Britain's budget 2012: an overview of the elephant traps

Today the Chancellor presented his third budget since the Coalition gained power and ushered in the era of austerity. Tax expert Richard Murphy decodes a "really rather nasty budget" and ponders its gifts to the opposition.

Richard Murphy
21 March 2012

This was a deeply political budget – and a failed one at that. The 45p tax rate is a gift to Labour. If the 50p tax rate raised no money then it deserved to go. But even the Office for Budget Responsibility said it should have raised money and in that case they had to keep something or lose too much – so they compromised on 45p. That’s an admission that higher rates work but they wanted a give away to the rich anyway. My estimate of the giveaway is around £3 billion.

As for the supposed extra tax on the rich, this is simply an increase in stamp duty on houses over £2 million. Sure, that taxes the rich, but it is so arbitrary that it undermines the principles of any good tax system – not least Adam Smith’s which Osborne quoted. Suggesting it’s fair to pay more tax because you’re mobile has no logic at all.

Now take my favourite, the supposed 'crack-down' on tax avoidance. This is Graham Aaranson’s general anti-avoidance rule, which specifically says it is no such thing and is intended to allow all tax avoidance bar the very most offensive to continue unimpeded. This is partnered with the UK- Swiss tax deal, which far from being an anti-avoidance measure specifically permits continued tax evasion by those UK residents who have used Switzerland’s tax system for criminal purposes.

In other words, this was a tax give away to the rich.

Middle Britain will gain too. The increase in the personal allowance is worth far more to them – up to almost £900 for some households, as opposed to the £200 or so for the average household Osborne highlighted. For marginal households this can have serious impact in the loss of tax based credits that will mean there is little or no gain for those on very low pay and the margins of employment. 

The child benefit reforms are a massive complication to the tax system for a so-called 'simplifying Chancellor', but are needed to dig him out of a hole. Thousands more households will need to do tax returns to get that one right. Another own goal for Osborne!

And that's not the last one: the oil tax changes were a slap in the face for Danny Alexander given his ill thought-out reforms a year ago.

But most amazing was Osborne’s desire to shoot himself in the other foot politically. Having alienated parents on child benefit last year, this year he’s chosen to alienate an even bigger lobby. He effectively announced another increase in state retirement age and at the same time said pensioners will have to pay more tax in the future. So that’s the grey lobby he’s lost, in its entirety. It’s an astonishing faux pas and almost certainly the biggest political gaff of this budget.

Although he's had a stab at others. Budget statement paragraph 2.207 announces an attack on personal services companies. There may be a million of them in the UK – all natural Tory voters. That’s the small business lobby who will be spitting fire at him.

And did he do anything good? Yes, rail investment. That does it for me. After that? No. Nothing at all. It was a give away to big business by cutting rates and the tax base – the subsidy about £1.5 billion a year with no equivalent for small business, job creation, demand generation or a single measure of hope for the majority of the unemployed.

As for the £10 billion to be cut from welfare – well, heaven help you if you’re sick in future and can’t slog it out until your retirement age in your early 70s. George is saying if you can’t work until you drop – well, you can starve instead.

This was a callous, dishonest, really rather nasty budget that was, however, full of elephant traps that should be a gift to a competent opposition.

I hope they’re stepping up to take on the challenge.

This piece was originally published on Richard Murphy's blog.

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