Why have a budget?
–Tim Knox is Director of the Centre for Policy Studies. The opinions expressed are his own.–
Next year, the British government will spend £680 billion – or just under £2 billion a day, every day of the year. Remember that when considering all the noise – in both Parliament and the media – about yesterday’s Budget.
Take the five main areas of tax reform put forward yesterday:
- The reduction in the top rate of income tax from 50p to 45p. Cost to Treasury: £50 million
- The increase in the personal allowance to £9,205 in 2013. Cost to Treasury: £3.32 billion
- The freezing of the personal allowance for pensioners. Tax raised: £360 million
- The further cut in Corporation Tax to 24p. Cost to Treasury: £730 million
- The increase in Stamp Duty on properties over £2 million to 7%. Tax raised £180 million
(Figures are for 2013/14. Source: Red Book. Table 2.1)
So these main tax changes account for £4.5 billion – the equivalent of a couple of days spending.
Then we had a list of fashionable giveaways: £100 million for new research facilities at universities, £60 million to establish a UK centre for aerodynamics, an additional £50 million for broadband, tax breaks for video games, animation and high end TV industries, £3 billion for oil and gas exploration, £1.2 billion of infrastructure investment in Manchester, £150 million for other northern cities, an increase in the Growing Places fund of £270 million, £15 million for improving the safety of cycling and so on. In the words of Rick Blaine in Casablanca, this surely “don’t amount to a hill of beans in this crazy world”.
But the Chancellor seemed to think otherwise. In his speech yesterday, he claimed that: “In the middle of this Parliament, in difficult economic times, this coalition Government has not settled for a ‘do-nothing budget”, and that: “No people will strive as the British will strive. No country will adapt as the British will adapt. No country will value those who work as we will value them.”
But if you think that the Chancellor might have been ever so slightly overstating things, try this from the Leader of the Opposition: “This Budget will be remembered for his failure on growth and jobs and the top rate tax cut. This isn’t just a bad policy, or a misjudgement. It destroys the claim the Prime Minister made about who he was and what he believed.”
All this rhetoric does of course make for good telly, but it also disguises the remarkably modest nature of the proposals put forward. What would our politicians have said if there were truly radical measures for growth yesterday – such as the abolition of the 50p tax rate, an increase in the personal allowance to £10,000 and an immediate reduction in Corporation Tax to 20%?
And if this was a tinkering budget, then also remember that practically all the measures (with the exception of the “granny tax”) had been leaked out in the previous few days. A Budget was traditionally meant to present a consistent package of reforms, to be considered as a whole, and which told a coherent economic story. Yes, we had all the symbols of a Budget. The picture of the Chancellor with his Red Box on the doorstep of No.11, the Chancellor’s budget tipple, the roars of approval and condemnation from both sides of the house. But behind the symbols lie a few tweaks of policy in the right direction.
Should we start to ask what a budget is really for?