Tuesday, 22 June 2010

Budget Day....

Just hours after George Osborne delivered his first budget and it is fair to say the dust has far from settled. We were warned, of course, that this would be an unpleasant budget and both Osborne and Cameron did the media circuit at the weekend accepting that their popularity would suffer in the wake of today's announcements.
Osborne began his speech by outlining headline figures and concentrating on some of the macro economic figures; his intention is that by 2014/5 Britain's books will balance and that debt will be falling. Unemployment, he said, will peak next year at 8.1% but will be in decline to 6.1% by the end of this parliament. He stated that his rule of thumb is to work on a 80/20 ratio of spending cuts to taxes; and for this budget he has achieved a ratio of 77/23 - a sign, according to the BBC's Nick Robinson, of some LibDem influence. The camera hid David Cameron; giving the impression that Osbourne was flanked by his LibDem colleagues; Nick Clegg looking more smug and Tory-like than ever before and Danny Alexander still wondering how he got to be in the front bench of the Commons as Osborne's sidekick...

The big news is of course the increase in VAT from 17.5% to 20% from January 4th 2011. This measure was widely expected, but is still a disappointing move given the effect on the poorest. ONS statistics show that the richest 10% pay £1 in every £25 of their income in VAT; the poorest 10% pay £1 in every £7 as VAT. It simply cannot be denied that this move affects the poorest in Britain and counter balances any other measures that are designed to help them.

Regarding departmental budgets; the NHS and International Aid budgets have been protected but Mr Osborne announced that on top of the £40bn spending cuts that the previous government outlined he had found a further £17bn cuts in departmental spending. All other departments will be subject to 25% decrease in budget over the next four years, with seemingly some flexibility around this for Education and Defence. As an example, this could be a £10bn cut from the Home Office budget; and it is hard to see where these cuts can be made without reducing the police force and other vital, front line services.

As feared those working in the public sector were hit hard, a review of the public sector pensions was promised as well as pay freeze for 2 years for those earning more than £21000. Undeniably a cut given inflation; another blow to the so called 'protected' front line.

He confirmed that John Hutton will be looking into the benefits system in more detail and his report will be ready for next years budget; but some changes to benefits were ready to be unveiled..the headline grabbers will be:

  • Child benefit frozen for the next 3 years
  • Accelerating the increase in pension age to 66
  • Review of disability allowance, including introduction of a medical examination
  • Cap on housing benefit, maximum up to £400 per week for a four bed home (in London!, how on earth?); saving £11bn by the end of the parliament. He did, of course, tell the obligatory story of the family claiming £104k per year...the reality is there are 100 families in Britain claiming £100k - surely isolated and could be dealt with locally?
  • Scrapping the Health in Pregnancy grant, Surestart maternity grant, the Savings Gateway
  • Scrapping child tax credits for those families with a joint income of £40k plus
  • Increase of £150 above inflation for child tax credits
  • Public sector pensions, benefits and tax credits will be linked to the CPI rather than the RPI from now on, effectively cutting them
  • Relinking the state pension to earnins

In terms of tax rises and changes the big ones, aside from VAT, were:

  • Rise in Capital Gains Tax, staggered so that those in the lower tax bracket aren't affected; those in higher tax bracket will see an increase up to 28%
  • Increase of £1000 to the personal tax allowance threshold, rising to £7475 - taking 888,000 out of the tax system and affecting a further 23 million basic rate taxpayers
  • Introduction of a banking levy from January 2011, France and  Germany to follow suit.
  • Cuts in corporation tax, phased over the next 4 years
  • National Insurance holidays and tax cuts for some regional and small businesses, in order to encourage enterprise
  • The government will 'assist' those local authorities wanting to freeze council tax next year. Given that these very local authorities are victim to some of the toughest cuts, it will be interesting to see how this pans out.

The Chancellor also announced his plans to sell off NATS (National Air Traffic Services), the student loans book, TOTE and repeating the intention to inject private capital into Royal Mail; he also announced that the civil list will once again be frozen and that the list will be subject to scrutiny by the Audit Commission.

Osborne ended his speech by suggesting that this was a 'progressive budget' and that there would be no increase in child poverty numbers as a result of it's measures. Harriet Harman was passionate in her response; attacking the Liberal Democrats for their duplicity and damning the budget as one that would cost thousands of jobs and would affect the poor the most. She noted that the area most adversely affected would be Merseyside, and the least affected? Cheshire, home of Mr Gideon Osborne.

All commentators agree this was a tough budget and included the harshest measures for the last 30 years; no one will come out of it better off and there will be tough times ahead for many. It has to be said that those at the bottom of the ladder seem to have the least rosy future; a reduction in many benefits and few jobs to go out there and get...how single mothers are supposed to go and find jobs when their children reach 5, given the economic climate and the need for flexibility is anyone's guess....
It would appear though that even more difficult times are ahead; in October's budget each department will announce where they are making their 25% of cuts - here is when the knife will go in even deeper...we fully expect more cuts to filter through over the next few weeks and I intend to keep track of them on the blog. If you have any comments regarding specific cuts or general thoughts please do comment. The future is certainly not bright, it is looking very blue in more ways than one....

1 comment:

  1. 'Progressive' in cash figures...in proportion terms...different story indeed