There is much to like, and much to deplore.
The steady cuts to personal income taxation continue the trend under this Government of moving the tax burden from income to consumption. The continued cuts to corporation tax are welcome, and whatever idiot journalists say are virtually cost-free to the exchequer, as money not paid out in corporation tax mostly ends up in wages (to be taxed more highly) or investment (which everyone says we don't have enough of). Companies don't pay tax, people do, so corporation tax is a fiction and always has been. Did I mention we don't have enough investment? Capital gains tax has been cut. Because taxing capital is silly. And the ISA allowance has been raised for the same reason.
Now the only people who pay capital gains taxes are people with large lump sums outside ISAs. These are people who're so rich they can afford to save more than £15,240 a year, and those who inherited money. So big ISA allowances are moderately progressive.
So far, so good. But there are further disincentives to selling property: namely the increase in stamp duty for buy to let landlords. And there are further tax privileges for the first home in the form of the 'help to buy' ISA into which the Government bungs some taxpayers money to help first time buyers "get on the housing ladder".
The UK's insane system of property taxation of encourages home-hoarding, and entrenches the perverse idea in the British public's mind that your house is an investment, not just something to live in. In most of the world, rent and purchase are more-or-less interchangeable. But in the UK, the disincentives to sell are behind much of the continual ratchet up of house prices. The problem isn't that there aren't enough houses - everyone has a roof over their heads after all. The problem is that the UK housing market is insufficiently assortive: people can't afford the RIGHT housing in the right place and must therefore pay through the nose.
We need to scrap stamp duty on property entirely, and increase the taxation of property values giving empty-nesters an incentive to sell that property on to someone who might value its space higher. Unfortunately council tax, which needs re-banding, is a political third rail.
Families cannot afford family homes, because family homes are being held onto by people whose families have long-since flown the nest. So families are being brought up in rabbit hutches, because Granny has no incentive to downsize. Indeed she has an incentive to rattle around in the big house until she dies, when that house will be once more privileged in the inheritance tax system. She will then pass it on to her children, whose own children will have already flown the nest too, and so the cycle continues.
Meanwhile, the assault on Buy-to-let landlords means the supply of rental homes will dry up too. The "housing crisis" will be made a little worse by this budget.
If a family wants a family house, either Daddy has to be very, very well paid, Granny has to die young, or be very, very generous. And the Tories have a massive blind-spot about people's houses. Thatcher's dream of a "property-owning democracy" casts a long shadow, and measures to facilitate this, are now actually behind the sheer unaffordability of property for the average worker, while working against increasing the supply of reasonably priced rental homes.
One thing I will say for the Chancellor, the Sugar tax has done its job. It's a pissy, regressive, fabian authoritarian little bit of nanny state spite. If you think taxing sugary drinks is about obesity, I've a bridge to sell you. It's a bone thrown to the Daily Mail authoritarians, gets a noisy and oddly influential mockney prat with a fat tongue to support the Government and because everyone's talking about it, It's an effective dead cat, flung on the table to distract from controversial cuts to benefits, income taxes and corporate taxes, which are mostly going unnoticed; as is the "miss" of fiscal targets.
Ah yes, the targets. The worst thing about political journalism is the absurd weight that is put on Office of Budget Responsibility fiscal forecasts. If there's one thing less interesting than the deficit, it's an official guess as to what the deficit might be in 5 years. Then, armed with this utterly fictional state of the finances 5 years out, journalists hyperventilate about whether the Chancellor has "hit" or "missed" his target to balance the books by the end of the parliament, and go on, and on about how much he "has to spend" or "has to find" in the future. So the chancellor puts measures in that may or may not come to to be superseded in future budgets, just to "hit" a "target" that only really still exists in the minds of journalists.
Labour excoriate the chancellor for "missing his own target", while opposing anything that might bring the books into balance. The deficit is falling, perhaps not as fast as many would like, but debt to GDP isn't rising all that much, and may soon start to fall. Thus the deficit is under control, to the satisfaction of international creditors, and there's no risk of a run on Sterling. So the target to balance the books, and get the debt burden down is a noble one, it's also pretty low on a sensible chancellors list of priorities right now. The rabbit he's hoping to pull out in the next few years is a big increase in productivity which will finally close the "output gap" bring down the deficit and raise people's living standards, and cover the "living wage" without increasing unemployment, all in one go.
I don't think there's an awful lot the chancellor can do to increase productivity, though cuts to corporate taxation will help a little. We're still dragging ourselves out of the mother of all balance-sheet recessions, which means investment is low, productivity growth is low, nominal wages aren't rising fast enough, and the economy sits on a permanent risk of deflation.
Personally I think the Chancellor's threading the needle between "stimulus" and Japan-style debt mountain pretty well in what remains an extremely cash-constrained fiscal situation. But let's encourage him to deal with the perverse incentives in property taxation that have long poisoned the British economy, before bleating about fictional forecasts or whining about a silly nanny state sugar tax. The fixation people have on stuff that really doesn't matter is beyond me.
Thursday, 17 March 2016
There is much to like, and much to deplore.