Barbed-wire Budget

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 Child Tax Credits are to be withdrawn from couples whose income is deemed ‘too high’, perhaps to reconfigure the system towards those who need the benefit most.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.

VAT Attack

Former Deputy Prime Minister John Prescott has ranted against former Labour Ministers Frank Field and John Hutton advising David Cameron on welfare reform and pensions respectively.

(Frank Field, you may recall, was asked to ‘think the unthinkable’ on welfare reform by Tony Blair. When he did just that, he was sacked.)

Prescott is, naturally, wrong. To use the term “collaborators” is typical paranoia from the old socialist, unable to accept that politics can mean cooperation and compromise. Forget Gordon Brown’s “Government of the Talents”; that was the past, this is now. It’s the age of “teh evil Toriez”.

What hurdles exist for the coalition rise a little higher with this week’s emergency budget. Despite both David Cameron and Nick Clegg saying during the election campaign that VAT would not need to rise as part of (their then separate) budget proposals, it appears increasingly likely that some kind of increase will be announced by George Osborne. This could cause the fissures of tension within the coalition to split open like a crack in a Scottish girl’s bedroom.

VAT is not the fairest tax in the land; it does not discriminate as it increases the cost of almost all goods and services. To increase VAT, as is likely, seems one good way of making a dent in Labour’s legacy, the record national debt approaching £900bn. With the age of “borrowing money to pay off the debt” now forcing its consequences on us all, money raised from cost cutting and tax rises must hit all taxpayers to be fair. I welcome the proposals to freeze Council Tax. Now all we need to do is ditch it completely.

This country could not afford to keep Labour in power. We could not afford to borrow money to repay debt forever. There is still the danger of the UK being tipped into a Greek-style economic disaster area; the coalition needs to do what it can to drag us back. Increasing Capital Gains Tax to 40% is one way to recoup lost revenue; those who benefit from their capital gains can afford to take the hit that lower paid people cannot through a VAT hike. There has to be fairness. I would prefer VAT not to increase – I said so at the launch of the coalition on this blog – however nobody can be in denial about the struggle ahead as income revenues fall, inflation rises, unemployment remains high.

I hope that the Budget speaks with a Liberal Democrat accent; the increase in income allowance and removal of child tax credits from those whose combined income is too high to justify the cost being two I would welcome. There has to be fairness in these tough times.

An increase in VAT would be a severe hit; the economy is in trouble, cuts need to be made, spending needs to be prioritised. I am unsure that VAT, which effects middle and low paid people disporpotionaly more than those on higher incomes, is the best tax to target at the moment.