Welcome to my Blog

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, 16 March 2016

Budget 2016 - All that you would expect from a Tory budget

It is a typical Tory budget. There is plenty of middle class welfare at the expense of workers and the disabled, together with further cuts to public spending. I take a look at the elements that most impact on UNISON members in Scotland.

While the sugar tax (more accurately a levy) will make the headlines tomorrow, it is largely a distraction from some pretty bad economic figures. In particular, the growth figures for the economy are revised down and borrowing targets have been missed. The UK economy is £140bn smaller than the Chancellor planned due to spending cuts, low productivity and weak wage growth. George Osborne has clearly not heard of the maxim; ‘when in a hole, stop digging’ – because his solution is to drag the economy down further with more cuts and pushing households into greater debt. 

So let’s start with public spending. The bad news is £3.5bn of extra cuts from last November’s plans. The slightly less bad news is that they don’t kick in immediately – in fact they now drag past the date of the next UK General Election. This chart shows the changes.

This snip from the OBR risk table shows the revenue and capital cuts more clearly. In particular, note the line on public service pensions. This is not because they are actually costing more, but rather because he has changed the discount rate. This is the assumed investment return used in a present value calculation of assets. Sounds technical, but it comes with a big price tag for public services.

For Scotland, this means an immediate Barnett consequential of £650m in additional spending. However, yes you knew there would be a ‘but’, that still means £1bn (4.7%) of cuts by 2019-20.  We also still don’t know the Barnett impact of the £3.5bn additional UK cuts; because they haven’t said which English departmental spending they will come from. There could be additional pain for local government if the SLGPS has to change its discount rate in line with the Chancellor’s lead.

The OBR also publishes its estimate of the revenue from Scottish taxes in this chart. 

Scotland’s share of UK income tax is falling, but slightly less than previously forecast.

This chart shows the proportion of total taxpayer income by income bands. This reinforces the points made in the recent IPPR Scotland paper regarding taxation choices. In essence all good things have to be paid for, and by middle income taxpayers as well as the rich.

The next Scottish Government will be left with some other tricky decisions as a consequence of the changes in personal allowances. Increases in personal allowances at the bottom are dressed up as benefiting the lower paid, when in reality they also benefit everyone across the tax bands – they are not a progressive tax cut. The increase in the higher tax threshold is a blatant tax cut for wealthier households, paid for by cutting benefits for the disabled by £1.4bn. Let’s hope the next Scottish Government doesn’t stand ‘shoulder to shoulder’ with the Tories on this one.

Another tax decision for the next Scottish Government is Air Passenger Duty. The SNP want to cut it by 50%.  The OBR forecast receipts rising from £3.1 billion in 2015-16 to £3.9 billion in 2020-21. Making the cut even more of a burden on the Scottish budget, not to mention the 60,000 extra tons of carbon emissions. Anyone really care about climate change?

The cut to Capital Gains Tax is more middle class welfare and taken with the cut in Corporation Tax will encourage income tax avoidance by shifting earnings from income to profits. The new ISA limit at £20,000 is higher than the average wage of a Scottish council worker, which gives a pretty clear indication of who benefits the most from this tax handout. 

The sugar tax may be a distraction tactic, but it is still a sensible public health policy – even if it is branded as the Irn Bru tax in Scotland. It probably could have been introduced a year earlier than planned and cover a wider range of sugar products. It might bring as much as £52m in Barnett consequentials according to some calculations today. Obviously less if it has the desired effect in changing manufacturers behaviour. 

Buried away in the OBR report are a few other interesting points for UNISON members.

Average earnings growth in the second half of 2015 has been lower than expected in November and the OBR has revised down average earnings growth. They also expect real household disposable income growth to have peaked at 2.9% in 2015 and fall to average 1.7% a year from 2016 onwards. Inflation is expected to increase as this RPI chart shows.

The hollow rhetoric of a ‘workers budget’ is exposed in this chart, which shows that it is those paying National Insurance and tax through PAYE who face an increasing share of tax. They can’t take advantage of the tax avoidance mechanisms.

The Chancellor is yet again relying on household debt for economic growth. I usually describe this as the scariest chart in the OBR report. Well it just got scarier!

No more talk of rebalancing the economy. Just as well as exports are forecast to decline.

The Chancellor’s decision in 2013 to increase National Insurance contributions will give him a £5.6 billion windfall, with around 50% of the extra burden falling on public sector employers in higher employer NICs. His so called ‘pensions choice’ exercise has also netted him an extra £0.9 billion for the whole of 2015-16, around £0.2 billion higher than assumed. The, sort of, good news on pensions is that there are no changes to tax treatment, although some sensible reforms are necessary. Salary sacrifice schemes that many workers rely on to pay their contributions will also remain. 

In summary, all that you would expect from a Tory budget. As UNISON General Secretary Dave Prentis said: “Six years of severe cuts to public spending have done little to pay down the deficit, despite the Chancellor’s promises. Yet still he insists on continuing with his failing economic experiment."

Jeremy Corbyn also sums it up well!

For those who also want to read the all important small print - here is the Red Book, mostly government spin. And the more useful OBR report, plus the devolution tax paper.

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