Tit for tat – tax for tax

By Guest Contributor
March 21, 2012

–Tony Dolphin is Senior Economist and Associate Director for Economic Policy at IPPR. The opinions expressed are his own.–

The Conservatives and Liberal Democrats agreed to co-own the first two budgets of this coalition government. The so-called ‘quad’ of David Cameron, George Osborne, Nick Clegg and Danny Alexander defended the measures in both budgets as if they had thought of them themselves.

That was not the case with today’s budget. It was clearly the result of horse-trading between the two parties of the coalition – largely conducted in public over the last few weeks. Nick Clegg has sought ownership of some measures; Conservative backbenchers have proposed others; and the Treasury has systematically leaked on behalf of both parties. The result is, for all George Osborne’s attempts to present it as a budget for growth that rewards work, a rather odd mixture.

So, for the Liberal Democrats, there is a bigger than previously announced increase in the personal tax allowance; for Conservative backbenchers, a cut in the top rate of tax from 50p to 45p in the pound. For Liberal Democrats, restrictions on the tax reliefs of the wealthy; for Conservative backbenchers, an accelerated cut in corporation tax. For Liberal Democrats, increases in stamp duty on houses valued at over £2 million; for Conservative backbenchers, relaxations in planning rules and employment law.

Just about the only measure that was not trailed in advance was George Osborne’s announcement that the age-related personal allowance is going to be phased out over the next few years. As this hits pensioners with an annual income between roughly £10,000 and £25,000, it is perhaps unsurprising that neither Liberal Democrats nor Conservatives were clambering for ownership of this particular policy.

Future budgets are likely to follow the same pattern as this one. The nearer we get to the next general election, the more both Liberal Democrats and Conservatives will want to differentiate themselves from their coalition partners.

Floating tax and spending policies in advance of the budget so that they can be discussed and examined is not necessarily a bad thing. Indeed, if poor policies are weeded out as a result, it would be a very good thing. But this is not what is happening. Policies are not judged on their merit, but rather on what they can be traded off against.

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