The Budget.

In 2010 Britain's new ConDem government coalition announced the Comprehensive Spending Review (CSR). With the stated aims of reducing Britain's national debt and returning the British economy to growth the CSR unleashed a program of tax rises and spending cuts so savage they caused the British public to howl in pain and riot in the streets.

Today (23/3/11) the Conservative Chancellor, George Osborne gave us the first real assessment of how that plan is working when he unveiled the 2011 Budget. The news is not good. The forecast for economic growth has been downgraded from 2.1% to 1.7% and inflation is running at around 4.5%, more then double the government's estimate of 2%. The only positive is that the national debt is slightly less then predicted however as the rate of borrowing is actually rising this appears to be the result of the government getting it's initial prediction wrong rather then any improvement in the economic situation. So while I think it's still too early to say that the ConDem's economic policy has failed it has certainly yet to achieve it's stated aims.

Faced with a situation like this the Chancellor had little choice other then to make this budget all about trying to gouge as much money as possible out of people in taxes while giving away treats to keep his corporate backers from withdrawing their support. He began with;

Reforms to the Tax System.

Although once most people in Britain have paid PAYE income tax, National Insurance Contributions (NIC's) and VAT they simply don't have any money left to tax Britain actually has the worlds most comprehensive and complicated tax system. With a view to increase revenues this budget sets out to simplify this system by doing away with 43 tax reliefs that could be described as tax loopholes. Obviously this is a complicated and technical subject in itself and I still need to read the details but at first glance it appears that charities and middle income earners will be hardest hit by these changes because unlike the rich they can't afford to pay accountants to go over the new system with a fine tooth comb in order to find new loopholes.

The other major change is plans to merge the twin payroll taxes of PAYE income tax and NIC's. I have yet to read the specifics of this plan but because many of the Conservative parties backers despise the mere notion of being asked to pay NIC's I suspect that in practice the word "merge" will translate into "shift the burden of NIC's off the employer and on to the employee."

There are also plans to introduce a carbon tax on energy production (gas & electricity bills). This plan bears no resemblance to any idea associated with the IPCC's efforts to combat climate change and considering the Conservatives views on the environment seems to be an effort to raise ever more tax revenue while damaging the reputation of the environmental lobby.

If all the dry talk of complicated changes to the inner workings of the worlds most complicated tax system didn't put you brain into neutral then you'll be relieved to hear that amid all this talk of tax rises there is still plenty of room for tax cuts for the rich. Corporation tax will be cut by 2% this years and by 0.5% every year in the following year. There will also be a cut in the rate of tax levied on private overseas loans to British businesses. In an act of wanton populism these tax cuts will be funded through taxes on the banks. Therefore the government seems to be trying to force all the banks overseas so the government can then tax any money being lent to British businesses.

Growth.

In order to avoid appearing like an economic sociopath at war with his own people George Osborne was also forced to include plans that at least sound like they're going to help the British economy to grow. These include a £100million grant and a 200% tax credit for the science & technology sector along with Enterprise Zones to encourage hi-tech manufacturing. The idea being that Britain will be able to grow itself out of recession by becoming a global hub for science & technology and hi-tech manufacturing which will be great if it works. However the science & technology sector is highly competitive and joining it will pit Britain against nations like the USA, Japan, China, South Korea, Germany and Israel. Also due to advances in science & technology hi-tech manufacturing is an industry that is expected to shrink rather then grow in the coming years. Therefore what is much more likely to happen is that Britain will end up competing with similar Enterprise Zones in countries like Thailand, Bangladesh and Haiti in a never ending quest to drive down the wages and working conditions in jobs that even the Chinese are starting to think of as beneath them.

This race to the bottom can also be seen in another of the budget's plans for growth. The idea is to do away with a range of employment and health & safety legislation while cutting the legal aid budget and preventing lawyers from working on a no win no fee basis. The argument is that this will promote growth by freeing small and medium sized employers from laws that they don't understand. In reality it encourages managerial incompetence and shifts the balance of power between the employer and the employee by allowing large employers to force people to work in dangerous working environments and removing their right compensation should they get injured. In this policy it's nice to seen that the spirit of Victorian Britain is still alive and well in the Conservative Party.

The Sweeteners.

Obviously having just announced to the British people that he intends to sell their children to the Chinese George Osborne was forced to thrown in a few crumbs in order to distract and sweeten the deal.

Chief amongst these is the headline grabbing announcement of a 1 penny per litre cut in the fuel duty at the pumps. Although it sounds like it this does not mean that the government has cut the tax on petrol. All they've done is shift the tax burden up the supply chain meaning that while the petrol consumer pays less tax the petrol supplier pays more tax and will simple pass the extra cost onto the consumer. Therefore I wouldn't be too surprised the 1p/litre cut actually translates as a 1p/litre rise. While we are on the subject of the cost of fuel I should point out that although I call the situation in Libya Operation Oil Theft what we're actually talking about is who wins the concession to develop Libya's oil fields. That means that it will be the length of the conflict plus 10-15 years before Libya's oil actually becomes petrol. In the meantime the conflict and the instability is driving up the price of oil and it is only the drop in production caused by Japan's earthquake that is keeping it below an eye-watering $150 per barrel. Although terrible for the consumer this would be great for the government because the tax on petrol is charged as a percentage of the price so the higher the price the more money the government makes in tax. To put it another way it is Japan's earthquake not George Osborne that is keeping the price of petrol down and George Osborne is giving British money to Japan to help the boost production and force the oil price up.

This actually highlights the wider issue of the cowardly and deceitful way that George Osborne has gone about raising tax revenue. Rather then being honest and raising things like income tax and council tax he has instead chosen to increase things like VAT. This is because VAT is paid at the point of use rather then a bill that is sent out yearly making it harder for anyone to challenge the tax rises with something like a poll tax style tax strike. It is also deeply unfair because VAT is 20% whether you earn £10,000 or £100,000 whereas income tax is calculated based on your income and council tax is calculated on the size and therefore price of your house. In light of this approach it is no surprise that two of the other sweeteners in the budget was a promise that council tax will not rise and a promise that central government will give local councils £100million to fix pot holes in the roads meaning that the wheels of a millionaires Bentley in Buckinghamshire will be protected from damage by the tax paid by someone in Tower Hamlets who can't afford a car.

The other sweetener that caught my eye because it really sums up the ethos of the budget was the announcement of a £250million fund to help home buyers. That should make a lot of people happy because until you think about it it sounds as though the government is helping hard pressed first time buyers get on the property ladder. However the fund only applies to new build properties meaning that what the government is actually doing is using taxpayers money to subsidise the profits of feckless property developers who overestimated the housing market and should now be getting forced to drop their prices.


So yeah like I said yesterday; Bend over, here it comes again.