The Lib Dems can swarm the bars of Westminster tonight happy in the delusion that their influence forced the Chancellor’s hand in pushing forward their much-vaunted plan to lift more people out of tax. It’s a decent enough measure – 2 million low paid workers will be lifted out of tax altogether and everyone will be £170 (after inflation) better off from April next year.
But it will scarcely put back into hardworking families’ pockets the money that is being removed from them THIS April through the squeeze on tax credits.
And in terms of representing the beginning of a wholesale redistributive shift from rich to poor, that was wir lot. In the main, the direction of travel was in the opposite direction.
Yes, the Lib Dems got what they wanted on this but that was it. Oh they’ll claim – particularly in their once rock-solid Heilan heartlands – that the freezing of fuel duty and inflation-only increase in excise duty benefits motorists at the petrol pumps. But given the sleight of hand the oil companies performed by increasing the price of a litre of fuel just before the fair fuel regulator was introduced, thereby enabling them to reduce the cost to the level it had always been, I really wouldn’t count on the price of petrol staying frozen. They’ll find an excuse to raise it: they always do.
These measures aside there really was very little for families in the low to middle income range to cheer about. And not an awful lot else for Scotland – enterprise zone status for Irvine, Nigg and Dundee; reinstatement of the tax exemption for the computer games industry; some level of restitution of tax breaks for the oil and gas industry. Every little helps, as the saying goes. But a lot would have gone much further.
The central goal of this budget might have been to support working families, as George Osborne claimed, but really it is the better off ones who will benefit.
Who gains the most? Big business and rich folk. Who pays as a result? The poorest pensioners.
Big business will be celebrating with a magnum or two – duty frozen after all – for the Chancellor’s attempts to create economic growth by giving them a tax cut, though bankers might want to put one of those magnums back on the self, for the increase in their levy effectively means banks will not benefit from this measure. Corporation tax is coming down by 1 per cent immediately and two further 1 per cent cuts in 2013 and 2014. The aim is to get it down to 20p in the pound. This has been heralded as a major breakthrough, but isn’t this a retread on a previously made commitment?
No matter, it ignores the reality that most businesses are too small to pay any corporation tax (though some will benefit from the promise to simplify tax for those generating income less than £77,000 per year). It is the big companies, the multi-nationals, the ones with shareholders largely who gain the most from this. Will they pass the cut on to their customers, clients and staff? Probably not. Most likely, it will pass straight into the already bulging bank accounts of employees at the top in the form of bonuses and also to shareholders in the form of dividends. The rich, you see, are good at keeping wealth for themselves.
The Chancellor is keen to do his best to help them. Thus, the supposedly controversial cut-off for child benefit – not in this eyrie – has been raised. The cliff edge has been transformed into a raised beach: folk earning £40k a year will still get their wine and gym ration, those earning £50k will start to get a cut which will only taper out completely at £60k.
As if this wasn’t enough, these same families will also benefit from a reduction in higher rate tax to 45p. Oh and they get to keep the higher rate pension relief too.
For long enough, pensioners have been the great economic untouchables. Because they vote, successive governments have been chary of annoying them. While other demographic groups have been targeted by changes in the past, their benefits have been improved. And rightly so. Pensioner poverty has long been a disgrace in this country: one of the few things the last UK Labour Government got right was to try and create a little dignity in old age for the many, not the few.
No longer. The freezing of age-related allowances from April 2013 will pull in the £3.3 billion needed to meet the acceleration in the personal tax allowance rise for others. In cash terms, it means the oldest people in our society will be worse off by as much as £83 per year, though the effect of rising costs for heating, lighting and food might result in even greater hardship.
The shift to a flat rate pension of £140 for new pensioners – also linked to contributions – will also result in hardship for some. Instinct tells me – and yes, it would, wouldn’t it – that women might be hardest hit by this move, especially when combined with the pensionable age rising for this group. Many women still retire without having maxed their contributions due to years lost to child rearing and lower pay generally. Admittedly, the contribution link is not clear – the devil is always in the detail with the budget – so there is hope that women and low paid workers will not be penalised, but it is a faint one.
At heart, this is a budget that rewards the rich and penalises the poor. And now that they have shown their true colours, no doubt they’ll be giving them a further airing in future budgets.