It is quite extraordinary that George Osborne, the so-called ultimate political animal, managed to deliver a pre-election budget today that managed to make Norman Lamont's similar effort in 1992 look like a masterstroke. Lamont helped give John Major an election victory. His reward was the sack. Osborne has done nothing to help Cameron's chances. Maybe a P45 awaits him too.
For twenty five minutes Osborne offered dodgy statistics, all designed to support his new chosen measure of deficit reduction, which is the deficit as a proportion of GDP. The only basis on which he could claim success in this area is the Office for Budget Responsibility's belief that throughout the world the UK is the only economy where growth is likely to improve in coming years. In itself that looks like a wild claim. We should set it in context. Every single OBR forecast on deficit reduction and most on growth have been wrong and in every case have been far too optimistic. The chance that this will be the case this time is remote in the extreme. Osborne's macro-economics look to be wrong.
At a deeply micro-economic level this budget was about small concessions for political gain, most of which were oversold.
So we had the abolition of a whole tax — class 2 national insurance, which is paid by the self-employed. That will save them about £100 a year. But he did not say how those same people will now ensure they get a credit for their pension each year if their earnings are low in future. The devil may be in the detail, but some already low earning people may be much worse off as a result of this move.
And the abolition of tax on the first £1,000 of savings income will, for the vast majority of people, save less than £100 a year in tax. But once more, the devil is in the detail. Banks will no longer withhold tax from payments of interest on UK bank accounts as a result of this. Remaining tax due will now have to be collected via tax returns and the chance that large amounts will not be collected increases dramatically as a result.
That will not be helped by perhaps the only real surprise move, which is the supposed abolition of the personal tax return for millions of UK taxpayers, many of them self-employed. What's astonishing in this case is the profound implication of this move, which is no doubt motivated by the desire to cuts thousands more staff from the ranks of HMRC employees. In effect HMRC is going to use information it can gather from third party sources to assess people's taxes in future, including (apparently) their self employed earnings. But, with many fewer staff at HMRC already planned and its already poor record at even getting rather more basis tasks, such as PAYE notices of coding, right the chance that many people will pay the right amount of tax as a result is minimal, or non-existent. Instead of closing the tax gap this plan risks it increasing, considerably. It is an act of recklessness that will cost us dear.
And as for ISA reforms — these are either designed to make these tax free slush funds or alternatively to continue to provide the support needed to keep house prices high — which is the last thing fist time buyers need.
So what's behind the scenes? A few things are worth mentioning.
First the Google tax — a measure designed to undermine international efforts to beat tax abuse by companies such as that after which it nicknamed — is to happen, without any effective parliamentary scrutiny. It can fairly be said that Osborne has now torpedoed Cameron's 2013 call for international cooperation on this issue by taking unilateral action in the UK before that has any chance to happen.
Second, there's a commitment to sell many more long dated UK gilts to lock in low interest rates. Tacitly, that was, of course, also an acknowledgment that deficits are really going to run for some time to come, even if the rhetoric denied it.
Third, there was no mention at all of how the savage cuts that will make the deficit reduction possible are to fall, barring confirmation that £12 billion will be on welfare.
Fourth, supposedly £5bn will be raised from tackling evasion and avoidance but without tax returns from millions of people and with the HMRC cuts already in progress that's just plain fantasy.
And there was not a hint of how to fund the new investment in infrastructure that the UK so desperately needs and which is the only way in which growth can really happen given all that is happening elsewhere in the economy.
In other words, this was a budget that ducked issues, all round, and gave little or no clue as to what the Conservatives will have to offer after an election, which was a quite extraordinary omission.
So let me offer a final thought. Osborne trumpeted the fact that at the end of this parliament the richest are paying a higher proportion of income tax than ever before and the poorest a lower proportion than before. Of course they are. That's because of growing inequality in the UK. And what Osborne offered was a budget for those with money left over at the end of the month and ignored all those who struggle to make ends meet.
In that sense this was a deeply political budget, and that is how it should be judged. And by that criterion it also failed. If by some remote chance Cameron is prime minister in mid May it won't be due to Osborne's efforts today. He'd be wise to note how Major rewarded Lamont and send Osborne the same way.
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Unlike Lamont however, Osborne knows he doesn’t need to win the next election as Labour’s Rachel Reeves, with her declaration that her party has no interest in representing the unemployed or those on benefits (and so presumably won’t be expecting their votes), has done it for him.
Of it all, most consequential I suggest will be the failure to invest in infrastructure (a more sustainable means of stimulating the economy) and away from over reliance on banks and the city of London. Clearly Osborne has learned nothing from the last economic crisis that to some degree was caused by those our economy over rely on for stimulus.
The missed opportunities to impose tighter controls and regulation on the financial services industry have allowed and huge injections of cash have allowed it to continue with business as normal and I fear we will live to regret that failure. Consequences will be dire.
“If by some remote chance Cameron is prime minister in mid May…”
How remote do you think the chances are?
Fairly low
See Ashcroft margiamsl poll today
I too am aghast at the proposals for replacing tax returns other than to note that, to the uninitiated, this seems like a cut in red tape, maybe a sufficient enticement to give the Conservatives their vote. Why has there been no consultation on this proposal? All I need to discover is that Duncan-Smith has been given responsibility for implementing dashboards available to both taxpayers and agents in early 2016, right in the thick of tax return season. I see only chaos ahead on this one.
For me, the most striking issue is that one tax was notable by its absence from anything GO had to say, viz VAT. Could it be that he didn’t want to repeat Cameron’s mistakes of promising one thing but then to delivering precisely the opposite, in that he envisages raising the standard rate to cover the cost of his budget promises and the likely manifesto pleadge to raise the IHT exemption to £1 million.
At least GO is consistent in his insane belief that growing inequality and hitting the most vulnerable hardest is the way ahead. To use Cameron’s word, despicable.
Or 1/2 at every major bookmaker, with Miliband at 6/4. Source: oddschecker
All I saw today was an attempt at a crowd pleaser – an attempt even to bribe the electorate now, but no doubt they are already planning to release famine and disease after they win – if they win that is. I worry that far too many of us will believe it. One of the hardest things to manage in society is ignorance, and then after that it is received wisdom (the big element here being that Labour left us with a structural deficit).
And to hear Labour banging on about the ‘deficit’.
As with most budgets, it managed to bore and terrify in equal measure. Here’s a fun game to play at home… http://www.georgelostmytax.com/seconds
So it’s a tinkering budget rather than a transformative one, with tibits targeted at Conservative voters.
There are some damaging rabbit droppings in the hat and I think that the abolition of the tax return is, as you say, intentionally destructive of our revenue-collection and compliance capabilities.
It could have been worse; and I wonder what we missed.
Ptetty much, yes
What we missed is in the plans he has made for after the election and if they are returned to Parliament. I feel that the detail is within what he did not say.
Larry Elliot in the Guardian did a critical piece on the budget – link:
http://www.theguardian.com/politics/2015/mar/18/walking-tall-paying-way-georges-hyperbole-britain-budget#comment-49133408
For me the most interesting part is the comment by “Middleground” which reflects comments by Richard in the past with respect to the err “performance” (or lack thereof) of the current incumbent of No 11. It is one of the better comments I have read & goes to the heart of the Tory administration – economically the worst in the past 200 years & has built a record debt mountain. The facts are simple – why then are Labour not shouting this from the (debt?) mountain tops?
I wish I knew the answer to that
Surely it is because that Labour also believes in markets and will borrow money too rather than tax wealth properly and increase income that way?
Their behaviour strongly suggests to me key figures in Labour are every bit as corrupt as the Tories/LibDems and are only interested in reinforcing their own financial superiority at the expense of the rest of us. It becomes increasingly clear, whichever of the two/three main parties get in, the great mass of the population will have no political representation whatsoever.
Do you not think that is a bit simplistic? the donations from the finance sector to the Tories are well known/documented – corrupt? perhaps. Labour? they want power (are they corrupt for wanting that?) & one way of getting it is to expose the bunch in power for incompetence, abysmal performance etc. It thus remains strange that Miliband et al do not use the bullets that they have been given – they certainly have a pile sitting in front of them.
A change in the personal Tax Return system was not necessarily a bad idea. At present there is an incredible bunching in January each year, and is very sub optimum for taxpayers, HMRC and tax practitioners alike. The change suggested is probably close to what happens now in terms of inspection and enquiry.
Re the Election I think many people are undecided, the Tories are not liked, but Labour are not trusted.
Stephen
The TR will survive
And most will still be done in January
Richard
Perhaps “the end of the tax return” simply implies that people will no longer be asked to make a return of all their income for the year, but only of the income that isn’t reported to HMRC automatically. So no need to tell them about PAYE, pensions, interest, dividends, and perhaps not about some overseas income (if automatic information exchange covers it). But we’d still need to tell them about self-employment income, rental income, and so on.
The basic idea of not having to give them the same information more than once is good, though it is massively overselling it to call it “the end of the tax return”.
I will, eventually, get to comment on this
The day job is keeping me rather busy….