Andrew Harrop, General Secretary of the Fabian Society, gives his response to the chancellor's budget statement this afternoon
The Chancellor has unveiled a £5,000 annual Easter present for anyone earning a quarter of a million pounds, while keeping quiet about his real-terms cuts to tax credits and the minimum wage.
From next year the Budget’s headline tax giveaway, the increase in the income tax Personal Allowance, will spread £3.3 billion between rich and poor alike. But by then tax credit payments will be £2.5 billion lower than under Labour’s plans. Add to that Monday’s announcement that the Minimum Wage will rise by far less than inflation (again). Following this week’s announcements most low earners will lose more than they gain, just as the super rich see their income tax slashed.
Britain is becoming a more unequal country under Mr. Osborne.
George Osborne tried to justify his embarrassing cut of the 50p rate with new wealth taxes. It is far from certain that they will raise the revenues he hopes for, but even on his own estimates they amount to barely half a billion pounds. Compare that to the £7 billion Osborne will have slashed from welfare by next year. There was for example no move to reduce the huge amount spent on pension tax relief for the highest paid.
The Budget also contains grim reading for Labour politicians serious about retaking power in 2015. Osborne signalled that after the next election he would extend the annual cuts to departmental spending budgets for another two years and also slash welfare by a further £10 billion. To be credible at the next election Labour will need to develop an alternative plan for closing the deficit or work out how it can deliver savings on this scale without a devastating impact on the most vulnerable.
Comments on specific proposals:
Public Sector Pay: The proposal to ‘regionalise’ public sector pay has troubling implications for aggregate demand in poorer regions. It would reduce the extent to which public spending redistributes national wealth from rich to poor areas, further unbalancing our economy.
State Pension Age: It is right that the State Pension Age gradually rises to reflect longer life expectancy and an automatic process will help politicians of all parties push through unpopular decisions in the future. The critical question is what index should be used. Raising the State Pension Age in line with average life expectancy will substantially disadvantage poor communities where people die younger and live more of their lives with disabilities. While health inequalities are so wide, any automatic system should be based on changes to the healthy life expectancy of people living in low income areas.
National Minimum Wage: This is the sixth year in a row that the National Minimum Wage has failed to keep up with inflation. Low paid workers will be £1,000 per year worse off than they would have been if the NMW had been indexed to inflation since 2006. The Government is willingly presiding over rising earnings inequality.
Income tax age-related allowances: George Osborne’s stealthy tax raid on the top-half of pensioners will raise him an annual £1.2 billion by 2016. In principle it makes sense for richer pensioners to pay the same amount of tax as everyone else. But this measure will raise more than the Government could expect to save from mean-testing the Winter Fuel Payment so the quid pro quo should be an end to talk of removing universal age-related entitlements.
Child Benefit: The principle of universal child-focused cash payments is important and its loss could undermine long-term support for the welfare state. George Osborne’s concession will be welcome relief for people in ‘cliff-edge’ cases but the price is the greater complexity of tapered means-testing. Now that child credit is part of the means-tested system it would make sense to explore the case for a single child-focused payment that integrates tax credits, child benefit and childcare tax relief and provides support at some level to every family.
Corporation Tax: The UK must avoid engaging in a ‘race to the bottom’ on corporate taxes. It is in the long term interests of all rich nations to maintain a buoyant corporate tax base. Rather than playing ‘beggar my neighbour’ the UK should encourage greater coordination of business tax rates through the EU, OECD and G20.
Stamp Duty: It’s good news that the Government is clamping down on tax avoidance and raising Stamp Duty to seven per cent for homes worth over £2 million. But the proof of the pudding will be in the eating and it remains to be seen whether the promised revenue is actually realised. Very high transaction taxes are likely to encourage avoidance and could silt-up the property market. In due course they should be replaced by more affordable annual charges, such as the ‘mansion tax’ proposed by the Liberal Democrats.
George Osborne tried to justify his embarrassing cut of the 50p rate with new wealth taxes. It is far from certain that they will raise the revenues he hopes for, but even on his own estimates they amount to barely half a billion pounds. Compare that to the £7 billion Osborne will have slashed from welfare by next year. There was for example no move to reduce the huge amount spent on pension tax relief for the highest paid.
The Budget also contains grim reading for Labour politicians serious about retaking power in 2015. Osborne signalled that after the next election he would extend the annual cuts to departmental spending budgets for another two years and also slash welfare by a further £10 billion. To be credible at the next election Labour will need to develop an alternative plan for closing the deficit or work out how it can deliver savings on this scale without a devastating impact on the most vulnerable.
Comments on specific proposals:
Public Sector Pay: The proposal to ‘regionalise’ public sector pay has troubling implications for aggregate demand in poorer regions. It would reduce the extent to which public spending redistributes national wealth from rich to poor areas, further unbalancing our economy.
State Pension Age: It is right that the State Pension Age gradually rises to reflect longer life expectancy and an automatic process will help politicians of all parties push through unpopular decisions in the future. The critical question is what index should be used. Raising the State Pension Age in line with average life expectancy will substantially disadvantage poor communities where people die younger and live more of their lives with disabilities. While health inequalities are so wide, any automatic system should be based on changes to the healthy life expectancy of people living in low income areas.
National Minimum Wage: This is the sixth year in a row that the National Minimum Wage has failed to keep up with inflation. Low paid workers will be £1,000 per year worse off than they would have been if the NMW had been indexed to inflation since 2006. The Government is willingly presiding over rising earnings inequality.
Income tax age-related allowances: George Osborne’s stealthy tax raid on the top-half of pensioners will raise him an annual £1.2 billion by 2016. In principle it makes sense for richer pensioners to pay the same amount of tax as everyone else. But this measure will raise more than the Government could expect to save from mean-testing the Winter Fuel Payment so the quid pro quo should be an end to talk of removing universal age-related entitlements.
Child Benefit: The principle of universal child-focused cash payments is important and its loss could undermine long-term support for the welfare state. George Osborne’s concession will be welcome relief for people in ‘cliff-edge’ cases but the price is the greater complexity of tapered means-testing. Now that child credit is part of the means-tested system it would make sense to explore the case for a single child-focused payment that integrates tax credits, child benefit and childcare tax relief and provides support at some level to every family.
Corporation Tax: The UK must avoid engaging in a ‘race to the bottom’ on corporate taxes. It is in the long term interests of all rich nations to maintain a buoyant corporate tax base. Rather than playing ‘beggar my neighbour’ the UK should encourage greater coordination of business tax rates through the EU, OECD and G20.
Stamp Duty: It’s good news that the Government is clamping down on tax avoidance and raising Stamp Duty to seven per cent for homes worth over £2 million. But the proof of the pudding will be in the eating and it remains to be seen whether the promised revenue is actually realised. Very high transaction taxes are likely to encourage avoidance and could silt-up the property market. In due course they should be replaced by more affordable annual charges, such as the ‘mansion tax’ proposed by the Liberal Democrats.
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