Thursday, March 22, 2012

It's a Budget of Two Halves

The main redeeming feature about the budget is that it is obvious which part is owned by which party. Would a Conservative budget have brought in tax cuts for the lower incomes and move towards a clampdown on tax avoidance by the wealthy? Would a Liberal Democrat budget have reduced the top rate of tax, partly paid for by a raid on pensioners? Of course not – you don’t need to be a political animal to know that.

But it is a coalition government and hence a coalition budget – both parties must stand or fall by it. So while the Conservative party can claim credit for introducing Liberal Democrat policies, so must the Liberal Democrats share the blame for Conservative actions.

Both parties made moves towards their Number One income tax objective and I expect will hope to complete the task next time round – with the top rate back to 40% and the threshold up to £10,000. These tax changes will not come into effect until 1 April 2013 – over a year away – and we will have had another budget by then, so it will be a while before we see the consequences, although I don’t go along with the view that millionaire investors will come flocking back to the UK. And we will all especially be keeping an eye on events around the Eurozone.

The cut in the top rate of income tax is a disappointment and the wrong move. As I argued in my last entry, history shows that such a cut has no effect on growth or jobs – it is simply more money in the pockets of the wealthy. So long as they don’t buy an expensive house, they will be quids in.

The tax cut presents an open goal for Labour and it remains to be seen how they make use of it. Would they restore the tax if elected tomorrow? It also depends if Labour follow their usual policy of going after the Lib Dems and giving the Tories a free ride.

While we must share the blame for the top rate cut, we have to accept that, as the junior coalition partner, there is only so much we can do. At least we can proudly state that the threshold at which you start paying tax has made its biggest ever leap and we should make it £10k by the next election – whatever happens, no-one can take away that achievement.

As for the rest of the budget, I felt it was rather unimaginative concentrating almost entirely on tax. I would have liked to have seen more on job creation and growth – just putting forward optimistic forecasts is not enough.

We knew most of the budget in advance – so the ‘granny tax’, as it is being called, was a surprise. (Also a surprise that it was not leaked). We in the south east should be concerned about the review of airline capacity. And the usual targets surfaced again (smokers, drinkers and drivers).

Overall, though, clearly a budget of two halves. We must proudly fly the flag for our half.

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