Given “Brown’s legacy”, the first coalition government Budget sure could have been much worse. I am very concerned about the housing benefit cuts, but for most of the Budget I was very pleased at the credible alternative to Labour’s “spend spend spend”
As I said yesterday the VAT increase is unfortunate. One perspective I would like to run with – however uncomfortable I am with the increase for the long-term – is the hope of economic stimulus between now and January 4th. Will the big-ticket items be purchased now in such volumes to keep consumer confidence high and High Streets moving? Will increasing concern about the rise affect Christmas sales?
Increasing Capital Gains Tax to 28% is another hit, although those who can afford to pay tax on their capital gains should remember the “holiday” they have enjoyed since Gordon Brown reduced the rate while he was Chancellor. As put far more professionally by the Millennium Elephant some time ago, the increase will put right a lot of the unintended consequences of Brown’s reduction. Paying more on earnings than the woman who cleans your office? Not fair.
The increase in personal allowance to just shy of £7,500 is one step towards the LibDem policy of £10,000 before the end of the Parliament. The country could not afford the £10,000 in one leap – you bet your last dime Gordon Brown would have made that leap and charged us for it – so the increase is a welcome move. It certainly helps the 800,000 who will not be in the income tax bracket at all. Who would have expected that under a Conservative government?
Taking the income increase as one of the stand-out achievements of Liberal Democrat influence, I hope this encourages a culture of saving the money which is not taken in tax. God knows I need to put some more money away. It’s encouraging to see that the Budget retains support for ISAs.
Contention comes in the benefit cuts. Child Tax Credits are to be withdrawn from couples whose income is deemed ‘too high’, perhaps to reconfigure the system towards those who need the benefit most. Remember that middle-income earners were never supposed to reap the reward of the Tax Credit policy; this could go some way to redress the balance in a fairer way. Freezing Child Benefit – effectively a cut – could be redressed by the increase of the child element of CTC. If this is the quid pro quo I would like further information on it.
Where the biggest issue of contention seems to currently lie is housing benefit. The new regime of “maximum limits” on claims is supposed to run down the massive total amount spent nationally. If Channel 4’s “Fact Check” is right, there could be some horrific unexpected consequences;
the Department for Work and Pensions confirmed today the new cap will apply nationally. Labour MPs warn of a housing crisis in London and the South East, where rents are higher. For example, in parts of Hackney, the maximum housing benefit is £1,000 a week for a four bedroom house. Losing £600 a week would mean families currently claiming housing benefit would have to move to cheaper parts of London
The consequences of this policy make the liberal hairs on my neck stand on end. I fully accept that the cost of housing benefits is excessive, and a maximum limit could well help deal with those who are genuinely messing with the system, those who are genuinely claiming more than they are entitled…But as we know from Council Tax, “one size fits all” just does not work across the nation. In some parts of the north of England, this policy change could be a terrible idea.
(And, lest I forget, the cider increase is reversed. Good touch)
In conclusion, then…
Is this a Budget of “teh evil Toriez” as some elements within Labour would have it? No. This is the best that could have been done with the sort of cards which would have made Victoria Coren panic. Labour are responsible for massive national debt, repayment of which will soon cost more than the English education budget. What else could the Coalition do but to decrease spending and increase taxes?
Labour need to advise exactly what they would have done with a country on the edge of a Greece-style meltdown. The Coalition have been as fair as the economics allow – higher personal allowance, fairer rules for CTC, decreased Corporation Tax…There’s a lot which could have happened which has not. This is the Conservatives talking with a Liberal accent. The Budget is tough. The times are tight. I would rather live in this age of responsibility than Labour’s time of plenty.