Thursday, 24 March 2011

Osborne's Budget

Of all the announcements, the merging of NI and Income tax is potentially the most significant. Other than that, the budget contained mostly steady-as-she-goes measures, with the political necessity of meeting a stupid election promise - the fuel price stabiliser.

Let's deal with the Brownian crap first. Rating benefits and tax allowances to CPI instead of RPI is a stealth tax of some import. In time that will significantly erode their real-terms value. As far as the UK is concerned, CPI has NO basis in most people's cost of living. You might as well index such things to Rick Astley's download statistics.

The Fuel price stabiliser: no duty escalator if the Oil price is over $75 (subject to consultation) paid for by a really good, hard dry fisting of the North Sea Oil companies is politically sensible, though economically less so. For those holding stocks in North sea oil co's, though, it just seemed vindictive. For a practical, micro-level demonstration of how the Laffer curve works, read this post from Capitalists at Work. Politically, Osborne needed to do something to meet the truly daft idea from the election (which when they thought about it for 5 minutes I'm sure they hoped would just go away...) and did so with as little damage as possible. Though why they couldn't have just cut a meaningful amount from duty to AT LEAST cover the recent VAT rise is beyond me, but the manifesto commitment was met and the papers appeased. Or most of them at least.

Osborne boasted of removing 100 pages from the tax code, which is a start, it's a sticking plaster on the gunshot wound which is Gordon Brown's near quadrupling of its length. Why no action on tax credits for example?

But that's carping, the cut in corporation taxes are welcome - signalling that the Government doesn't HATE businesses like Gordon Brown did, but I don't understand the point of corporate taxes: People end up paying it; either the Owners of capital get lower returns, employees lower wages or customers higher prices, some cuts in corporation taxes will be regained by taxes on these: most evidence suggests that with returns on capital being pretty level across countries, corporation taxes fall mainly on customers and workers.

The best news, though is the imminent end to NI, which has long been a fiction to enable what became under Gordon Brown the most complicated and confiscatory tax regime in the world. Thanks to misalignments between the rates of NI and Income Tax, there are two narrow bands where the marginal rate of tax is an eye-watering 62%, and even those on low incomes are taxed at a disgusting 32%. The only remaining function of NI is to hide from the British People the tax they pay. This should have been done decades ago, along with ending the capricious contributory requirement for pensions: it's tough on women especially, forces people onto means-tested benefits and ends up saving the country very little, if anything. And what is the point of the Employers' contribution? Why split payroll taxes except to hide from the people how hard they're being raped by the government?

If Britain's eye-watering taxes are to be cut, the British People, especially those who are net contributors but believe they aren't, must have their noses rubbed in how much they actually pay so they start focusing on that rather than the rather spurious "benefits" of most of that money. Put it like this. If you had a 30% pay-rise, you could go on holiday somewhere better than Skegness, save a bit AND save up for Junior to be educated properly. If it weren't for the complete bureaucratic capture of the Labour party and the public sector, a 30% cost cut could be achieved without affecting "front-line" services, by firing 00's of '000's of the unnecessary extra whitehall pen-pushers hired since 1997 (a forlorn hope).

A small mention in the budget, though is bigger news. It's the beginning of the end for Labour's '47 settlement. The doctors are getting the health service back, in effect destroying the disastrous and soon to be unlamented NHS (though the name will live on, as it's the British religion). On welfare, NI, long a fiction is on the way out, and benefits will be simplified. Taxes will become flatter, and lower. Capital and profit will be taxed less and as a result the country will be richer as a result. The budget goes nowhere near far enough in cutting the thicket of allowances and gimmicks, nor does it reduce the enormous burden in any meaningful way, but it sets out a plan which MIGHT lead to these things. As such it's probably as good as we're going to get, given the disastrous state in which Labour left the country.

A Handy 3-minute guide to the Budget can be found here.



6 comments:

Mr Ecks said...

Sorry Jackart but no--they fiddle around a bit while the spending still goes up and 4-5% inflation will wipe out any (very small)benefit very quickly indeed. Meanwhile, your plastic faced hero announces (via his stooges)that British troops who survive the next year or two can look forward to being made redundant (so that he can kiss the arse of his EU masters and they can have the EU military they want) oh, and by the way, we're getting involved in another war we can't afford.

manfromthefuture said...

for people on low incomes, assuming they're employed, add another 12.8% to that 32% to account for the invisible employers' NI. That's about 45% *before* you spend it.

much though i'd like to see the elimination of NI, i am very sceptical whether this will ever be a reality. instead, i'm expecting everything to be renamed and moved around in the usual political switcheroo where, when the dust settles, we're finding we're paying just a bit more than before.

people on low incomes are paying more in NI than they are in income tax and this has been noticed, or it will be, if the government continue to increase it. The real motivation for this change is to make a clean break to a new tax ratchet so as to start turning it again.

increasing taxes is the only way the government can ever hope to control borrowing. that and printing money, which annoys rich (and influential people) people.

expect more taxes.

lost_nurse said...

The doctors are getting the health service back

If you believe this, you are being naïve. FFS, would that be why most of them (inc many GPs) oppose these reforms? The ConDems are merely enlarging on NuLav's propensity for handing everything over to Serco.

My dad is retiring after a lifetime in public healthcare (a long, long journey from Army medic to Consultant Paediatrician). He's done his bit - and I'm glad he's getting out now, so he doesn't have to deal with the coming shitstorm. Or explain to market-addled politicos why "competition" isn't the most useful concept in paediatric intensive care.

Charles said...

People underestimate the importance of the administration hassle.

I am the Treasurer of our local Church and the administrative burden of handling NICs for our single part-time employee was simply massive. We ended up sending several hundred pounds a year having an outsourcing company handle it (money we could well have used ourselves!)...and ultimately had to let the administrator go when things became too tight

sewa mobil said...

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Pat said...

The point of Corporate taxes, and employers NI, is that thereby the government can take money from people and have the people think that businesses are the ones doing the taking.

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