuts in departmental spending are not as severe as some feared and it was GOOD to see Defence spending kept in line with the NATO recommendation of 2% of GDP. However public sector wages continue to be squeezed in the current economic climate.
The UGLY came with the cuts in tax credits for thirteen million families who receive them. As they are amongst the poorest percentiles of the population it made the overall budget regressive. This was ably demonstrated by the Institute of Fiscal Studies with their graphs, illustrating those who were the hardest hit.
From a Labour perspective, whilst recognising the need to move towards a balanced budget, there were two infuriating issues.
Firstly, what did the poorest people of the country have to do with causing the financial crash and why are they paying most to reduce the deficit?
Secondly. Why did David Cameron when asked a direct question from a well-informed, concerned lady on the Election Question Time TV programme – would he reduce tax credits? - deny there were plans and say that he had rejected the proposal because he didn’t want to see an increase in child poverty? He would have been accused of misleading the House if he had said that in parliament. No wonder the public don’t respect politicians as he didn’t respect the voter.
Overall the budget was a triumph for George Osborne politically. He even managed to humiliate Boris Johnson, his main opponent to succeed David Cameron as Conservative leader before the 2020 election. However economically, questions are being asked about his judgement, and this time not just from the experts. ‘What’s good for George may not be good for us’ said the Comment column of the Sunday Times.
To some of us who have had concerns since before 2010 election, this all seems rather ironic. Before you enjoy some schadenfreude about Greece and the Euro check out our National Debt Clock on
We have got to balance and grow our economy a lot more to turn that bad boy around!