George Osborne and the Gladstone Budget box on Budget Day 2009. Photo credit: The Prime Minister's Office.
As George Osborne prepares to announce his 2012 budget he is certainly not short of advice from both his Liberal Democrat Coalition partners and the economic and political commentariat. Indeed, should Osborne flick to the opinion pages of pretty much any British newspaper today he’ll find plenty of helpful pointers as to what he should (and shouldn’t) include in his 21 March Budget Day announcement.
The budget is attracted plenty of column inches partly because Liberal Democrat politicians including Nick Clegg have turned up tensions in the Coalition by making clear to the press their support for a “mansion tax” or “tycoon tax,” measures both largely unpopular with the Tory grassroots.
What’s in the box, George? The Chancellor will scrap the 50p top rate of tax from next year and replace it with a new 45p rate, according to The Daily Telegraph. It is thought Lib Dem anger over the plan will be assuaged with a new tycoon tax intended to crack down on tax avoidance, reported PoliticsHome.
This budget has become too political. An editorial in The Telegraph lamented that the budget seems to have become “less an attempt to forge a coherent strategy than an exercise in Coalition horse-trading” and that the “increasingly tiresome Lib Dem attacks on wealth creators and the better off – whether they have centred on arguments over the 50p higher income tax rate, the promotion of a mansion tax, a tycoon tax or an end to the higher-rate tax relief on pension contributions – have dictated the terms of trade.” The Telegraph said that, “this approach has played perfectly into the hand of Labour, who will always be able to outflank the Coalition when it comes to soaking high, or even middle, earners.” “The discussion the country should have been having – about growth, incentives, motivation and a smaller state – has been hijacked by the Lib Dems to show how they differ from the Conservatives over tax policy,” sighed The Telegraph. “Of course, Budgets are always political affairs; but they are supposed to be predominantly economic – and this one risks getting the balance wrong.”
Leaks that enrich policy. Mary Ann Sieghart of The Independent insisted that,“tax proposals should be scrutinised, tested and challenged before they are put into law, not after.” With this in mind, she appreciated Clegg’s leaking of his budget preferences to the newspapers. “Much is made of how the process of government has improved under the Coalition, because ministers from both parties have to negotiate each policy meticulously and formally, with civil servants present,” noted Sieghart. “We should also appreciate the informal pre-Budget negotiation that now goes on in public. It may irritate the Chancellor, but it’s likely to lead to better policy. If the Lib Dems have cracked open the tight walls of the Treasury, we should all give a small cheer.”
Raise the basic rate of income tax. At The Times (£), former Labour minister Chris Mullin insisted “cutting the deficit is simple: raise income tax” and told Osborne it is time we “stop pretending that we can have North European public services on US levels of taxation.” “In all the frenzied discussion about what taxes the Chancellor should raise or cut to balance the books, the one that is rarely mentioned is the fairest and simplest of all: income tax,” boomed Mullin. ”By which I mean not the top rate – which has probably been pushed as far as the elastic will stretch – but the basic rate. Amid all the fanciful talk of mansion taxes and tycoon taxes, slashing child benefit and tax credits, raising the basic rate of income tax would be simplest and fairest of all since, by definition, it is based on ability to pay.” Mullin argued that “the plain fact is that” income tax “is too low to sustain the level of public services that we all, or most of us, have come to expect,” and urged Osborne to “pluck up the courage” to address the growing problem.
“It is no coincidence that the countries in Europe with the highest standard of living – Germany, France, Holland, Scandinavia – also tend to have the highest rates of personal taxation,” argued Chris Mullin in The Times (£).
Banks must get back to lending. Writing at The Guardian’s Comment is free, Guy Hands, chairman of private equity group Terra Firma, wrote: “My plea to George Osborne: let’s have a budget for banks.” Hands insisted that, “just as the banks helped bring our economies to their knees, their success is essential for any sustained recovery. We are simply not going to restore growth unless banks get back to lending money to help entrepreneurs and corporations create jobs and prosperity.” “I can well understand why bankers are unwilling to take a risk,” acknowledged Hands, “they are urged daily, by exasperated politicians, to lend more. At the same time they are criticised for having lent recklessly in the past and ordered to build up reserves to prevent failures in the future. The result is that European banks have no choice but to reduce risk and lending wherever they can while increasing what they charge borrowers.” Hands reminded that, “lending inevitably involves risk. If we are to achieve growth there will be losers as well as winners,” and lamented that, “the beneficial effects of central bank interventions are being restricted by the unrealistic timetables imposed over bank capitalisation. Of course banks must build up more reserves to prevent the taxpayer being forced to bail them out again. But, in the short run, it is a lack of lending rather than too much which is the real danger.”
