Wednesday, 21 March 2012

The most dishonest Budget ever?

The Budget speech is pure parliamentary pantomime, but even that was undermined this year by the numerous (and mostly accurate) leaks beforehand.

One surprise came before the budget, when February borrowing figures were published and shown to be far higher than expected at £15.2bn. This meant that there would be no net giveaways in the Budget, and reinforces what we have said throughout: if you really want to tackle the deficit you need to get people working (off benefits, paying tax) and spending (VAT revenues) + deficit closes. Even John Cridland, CBI chief, was on Radio 4 this morning conceding the real problem in the UK economy is lack of demand.

But back to the Budget, and to the theme promised in this blogpost's title: dishonesty. Here's a quick rundown of some fairly serious obfuscation or outright lies:

1) A further £10.5bn of welfare cuts
Osborne was rather opaque in his Budget statement, saying:
"I am today publishing analysis that shows that if in the next Spending Review we maintain the same rate of reductions in departmental spending as we have done in this review, we would need to make savings in welfare of £10 billion by 2016"

In the Budget red book (pp.87-88) the figure of £10.5bn is given by 2016-17 and £6.6n by 2015-16, but there is no specification at all as to which bits of the welfare budget might be targeted. All the red book states is:
"The Government will be examining the cost drivers for all areas of public spending, and identifying the further reforms needed to deliver a sustainable welfare system and public services within the resources available."

Of course the major reform that Osborne could pursue would be to create jobs. The OBR projections show even by 2016 unemployment will still be above 2 million. But what this unspecified £10.5bn shows is that Osborne's economic policies are failing, and - although his sums don't add up - he has already decided those with least should pay for it.

2) The higher rate tax stats
If the 'dodgy dossier' of the Blair government was Alistair Campbell's sexed-up Iraq work of fiction, then this government's own will be this gem from HMRC. All the same questions need to be asked because it looks less like the work of an impartial civil servant and more the work of a Tory researcher, without much in the way of analytical skill or economic nous.

It's major crime is to say it hasn't raised much (and less than predicted), only £1bn. A figure Vince Cable dismissed as not much. Of course that was hindered by £16bn of income shifting - highly paid people bringing forward their pay, bonuses, etc to avoid getting hit for 50% when it came in. In future years, such income shifting is impossible, and the amounts raised would be much higher - the Treasury document seems to think over £3bn per year.

The dodgy dossier talks long and gibberishly about the laffer curve (see our take here) and makes some very spurious conclusions that people avoid a 50% rate at £150,000, but not a 45% rate. Go figure!?

Finally of course is the brass neck with which Osborne, Cameron et al claim their stamp duty reforms will raise five times as much from the rich. Of course there'll be neither avoidance on any of that nor any behavioural changes as a result of these new taxes on selling homes worth £2m or more.

But what is most dishonest in some ways is the contradiction between Osborne's bluster against tax evasion and avoidance - "I regard tax evasion and – indeed – aggressive tax avoidance – as morally repugnant" - and the fact that in the face of large scale (though largely temporary) avoidance of the 50p rate, he has decided to reduce it.

Thankfully though, HMRC tells us, it will only cost us £100m per year. Of course if they have got that wrong (and they have) then we can expect more cuts or more borrowing.

3) The 'Granny tax'
I use the twitter-defined name as a shorthand, but Osborne has done is to freeze age-related allowances - the amount of income over-65s can earn tax-free - for existing pensioners, and scrap the relief for those retiring after April 2013.

This will cost millions of mid-income pensioners about £250-300 per year. It is a stealth tax on pensioners, and come May will probably prove as electorally misguided as Gordon Brown's 75p increase in the basic state pension over a decade ago.

The extra dishonesty factor about this is two-fold: 1) it was the only major item in the Budget not trailed in advance; and 2) Osborne announced it in his statement by saying "we will simplify the tax system for pensioners by doing away with the complexity of the additional age-related allowances".

4) The distributional analysis
Alongside the Budget, Osborne published the 'distributional analysis' to show the effects of the changes he has made on people's incomes (Annex B of the Budget red book).

What it does not include is the cutting of the 50p top tax rate to 45p - which would save someone like Bob Diamond at Barclays over £300,000 per year - as apparently "presenting a static analysis would not be representative of likely actual impacts".

What is also necessarily excluded from this analysis is the yet-to-be-specified but committed to £10.5bn extra welfare cuts which will disproportionately hit the lowest income deciles.

So what we see is an analysis that omits both the big tax break for the rich, and the future hammering of the poor. Convenient.

There are other things in the Budget too that will become clearer in time:
  • Osborne promised "growth-friendly planning and employment laws" - which is short-hand for 'the environment and workers' rights be damned'
  • The pension age will rise beyond 68: "I can confirm today that there will be an automatic review of the state pension age to ensure it keeps pace with increases in longevity". The problem with this is that increasing longevity is highly unequal, i.e. the richer are increasing their life expectancy at a quicker rate than the poorest. This is doubly bad news since poorer people also cannot afford to retire early, so their retirement gets squeezed, while the rich live for longer in retirement.

1 comment:

  1. On the "granny tax" - the allowance amounts remain the same. Tories therefore claim that nothing has been taken away. First, have they never heard of inflation? Second, people anticipate bigger personal allowances when they reach 65 and 75. This measure, like moving state pension from 60/65 (depending on gender), is a fundamental moving of goalposts. The allowances and retirement dates being unchanging have been a constant assumption that fed into all negotiated wage settlements since the year dot.

    On the personal allowance in general - people keep quoting the figure of £9205, and the chancellor says it is a record increase. But this comes in in 2013, not next month. The real figure is something like £8105 from April 2012. The figure of £9205 is from NEXT YEAR'S budget, and who knows whether after inflation it will be a record at all? That assumes he won't dump the promise anyway. He'll probably get Clegg to announce it.

    Why did Nick Clegg cross the road? Because he had promised not to.