Tuesday, 22 March 2011

Can Chancellors now leak their budget with impunity?

George Osborne's budget "purdah" has surely been the most leaky in the history of the Treasury.

There are several devices by which hints can be briefed. George Osborne's mini-me and ex-staffer Matthew Hancock MP has been popping up on TV for weeks saying what he'd like to see in a budget which he is very probably still helping to shape. And Osborne's spinners have given an unusual amount of detail away to enable well informed previews in the newspapers, leading ConservativeHome to ask "Has Osborne leaked his whole budget to the Sunday newspapers?"

But I wonder if Speaker Bercow might think that BBC political editor Nick Robinson reporting as a fact, from Downing Street, on the night before the budget the precise amount that the tax threshold will rise, and that this will this time include top rate taxpayers takes Osborne's pre-budget leaking into entirely new territory.


Standards have certainly slipped. If they have been slipping for several decades, I can not recall any previous Budget being so openly and definitively leaked without even the slightest veneer of deniability.

But George Osborne is most unlikely to recognise that the historical precedent suggests that he ought to resign.

Hugh Dalton's final budget as Labour Chancellor in 1947 introduced a series of austerity measures which generated rather more positive economic news than the Office of Budget Responsibility will report tomorrow. Yet he felt honour bound to resign when an indiscreet conversation with a journalist saw details of his budget made public 20 minutes before he spoke in the Commons.

As Roy Jenkins reported in his The Chancellors:

Dalton and the Treasury substantially underestimated the revenue-raising and inflation-reducing efforts of his measures. As a result, when Cripps came to introduce his April 1948 budget, he inherited a surplus of £319 million, entirely due to Dalton's taxation measures, and himself added only £11 million to it.

By what measures did Dalton achieve this result? They were most succinctly summarised in the single, fatal sentence that he addressed to a friendly journalist on his way into the chamber: 'No more on tobacco; a penny on beer; something on dogs and [football] pools, but not on horses; increase in purchase tax, but only on articles now taxable; profits tax doubled'. This indiscretion, at once wild yet venial, led to that now defunct London newspaper the Star, for whom the lobby correspondent worked, publishing an informed and accurate budget forecast which was on a few streets and sold to a few customers approximately twenty minutes before the changes were publicly announced by Dalton to the House of Commons; there was no evidence that any of these few casual purchasers used the report for speculative trading.

But the indiscretion led to Dalton's resignation of his office (and his replacement with Cripps) within twenty-seven hours of his ill-fated conversation.


Osborne will use the increase tax threshold to claim that he has lowered personal tax bills, and is trying to take the poor out of tax.

That the claim is misleading was obvious as soon as this key budget pledge was pre-spun on 1st March - as the claim relies on ignoring the VAT rise.

A powerful and informed argument against the tax threshold change was made by George Osborne's Cabinet colleague David Willetts, who offered a punchy critique of why the policy wouldn't help the poor, but would increase inequality for The Times back in 2005.

Here's what Willetts wrote then.

Many people assume that there is an easy way of cutting taxes and helping the poorest people — we should raise the income tax allowance. At the moment people start paying income tax at about £5,000 a year. What if we increased that to £10,000 a year — wouldn’t that transform the situation of the poorest people?

It is true that poor people pay a shockingly high amount of tax. The richest 20 per cent of households lose 35 per cent of their incomes in tax. The poorest 20 per cent of households lose 37.9 per cent of their incomes in tax. In fact the poorest 20 per cent pay a higher proportion of their incomes in tax than any other slice of the population. No one seriously planned for this bizarre outcome.

But the tax that poor people pay isn’t income tax. The poorest 20 per cent of households sacrifice 28.5 per cent of their income in indirect tax, of which the biggest single item is VAT. All direct taxes take 9.5 per cent and of this the biggest item is council tax, which takes 4.6 per cent. Income tax, taking 3.5 per cent of their income, is responsible for less than one tenth of the taxes paid by the poorest fifth of households.

The inclusion of 40p taxpayers as gaining from the threshold change is an interesting reversal of this government's policy to date.

Doing this makes the tax threshold change even more regressive. (And the policy already became more regressive when the Coalition ditched LibDem plans to pay for it from progressive tax measures).

However, removing 40p taxpayers from gaining from this policy (by bringing the 40p starting point down by a similar amount) would create a car crash with the goverment's decision to take higher rate taxpayers from child benefit.

That would add further to the 750,000 people brought into the 40p rate of tax, with important knock-on effects as the government cutting child benefit from any household with a higher rate taxpayer from 2013. Osborne claimed in announcing the policy that the change would not hit those households until somebody was earning over £44,000, but he has not said if he will keep this promise. His current policy will hit people earning several thousand pounds less than that.

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