Alex Belardinelli, Ed Balls’ former advisor summed up the political fault lines that have crystallised in the wake of today’s Budget, suggesting: ‘George Osborne will want to pitch his flag in the centre-ground with an audacious claim to be the real workers’ party – but he risks undermining his own rhetoric if he pursues substantial cuts to tax credits. Labour’s challenge is to explain how tax credits make work pay for the striving families the Tories purport to stand for, while not appearing to be against welfare reform of any kind.’
To that end Osborne has played his hand masterfully. A commitment to a ‘living wage’ could set the narrative in the way he did in the early stages of the last Parliament. Despite significant changes to social housing tenancies, and a major reduction in both welfare and tax credits he has begun to control that narrative.
The living wage is a weak commitment given inflation will catch up with it before its introduction in 2020. Yet the Chancellor is the master of making his spending plans give him a double dividend – both political and economic. His has a history of shooting Labour’s foxes, but this may go down as his greatest masterstroke.
Coupled with the living wage is an attack on non-doms. Much of the devil will reside in the detail, but it strikes us that the key feature will be on reforms to trust taxation, where the trusts are settled by UK resident non-UK domiciled individuals. The Chancellor’s attack was smart: it will not surprise many that non-doms will lose their tax advantages when they have lived in the UK for a certain period of time. He is able therefore to capture the political dividend without the flack that Labour drew when they announced that they would scrap non-domiciled status altogether.
All in all a slick political manoeuver from the Chancellor. However, Greece shows us that our assumptions can falter over time. If the economic projections are wrong the optimism in the Treasury, the Conservative benches and in business might be damped severely. In that case, the OBR’s statement that exports remain well down on the target of the Chancellor that he made when he first took over could be a dangerous warning. It is telling that during the past three weeks, even as the Chancellor and his prepared his speech, Chinese stocks lost a third of their value, indicating the turbulence of international economics and providing a stark warning against complacency.
The Budget at a glance:
Deficit forecast: 3.7% in 2015/16, 2.2% in 2016/17, 1.2% in 2017/18, 0.3% in 2018/19, a surplus of 0.4% in 2019/20
NHS: £8 billion more a year, on top of previous £2 billion commitment. £10 billion yearly real terms rise.
Public sector pay: Pay rises frozen at 1% for four years.
Tax avoidance: £750 million for HMRC to go after tax evaders.
Non-doms: Abolishing permanent non-dom tax status.
Banks: Bank levy reduced, new 8% surcharge on bank profits.
Transport: Tax on new cars to go into new roads fund. Fuel duty remains frozen this year.
Devolution: More devolved powers for Manchester. Devolution for Sheffield, Liverpool and Leeds possibly to follow though taking longer than before. Oyster cards for the North (as predicted in last week’s WW).
Housing: Mortgage tax relief for buy to let landlords restricted to basic rate.
Inheritance tax: Threshold increased to £1 million in 2017.
Business: Annual Investment Allowance for small and medium sized firms raised to £200,000.
Corporation tax: Corporation tax cut to 19% by 2017 and 18% by 2020.
Welfare: New youth obligation to earn or learn, no housing benefit for 18-21 year olds.
Childcare: Free childcare for 3/4 year olds of up to 30 hours a week.
Disability: ESA for new claimants cut by £30 a week.
Welfare: working age benefits frozen for four years.
Housing: Rents in social housing to be cut by 1% a year for next four years.
Tax credits: Threshold at which tax credits withdrawn down from £6420 to £3850
Benefit cap: Cut to £23,000 in London and £20,000 elsewhere.
Child tax credits: Limited to two children from 2017.
Tax: Personal allowance raised to £11,000. Higher rate threshold raised to £43,000.
Defence: spending to increase at least in line with inflation every year, commitment to 2% of GDP.
Wages: Introducing new compulsory National Living Wage from next April, £9 an hour by 2020.
He was formerly Head of Policy at the Society of Trust and Estate Practitioners (STEP). With degrees in history and economics from the Universities of Oxford and London, Jake is a Fellow of the Royal Society of Arts, a trustee of the European Association of Philanthropy and Giving and advises several governments on public policy. He also advises clients on CSR and philanthropy activities.
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