Friday, 23 March 2012

An excellent budget, with one (well, two) tiny flaws...

Well, if this is the dreadful reality of coalition politics that so many have warned about, then perhaps we ought to allow such a catastrophe to happen more often. While some of the reaction in the papers to the budget has been pretty bad, most people (who by-and-large don't read newspapers, of course) can look at it as an overall package, and actually breathe a sigh of relief. Excellent work by the Lib Dems has moderated the worst instincts of the Tory-led government, and in many ways brought out their better side, such as long-overdue tax relief for lowly paid workers. Is this really what anybody would've expected of a Conservative budget at this stage of an enforced austerity drive? No, and we have Liberal influence to thank for it.

But I'm not going to go over the good points in exorbitant detail, many others have and will continue to do that better than I can. Once a cynic, always a cynic; so I'm just going to mention these slight oddities I've noticed.

  • Firstly, it is claimed that the 50p tax rate does not raise enough money, due to avoidance. Therefore cutting it to 45p will not diminish revenue gained from the rich overall, thanks to closing loopholes which will reduce tax avoidance. My question is: if the loopholes can be closed, why not leave the rate in place, and raise even more money? Further measure mentioned for the future, like a general anti-avoidance law, are only likely to increase its capacity for revenue raising. If the rich paying more is desirable, why give up after only one year?
  • There is the argument that the 50p rate is damaging to the economy, demotivating richer taxpayers from creating the wider wealth that we badly need. Opponents have been quick to declare that a "Granny tax" is a bad way to fund this, and it would be, if the equalizing of the income tax allowances for working people and pensioners had been anything of the sort. But that's the wrong comparison to make. Look instead at the removal of child benefit for better-off families. Perhaps it is right to remove these benefits from people who earn £50-60,000, more than double the average wage. But how can it also be right to use this to give a tax cut to those who earn twice as much again? Isn't this almost the very definition of squeezing the middle?

Please feel welcome to comment if you can see how to reconcile these problems...

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