Wednesday, 8 July 2015

Thoughts on the budget

The budget announced today came with some surprises, and I thought I would give my stream of consciousness response to the headline changes.

·         The big surprise is the major increase in the minimum wage announced under the heading of a national living wage. As the new ‘living wage’ is national it does not take account of the disparities in regional living costs that the living wage is designed to highlight.

The rebranding of the minimum wage is strange, perhaps designed to muddy the term to rob it of its power. Being cynical, this might be out of a desire to undermine the growing campaign that is highlighting the increasing disconnect between earnings and the cost of living in the UK.

The increase in the minimum wage (as this is what it is) is quite a move by Osborne. It takes a typically left-wing policy proposal and enables the chancellor to portray himself as a friend of the worker.

·         Only workers over 25 get the new living/minimum wage though, as far as I can make out. There are already age-bands designed to give inexperienced school-leavers a chance in the job-market so this isn’t a major departure.

·         What of the low-pay commission, the independent body charged with determining what minimum wage level will be sustainable? They will presumably still be in charge of the ‘real’ minimum wage while Osborne has created another band, over which he has control.

·         I have recently blogged about my preference for tax credits over high minimum wages and the policy here is going in the opposite direction. Cutting the eligibility threshold for tax credits is painful as it further undermines this support to workers and/or the employers who can make use of their labour.

·         Questions remains about what will happen as a result to prices and the job market. Perhaps this will be good at reducing the number of NEETs but at what cost? It might mean that a lot of over-25s end up unemployable as under-25s can be employed for less money than them.

Companies who have to pay their workers more are going to pass this on to their customers in the long run. These increased prices will cost those on frozen benefits and those who do not benefit from the policy as well as everyone else.

It is likely that most people will be losers from this policy and some of those losers will be among the economically worst off. The chancellor claims he represents ‘working people’ but certainly not the working class who might find themselves out of work but with fewer options and less support.

·         Positive proposals: To give credit where it is due, the Buy-to-let tax break cut and tightening up eligibility for "non doms" sounds like good things, though I haven’t had a chance to look in any real detail.

·         A terrible idea: The proposal to increase the inheritance tax threshold was heavily trailed and I was predictably apoplectic about this. Unearned income like gifts and bequests should be taxed more heavily than anything else, according to almost all economic and ethical theories of tax.

·         Punitive:  The punishment imposed on younger people for not having a wealthy and generous family continues. Under 25’s needing benefits and low-earning parents seem to be particular targets of this government, just as they are of tabloids. Today’s changes to maintenance grants, housing benefit, Child Tax Credits and the newly lowered Benefit cap seem to be targeted at these “feckless scroungers.”

As a recent guardian editorial pointed out, there isn’t any actual principle behind the benefit cap—it is benefit-scrounger-bashing-tabloid-fodder. A similar point can be made about the other punitive changes—punish the young and the poor (they don’t vote Tory anyway).

·         What magic happens when someone reaches 25? This budget seems to build on the premise that people become very different at this age. Perhaps this is the government reflecting on the extended adolescence that people are considered to have in this SO-CALLED (by me, right now) binge-drinking and computer-game age.

I’m sceptical that there is anything so considered—the young are not a popular constituency with most voters and so are ripe for cuts. These changes also entrench inequality – with one set of young people trapped in low-paid work which provides little time and money left over for further development, while others can get ahead. It all appeals to the Tory base.

·         Overall trend:  One thing that this budget continues is the removal of state support in many areas and passing this on to individuals (or the BBC). Education is an obvious case, where gradually grants have been replaced with fees and loans. Public transport (such as rail travel) is another area where more revenue comes from passengers and less from government as time goes on.

In-work benefits seem to be going the same way, and I have slightly more of a problem with that than education and public transport subsidy, but I think it is worth noting. My question is whether we really need to give up on a progressive tax system that could fund a fairer society which would encourage people into work, improve their chances of finding some and ensure that they get a reward for it.

This isn’t a universal trend – pensioners and the NHS continue to be funded at previous levels. But it is a noticeable direction of travel. It would be good to have a progressive tax system that enabled us to move in the opposite direction in some cases (tax-credits being my own preferred method).

·         Overall this budget (unsurprisingly) doesn’t get the seal of approval from me. 

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