Wednesday, March 21, 2012

A surprisingly radical Budget

Given how little room for manoeuvre the state of the public finances allows the Coalition (and would have allowed any government that emerged from the last election), this has been a surprisingly radical budget.

Increasing the personal allowance to £9,205 takes the Liberal Democrats close to their pledge of ensuring that no one pays tax on the first £10,000 they earn. Just the changes in today's Budget will mean a basic rate taxpayer will be paying £45 a month less in tax than they would have under Labour.

I am pleased by this. One of the problems with Labour governments is that, despite the rhetoric, it proves stubbornly difficult to tax the rich, with the result that those governments end up asking more of average taxpayers than they are able, or at least willing, to pay.

Others in the party may be less pleased. The idea of cutting tax for less well paid workers has risen to the top of the Liberal Democrat budget so quickly that it is easy to forget that many activists (and councillors and MPs) joined the party because they wanted to see public spending increase. Much as I support it, I am surprised that the tax-cutting agenda has not been questioned more strongly.

The other great talking point of the day is the reduction of the 50p income tax rate for higher earners to 45p. Both those who support the 50p rate (e.g. Joe Jordan on Lib Dem Voice) and those who oppose it (e.g. Tim Montgomerie on Conservative Home) tend to base their argument on 'sending a signal'.

This is surely wrong. The question should be settled on how efficient the 50p rate is at raising revenue and (if that is your ambition for it) making society more equal. That is a question to be settled by investigation and analysis: it should not a matter of faith.

I am told that cutting the 50p rate was the Conservatives' chief demand from the budget - which perhaps tells you all you need know about the Conservatives. In return for allowing them this, the Liberal Democrats can point to a bundle of measures against tax avoidance that, it is claimed, will bring in five times more than the tax cut has saved.

George Osborne would probably have brought in some of those measures in any case, but what is more significant is that the tax has been reduced only to 45p. There is 5p still to come, and there is hope that in return for granting that the Lib Dems will be able to secure a mansion tax or at least some moves in that direction.

I have just taken part in a telephone briefing with a party insider, and the most interesting part of the discussion was the observation that there are significant figures in the Conservative party who would support the idea of taxing property more and income less. You can see them as Tory entrepreneurs, battling with Tory grandees.

If it encourages the Lib Dems to find common ground with the entrepreneurial wing of the Conservatives, today's budget could prove significant indeed.

1 comment:

James said...

I agree with much of what you have written Jonathan, however, I'm profoundly concerned where the extra 10 billion in savings, by 2016, from the welfare budget is going to come from.

Given that the level of benefits is no-where near as high as some in the Tory press would have us all believe, and given that the economic growth is probably going to be sluggish at best over the next few years, I really can't see how this is going to work.