Unlike most people, I do not consider a political decision to be a bad one by definition. It is what it is – a decision made by politicians whose jobs depend on whether we trust them and whether their decisions and judgements are correct.
George Osborne is often criticised for being too political; again, I disagree. I’d argue that a Chancellor probably needs to be the most politically astute person in a government, actually, and that s/he needs to understand James Carville (and Nick’s!) fundamental argument: people vote on how good they feel about the economy.
So what has today done in political terms?
My first thought is that raising the basic rate threshold is – hurrah for the Lib Dems, the Centre for Policy Studies, Right Angle, Rob Halfon and (modestly) us – a great thing. As Max Wind-Cowie points out:
Part of the rationale (aside from the exciting news that we’ll be £170 better off after inflation) is that this simplifies the tax system, reducing the need for bureaucracy and increasing the sense of personal agency that people have. As with freezing age-related allowances until the basic-rate threshold catches up, this is all excellent.
Simplifying the tax system should be one of the key missions of this government – both because it reduces avoidance and because it increases personal agency – and I’m curious whether tapering child benefit in particular will complicate things again (I’m ambivalent about child benefit generally anyway).
Ben Gummer (and, again, I’d modestly point out, us) argued for a clear and transparent account of how our taxes are spent to be provided to every taxpayer. This is a very smart move both economically and politically; if we know where the money is going, we can judge whether it’s worth it and whether it should still be spent. My one worry is that these great sweeping definitions (see below) are not going to be detailed enough – more work to do there I think.
Freezing age-related allowances is a big political moment – it challenges the holy political mantra of ‘we cannot touch pensioner benefits’. It doesn’t, as Gordon Hector argues, actually ‘cost’ much to a pensioner, as there is a big increase in the pension coming, and the rise in the basic-rate threshold will cancel much of the rest out.
Two thoughts on universality as well – firstly, that we are definitively moving away from universal benefits (this should only be done in conjunction with people keeping more of what they earn, which we are), and the second is a question – are we, be it ever so gently, trying to move towards a more universal tax-rate full stop? Or at least a closer relationship between the different rates (for a micro-example, see the harmonisation of VAT rates)? There are complicated arguments about how broad-based your tax-raising base should be, set against how much you need to bind people into a welfare state; I don’t think Britain is anywhere near answering them yet, and in fact (as we’ve said before) we need the statement of where our tax goes before we can have that argument.
On the 50p rate, you’ll know that I have not been instinctively supportive of the calls to reduce it immediately for two reasons – firstly that removing it allows us to be portrayed as evil Tories helping our rich friends, and secondly that if it’s really raising so little (because if it’s worth doing, there are of course ways to not pay it), then why not leave it as a symbol for now until you can hit that £10,000 threshold, lift the public sector pay-freeze and proclaim a stupendously successful growth rate? I am still not overly convinced by the reduction to 45p (which I think could well remain for longer than a 50p would have); but I do see Janan Ganesh’s point that the government WILL take a hit when they reduce it, so they might as well take it now.
Lowering the corporation tax-rate further is also a good move for the long term; it encourages investment and risk-taking and job creation. I think it has to be balanced with the (excellent) proposal on anti-avoidance; it’s all part of the responsibility agenda.
While a measly £11 billion less borrowing isn’t much, I am also heartened by the Chancellor’s use of it to pay down debt – even if we get rid of the deficit by 2015, we still have the debt itself to deal with.
I have, inevitably, only picked out a few things above; I always argue that Budgets must be seen in the round and not just have one single measure picked out as great or bad for a particular group. I would repeat though: this government must continue to make progress on simplifying, converging, increasing transparency and equality, and - crucially – making sure that what we raise is fair, and what we spend on is worth it.