Thursday, July 09, 2015

Budget July 2015. Comfort for the comfortably off. Worries for the vulnerable.

After experiencing a very even-handed general election bringing a startling Tory win, our Chancellor George Osborne in his July budget has slammed Labour relentlessly against the ropes in his 'socialistory' budget. With eye-popping boldness he is interfering with the wage market and forcing firms to pay more than Labour's promised minimum wage and has trashed Gordon Brown's tax-credit machinations of many years - both at the same time and rather deceitfully naming the new minimum a 'living wage'. He is neatly using this second five year parliament to stretch (or excuse) his deficit reduction goal yet again, to 2019-20. Useful wriggle room there. 

He is to attempt to bind future governments to his idea of prudence in a new Fiscal Charter, which sounds good as a cross-party consensus builder but there are differences about what makes for wise economics. If it means that future Chancellors will not be able to use the economy as a political plaything like he has done for five years, so be it, but it would be disastrous if a dead orthodoxy inhibited creative policy. See: How did the Tories do that?    
Overall, George Osborne has dealt out comfort for the comfortably-off and worries for the financially vulnerable. To propose an exemption for homeowners with £1m value homes from inheritance tax, whilst reducing housing benefit for renters is as divisive as you can get, and bizarre supposing that fairness is inherent in the 'One Nation' soundbites in his speech . 
He said:
'The wish to pass something on to your children is about the most basic human and natural aspiration there is'
This is very, very true but even families who only rent a home and never own one still have such hopes, George! To use such a desire to justify an inheritance tax give-away benefiting only the better-off is an outrageous statement to hear spoken in the House of Commons in 2015. Callously insenstive to boot. Talk about 'grinding the faces of the poor' (Isaiah 3.15).

His tax credit / minimum wage  / benefit cap measures  /social housing renting at market prices, will, according to the media summaries, probably mean the loss of 60,000 jobs, and the reduction in income of over £1000 p.a. - maybe as much as £5000 - for the poorest. Poor students will no longer be given grants but loans and will lose housing benefit.

On a positive note for lower house prices, buy-to-let landlords are to have their profits trimmed by taxation and reduced allowances. This might mean a more plentiful supply on the market bringing more affordable house prices, but landlords may raise rents to recoup the losses.

Maybe Mr Osborne has a cunning tax reform plan, and inheritance tax elimination is one step to that goal? Next step being the taxation of land values  each year to steal what might have been a trump card from Labour? The transaction cost of stamp duty land tax at 10% on a £1m house sale must make the market sticky and keep buyers off.   Why not charge 1% every year on the land value portion of every house, allowing a deduction of £1 off income tax for each £1 of land value tax paid? Free up the housing market, lower house prices and cut income tax for all whilst retaining overall tax revenue,  all in another Osborneian sweep we are going to expect from now on. Hey!
[Note: See Financial Times Magazine 7 Mar 2015. In 2012 Osborne wanted to have a mansion tax and cut income tax. Cameron overruled.]  
What a policy for a reforming Chancellor of the Exchequer, go on George, pinch another Labour policy - you're bold enough!  All would then be forgiven - or at least some of it.           

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