The UK Budget 2012.

Today (21/3/12) the UK's head finance minister, George Osborne announced the national budget for the financial year 2012/13. Even by the standards of accountancy and finance this was a pretty dull event. On the economic level there was very little to report. Borrowing is expected to be £1bn lower then the predicted £127bn with the saving being used to pay down the national debt. The number of people claiming unemployment benefit is expected to peak at 8.7% this year and then fall over the coming years.

The main controversy though relates to the news that the growth rate is predicted to rise from 0.7% to 0.8%. Although that figure is likely to be broadly correct what the budget failed to mention is that the increase has been caused by the Bank of England's policy of Quantitative Easing (QE). Back in February 2012 the Bank of England simply created £50bn of new money and used to it to buy up British government debt leading to a situation where now about 30% of British government debt is now owned by the British government. So in this one move Britain has managed to boost it's growth figures and increase confidence in it's debt because they're hardly likely to bankrupt themselves. This unconventional approach is highly controversial and the area on which Britain has been looking for the most reassurance from the global financial markets. The long term hope is that it will substantially devalue Sterling making British exports competitive allowing Britain to re-structure it's economy towards manufacturing and trade it's way out of recession. In short they want to become the China of Europe. The risk though is that the shift towards manufacturing and the increased exports don't materialise and the weakened currency leads to a Zimbabwe style collapse. Likewise the expected peak in the number of unemployment benefit claimants owes more to confidence in the Welfare Reform Bill's ability to force people off benefits rather then confidence in the economy's ability to create jobs.

Beyond that the Budget was just a laundry list of tax cuts for the rich. Corporation tax will be cut from 25% to 24% this year and to 22% by 2014. The top rate of income tax will be cut from 50% to 45%. The system of tax credits for the film industry will be expanded to the TV and video games industries and there will be further tax breaks for companies setting up business in designated enterprise zones. A large portion of these cuts will be funded by the scrapping of tax relief for pensioners. The entire ethos of this budget can be summed up by the changes to the way low yield electronic gambling machines are taxed. These electronic poker and roulette machines have long been a plague on poor areas of the UK with betting shops on every corner to allow people who don't have much to begin with pour their money away. They create and feed gambling addiction and force thousands into debt and financial ruin. Up until now the takings from these machines were taxed through the VAT system at 20%. This budget takes them out of the VAT system and places them in dedicated tax mechanism that's levied at a rate of just 5%. This is obviously great news for the profits of the people who operate these machines but probably bad news for society as a whole.

In keeping with the "We're all this together" mantra the government also threw in some things to keep the LibDems happy and disguise the fact that this was a budget for the rich at the expense of the poor. These include the increase to the threshold at which people pay income tax from £8105 to £9205 which the government claims will take some of the poorest in society out of the income tax system entirely. However based on a 35 hour week and a legal minimum wage of £6 per hour even the poorest working people are earning a minimum of £10,000 per year. So I'm not sure who exactly it will be taking out of tax. It will though save all taxpayers £220 per year including those higher rate payers who have already seen their tax bill cut by 5%.

Then there is the new 7% rate of Stamp Duty for properties over £2million and a new 15% rate for properties sold through a registered corporation. Stamp Duty is the fee you have to pay the Land Registry to stamp the forms when you transfer ownership of a property. Basically it's a tax on house buying. The middle classes in Britain are obsessed with property prices and house buying. So by telling them they're raising a tax they have to pay but only for people who are richer then them allows the government to make itself popular with this key voting demographic. In reality though only around 120 properties over £2million are sold every year in Britain so the effect of this new tax bracket is likely to be negligible. Likewise the new 15% bracket sounds like it's a punitive measure designed to discourage people using the corporation route to avoid paying Stamp Duty. In reality though it's designed to make life more difficult and expensive for corporations that legitimately need to own residential properties either to entertain clients of house specialist workers on short term assignments. This war against the meritocracy has been a recurring theme from the European Monarchies since the crash of 2008 and something I wanted to cover in more detail in relation to the Belgian bus crash. Basically though the Monarchies have realised that although far from perfect capitalism has been a very effective mechanism for increasing personal freedom and limiting the power of the state. They hate that because as far as they're concerned your only purpose is to serve the interests of the Crown with absolute obedience.