Taxes rise but where are the spending cuts?
George Osborne’s balance in his first budget had to be to stimulate wealth creation while cutting state spending, but the new coalition chancellor has delayed the expenditure cuts while taxing business as much as it gains.
A gradual cut in corporation tax from 28 to 24 per cent sounds attractive but Osborne admitted that business has to pay for its own benefits. So capital allowances will be spread out over a longer period. Hopefully the levy on the banks – just £2bn a year – will go into the business kitty and the National Insurance concession for small companies will boost jobs.
But private companies will bear much of the brunt of the public sector spending cuts. These will total another £17bn on top of Labour’s planned £44bn cuts but until the autumn spending review, there are still no specifics on where the axe falls. However, if the NHS and foreign aid is ringfenced, that looks like a 25 per cent reduction in departmental spending – more in some parts of Whitehall if defence and education are to be treated softly.
The one-year freeze on council taxes was not as tough as the chancellor should have been on town halls, but even with a pay freeze, these cuts cannot all come of wage bills and will mean fewer orders for private-sector suppliers, despite the safeguarding of capital projects.
And the failure to stimulate wealth creation is reflected in the forecasts from the Office of Budget Responsibility. While is does not predict a return to recession, the slow fall in unemployment – from 8.1 to 6.1 per cent over five years – shows the difficulty in creating jobs. And it is wishful thinking to believe the attack on welfare benefits will get people into work.
So although the chancellor thinks 77 per cent of his efforts to balance the budget should come from spending cuts, it is the 23 per cent from tax that we know about. The increase in capital gains tax to 28 per cent is better than the feared 40 per cent, but the rise in VAT to 20 per cent is as bad as predicted. Osborne has wisely avoided trouble by extending VAT to exempt goods, however, and is wisely implementing the increase from next January.
With luck Osborn will have his cake and eat in on VAT. He will create a mini-boom as shoppers rush to beat the tax rise but not see demand fall dramatically after January. In that case, business will not see its sales volumes hit but the exchequer will receive an extra £13bn of revenue. However, such sums have to come from somewhere: for high earners, the extra Vat will more than offset any income tax saving.
June 29th, 2010 at 9:27 am
DOF Blog.29th June 2 10
George, well done on the election result and the solid way you have set about the job, the very fact that it seems the people of this country have accepted the need for restraint and the winding down of the benefit era has clearly left others around the world shocked, surprised, and bewildered and clearly asking themselves could we go that far, and that very fact that you carry the weight of the people with you has market collateral… real value.
But! There is one real pivotal point that you are understandably avoiding and for everyone’s sake you should consider the implementing.
I refer to a conversation my wife and I could not help overhearing between three teenagers in Mc Donald’s in the London Rd:” are you going for the job for live option” yeah! My mum says that I should have it straight away cos you will anyway one day and the clock is ticking and if I pay her half the child benefit she will put mine with hers and that would give me free time plus she reckons her sisters friend in the housing department can get me a 1bed flat to myself and they send someone round to do all the forms for you and my mum wants another flat for when her brother comes out so I gotta do it really.
There, right there is the answer, no child benefit , no housing for the first child starting in nine months from now, change the mothers attitude and you change the culture, because she now knows it is she that gets to house the teenager and the new child until the second arrives, and that she will not do.
Oh, and clear out the nepotism in the housing department one connected claimant signed on means one public servant released, there is no point in paying both the claimant and the facilitator, something has to give if we are going to bring this mindless vicious circle to an end, and allow teenagers to be exactly that young citizens in their own right, at least get them into adulthood before making these decisions.
One area of contention which could turn the ratepayers off is the housing of early release into the communities the Bail and Accommodation Service is raising temperatures even at this early stage watching or good men serve abroad and the compare that to a lag getting 3 square meals a day, not less than 80 yds from a primary school really baulks. Stop that one dead in its tracks the savings made are just not worth the loss of goodwill that you need to get the austerity measures fully underway.
Trust me on this I am on the ground and the backlash from this ill thought out idea is really starting to bite, to say nothing of the coup you have given every opposition councillor with a propensity to create mischief, it’s a tool from the gods to them, pull the contract from Stoneham.
Rgds
Kk
K..lb..e