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I was the Head of Policy and Public Affairs at UNISON Scotland until my retirement in September 2018. I now work on several policy development projects, so all views are very definitely my own. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Wednesday, 21 March 2012

Budget 2012

Billed as the ‘Robin Hood’ budget the Chancellor not surprisingly turned out to be more of a Sheriff of Nottingham. As always with the Budget the devil is in the detail and that takes some time to digest. But here are a few initial observations.

·         Even the OBR is forecasting little change in growth for coming year and lower for future years, although they still look pretty optimistic. Not surprising when demand has been taken out of the economy through public sector cuts. Those workers in a job are less secure, suffering real term pay cuts and as a consequence are not spending.
·         Even the borrowing figures don’t look as good as the advanced spin. Extra £6bn borrowing in February covered in these figures?
·         The increase in the personal allowance is welcome in principle. Taking 70,000 low paid Scots out of the tax system sounds good. However, these are the very same people who are getting hit by other measures including changes in working tax credits, benefit cuts and NI rebates. Plus we should remember that the biggest gainers from this are middle income earners - almost £900 for some households as opposed to the £200 or so for the average household. Many low paid workers will see little of this due to the impact on tax credits.
·         Pensioners will need to look at the small print with the abolition of age allowances. The elderly are about to pay more.
·         Merging tax and NI will need to be studied. It removes the contributory principle and it comes at a time when the government has introduced a stealth tax from next month with a cut in the contracted out NI rebate.
·         The £140 pension sounds good. But watch out for the abolition of the contracted out NI rebate that goes with it. Big additional cost for employers and employees and further disincentive to stick with a quality pension scheme. Just short termism building up huge problems for the future.
·         Regional pay will simply exacerbate the north-south divide and suck even more out of the economy in areas that need the cash the most.
·         Then the big one, cutting the 50p tax rate to 45p. Spurious claims about the amount it yields conflict with previous HMRC admissions. I would trust Richard Murphy on this one. £10bn off welfare benefits and £3bn for the richest 1% - Robin Hood in reverse!
·         We are supposed to be palmed off by a 2% increase in stamp duty on homes worth over £2m. Only 4000 of these were sold last year and that means 99% of the richest 1% getting a tax cut won’t be affected. Yes, a bigger hike if they use the overseas company tax dodges. But how will this element be collected from unknown foreign companies? Peston is good on this.
·         Then the GAAR tax avoidance mechanism. Right in principle but will this one be strong enough? Is it even intended to do anything other than tackle the most offensive dodges? I doubt it given the track record over the treatment of firms like Vodaphone. Plus it requires tax inspectors to enforce and the government have cut them relentlessly. Only recently the Treasury signed off a friendly tax deal with Switzerland.
·         Corporation Tax cut to 22%. There is no evidence that this does anything for growth at a time when many companies are cash rich. Companies are more likely to use the gains to increase dividends than invest in skills. It will also make the bottom line look better and so fat cat bonus payments will go up - even more than last year’s bumper 43% increase for the top bosses. This is a £500m giveaway that could be used to stimulate the local economy in the pockets of the low paid.
·         Measures to boost investment in North Sea will be welcomed in that industry, but they are only sorting out the mess they made last year.
·         £20.3m gain in Barnett consequentials is small relief given the massive cuts in the Scottish budget this year.

I could produce an even longer list of all things missing from the budget. Action on investment, public services, young people and unemployment. But instead this is just the sort of Tory budget you would expect. Tax cuts for the rich, £40,000 each for 14,000 millionaires, paid for by everyone else. At least we didn’t get “we are all in this together”!

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