Some first thoughts on the Budget

George Osborne with Red Box, Budget 2012So the Chancellor has just sat down. Here are my first thoughts on the Budget.

Nick gets his Workers’ Bonus

The personal tax threshold rises to £10,500. I doubt it was anything to do with the petition being pushed on social media in the last few days. This was down to the hard work of our ministers staying on message, in volume, over time, in budget negotiations. Nick Clegg has stuck with this through the entire Parliament and given us a very tangible promise kept – and more. “I am proud of what we have achieved”, said Osborne. Aye right. Everyone knows Nick Clegg had to drag them kicking and screaming to do it. Remember David Cameron saying it was unaffordable in the first leaders’ debate?

Vince gets his investment allowance rise

And it’s a big one, too. It was supposed to stop this year, but it’s been extended to the end of next year and  doubled to £500,000 which will encourage companies to expand and create even more jobs.

Some more Lib Dem wins

  • the new garden city at Ebbsfleet.  Garden cities generally have been championed by one Nick Clegg.
  • let’s not forget the £2000 per child tax feee childcare championed by Nick Clegg
  • apprenticeships increased by 100,000
  • Scotch Whisky duty frozen – as campaigned for by a number of Scottish Liberal Democrat MPs like Alan Reid and Malcolm Bruce.

Osborne’s rabbit

I will admit to being a bit worried about what we’d traded for the childcare help (championed by Nick Clegg) announced yesterday. In the end it was a massive boost to savers which, to be fair, is long overdue. A rise in the ISA limit of almost £10,000 to £15,000. Giving pensioners the freedom to spend their pension pots as they like instead of being forced to buy an annuity. This is nectar for readers of the Times and Telegraph Money supplements who have been clamouring for this sort of thing for years. Osborne  is clearly targeting this group’s votes. They’ve felt neglected since interest rates have been so poor. But this isn’t just a Tory thing. There are very strong Liberal Democrat elements in it too, especially letting people choose what they want to do with their money.

The downside

So if you are a whisky-drinking, bingo-playing, frequent-long-haul-flying pensioner or taxpayer, this budget is great for you. If you have nothing to save or earn less than the new tax threshold of £10,500 a year and occasionally get referred to your local food bank, there’s not a lot in there to help you. That worries me. Osborne clearly had money to spare, and none of it has been given to the absolute poorest. It should have done, because people are suffering out there. The Centre Forum people had been looking at the idea of raising the National Insurance threshold which would have helped those people. An opportunity missed.

Also on the downside, I think that benefits should be paid out to those who need them. The idea that you have an annual scapegoatathon in Parliament to debate a benefit cap is just ever so slightly distasteful.

I will always glare disapprovingly at the merest mention of the marriage tax break. It’s just been increased in line with tax threshold, but I don’t have to like it.

Osborne announced that any member of the emergency services who is killed protecting lives will not have their estates subject to Inheritance Tax. I don’t really like the principle here – valuing one life over another. What about the nurse who spends their retirement in agony with back pain after decades of lifting patients?  He or she will have protected lives.  All sorts of public servants make our lives better in all sorts of ways. I don’t like singling anyone out, especially in these circumstances.

The ugly

That new £1 coin. Ugh.

 

 

 

 

 

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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54 Comments

  • Eddie Sammon 19th Mar '14 - 2:51pm

    I agree inheritance tax cuts for all or neither would have been better, but Osborne was under pressure to do something about estate taxes.

    My main take from the budget:

    It looks like excellent work from Steve Webb to give both sides of the party something to cheer. He’s radically increased the freedom people have over their pension investments whilst also extending free financial advice to protect people against this new riskier environment. As a financial adviser on a practicing break I looked on in horror as I seen free financial advice being extended, but after listening and reading the reasons I totally understand.

  • George Miles 19th Mar '14 - 2:53pm

    Ed Milliband replying to the Budget talked of millionaire tax cuts for Bankers who earn five million pounds – no, they don’t “earn” all that money, they’re not that much more valuable than engineers, surgeons and nurses, they pay it to themselves as bonuses because they have the power so to do. Similarly London tube train drivers also have the power to demand artificially high wages because of the damage their striking does.

  • Nothing much here for working people who look after their own kids, neither.

    Nick’s ‘workers bonus’ is worth about £10 a month – small beer compared to what most workers have lost through the effects of frozen wages and inflation since 2010.

    And reducing the cost of long-haul flights is a scandalous sop to the climate change deniers on the Tory back benches. (And a certain resident of Belize, no doubt).

  • Sue Doughty 19th Mar '14 - 2:59pm

    I agree with much of what you say Caron. As it happens, quite a few members of the emergency services will not have an estate large enough to attract Inheritance Tax. I’m delighted to see the end of the Annunities nonsense which were good for IFAs but largely in practice limited your ability to find better places for your money and also had been, to an extent, superseded by SIPPS. Good for those in the hotspots of the South East is anything which helps with child care. With housing hellishly expensive getting a mortgage is a real challenge for so many families and some feel unable to even think about families. I agree however that there are a whole bunch of people who other than an increase in the minimum wage will see no other benefits for example part time women workers

  • Will even 0.1% of emergency workers have such an estate?

    I find it a little odd everyone is in favour of long-term fixed rate mortgages but not fixed-rate annuities. Annuities are a very sensible way to fund retirement. Still I guess there’s no problem with people losing all their savings as there is the state pension so shouldn’t be too much of a problem for govt finances.

    Why is raising the ISA allowance a good thing. It’s going to make such a marginal difference.

  • Commentators are already saying that it’s a Tory budget but I think they know little of what Steve Webb has been pushing for months.

    More on the upside I noticed:

    On ISAs (think the current limit is £11,250 or thereabouts) they’ll be more transferable, ending max 50% that can be put into cash (i.e.a savings account rather than investment package.)
    VAT exemption on some costs for mountain rescue and emergency services.
    Wider policy on garden cities to come, Tories have been blocking this for months.

    Less good:

    Air passenger duty reform: introduced by example so I suspect the detail won’t be good.
    Emergency services ‘death in action’ tax break – agree with Caron that this could be very messy.
    £7 billion off energy costs to companies. Where on earth is that sort of money going to come from? Sounds ominous for green policies.
    Nothing on NI thresholds, which would made more impact for part-time employees on low wages.

  • Sheila Thomson 19th Mar '14 - 3:40pm

    I was pleased to see the VAT cut for air ambulances and lifeboats which help lifeline services in rural and costal areas but I was really disappointed that it didn’t include Mountain Rescue. This voluntary organisation deserves the support of the Government, cutting VAT on equipment would help the money raised go further to help saving lives.

  • Chris Manners 19th Mar '14 - 4:07pm

    “the new garden city at Ebbsfleet. Garden cities generally have been championed by one Nick Clegg.”

    These plans have existed for ages and were re- announced in 2012.

  • Chris Manners 19th Mar '14 - 4:10pm

    “The personal tax threshold rises to £10,500. I doubt it was anything to do with the petition being pushed on social media in the last few days. This was down to the hard work of our ministers staying on message, in volume, over time, in budget negotiations.”

    And of them ignoring people who knew what they were talking about . It’s very inefficient at helping poor workers.

    Among all the silly sights of politics, Danny Alexander telling the IFS they hadn’t understood the policy was the best since Alan Johnson attacking David Nutt.

  • Chris Manners 19th Mar '14 - 4:12pm

    “Where on earth is that sort of money going to come from? Sounds ominous for green policies.”

    Yes, indeed.
    Unless there’s some quantum leap in energy efficiency, which I don’t think there has.

  • Hi Caron,

    Agree with the majority of the above, but I’m not sure giving tax breaks to those who actually have money left over to save is a priority when we have people really struggling with basic living. I’d have much rather this money was spent on something to help those people with living costs.

  • Chris Manners 19th Mar '14 - 4:20pm

    “The incentive has been a success, and it’s been extended for another year as part of the very Lib Dem agenda to rebalance the UK economy away from its dependence on services.”

    Have you told the OBR? They don’t see net trade adding anything to growth.

    Manufacturing 9% below pre-Crash peak. The idea that we were just sitting around gambling on shares and selling each other houses before you lot rocked up is utter nonsense.

  • @ Chris Manners

    “Manufacturing 9% below pre-Crash peak. The idea that we were just sitting around gambling on shares and selling each other houses before you lot rocked up is utter nonsense.”

    We’re below pre-crash peak in manufacturing because it crashed so hard under Labour and because of the Eurozone crisis. The point is, we’re now heading in the right direction and at an increasing speed.

    And frankly, yes, under Labour we pretty much *were* just sitting around gambling on shares and selling each other houses. Manufacturing plummeted from around 20% of GDP to 10% under the last government.

  • People go on about the rise in the personal allowance not helping the poorest, but they ignore the fact that those on the very lowest incomes often don’t remain on them for very long e.g. the youngest workers. We are treating the debate as there were an entirely static group of people “the very low paid” who exist in this condition year in, year out.

    What the £10,500 allowance does is give low paid workers a positive incentive to take on more hours or find another job offering more pay because they get to keep more of it. Analysing this problem on an entirely static basis is just plain wrong.

    I think also the cumulative effects on employment in the poorer regions of the UK will be especially strong, since there are many workers with salaries in the teens thousands per year in the poorest areas who will see a greater percentage boost in take home pay.

  • Help-to-buy extended until 2020. And so it goes on, propping up unsustainable property prices with taxpayer guarantees. What happened to the high ground (Cable’s 2003 comments)?

  • I’m going to strike out and say that the removal of the compulsory annuity for pensions is generally a bad thing. For years, regulators and consumer groups argued against the poor advice given to many to take what was known as “pension drawdown” because of the significant risks involved with it – the primary being that, should you live long enough, you will eventually run out of money for income. With greater longevity being more common than when the requirement to buy an annuity was first brought in, to remove this now seems pretty crazy to me. Annuities weren’t perfect – they were generally inflexible, and if you died a month after taking one out the income didn’t necessarily continue unless it was guaranteed for a spell.

    In my view, there needs to be some kind of protection for the taxpayer in this. If someone chooses to take this option, then they need to completely understand the potential risk they are taking. If they run out of money, then there should be some form of *controversial point coming* disposal or release of other assets before they are able to claim state benefits.

  • Oh – and while we’re still coming out of a recession, should we really be encouraging people to save by increasing the ISA limits? Should we not be getting them to spend their money (which, you could argue, we are doing with the pension changes?)

  • Chris Manners 19th Mar '14 - 5:04pm

    “We’re below pre-crash peak in manufacturing because it crashed so hard under Labour and because of the Eurozone crisis. The point is, we’re now heading in the right direction and at an increasing speed.”

    Hang on, it was claimed that this rebalancing started 4 years ago, and that there was some brilliantly successful policy in 2012.

    If overall GDP is much closer to pre-crash level than manufacturing, there’s not been much rebalancing by definition, has there?

    No question that growth over a long period has been unbalanced. But you’ve done no better than anyone else. And talked as though you have.

  • Chris Manners 19th Mar '14 - 5:08pm

    PWC reported on manufacturing in 2009.

    They seemed to think there was much grounds for optimism.

    http://www.pwc.co.uk/manufacturing/publications/the-future-of-manufacturing.jhtml

  • David Evans 19th Mar '14 - 5:09pm

    Why ‘Nick gets …’ and ‘Vince gets …’, when it should be ‘Lib Dems get …’? We are a party, not just a cult of a few individuals.

  • Chris Manners 19th Mar '14 - 5:17pm

    “What the £10,500 allowance does is give low paid workers a positive incentive to take on more hours or find another job offering more pay because they get to keep more of it. Analysing this problem on an entirely static basis is just plain wrong.”

    Right. so the working poor are poor because they’re too lazy to take on more hours?

    By doing what the IFS have said, you can make them better off now. You’re making people on middle incomes better off- without them working a single extra hour.

  • Stephen Hesketh 19th Mar '14 - 5:57pm

    @David Evans – Glad I wasn’t the only one who thought that. Not Caron’s usual style at all.
    Once I’d read the article my next thought was “and bugger all for Ed Davey”. I know we didn’t have much to live up to when it was promised that the coalition would be the greenest government ever, but what has been delivered has been pitiful. Obviously the Tories are, by nature, short-sighted and happy to mortgage their descendants future. I expect nothing better from them; but when it comes to the environment I am beginning to wonder if the free (as opposed to mixed) market economic liberals also share something of the Tories green agenda (or lack of it when it comes to state intervention/assistance). Either that or we have simply allowed the Tories to completely dictate the strategy in this area.

  • Stephen Hesketh
    “….. bugger all for Ed Davey”. I know we didn’t have much to live up to when it was promised that the coalition would be the greenest government ever, but what has been delivered has been pitiful….”

    You are right — all Ed Davey has got is Hinkley C at enormous cost to the people paying their bills (and according to the EU – illegally subsidised ) and repeated nonsense about “switching” between electricity companies. Although I hear his department are working on getting a Putin style Russian nuclear power station in the UK — so that should make us all sleep safely at night.

  • Chris Manners 19th Mar '14 - 6:08pm

    @Stephen Hesketh,

    I’m not fan of Ed Davey, but don’t think he could do much about the green tax thing. As Margaret Thatcher understood, if you get your people into the economic briefs, the capacity for people to be progressive elsewhere is curtailed.

  • Hywel Owen Davies 19th Mar '14 - 6:22pm

    About the new £1 coin. It has clear benefits for the blind…

    http://www.bbc.co.uk/news/blogs-magazine-monitor-26637515

  • Stuart Mitchell 19th Mar '14 - 6:44pm

    “Nick Clegg has stuck with this through the entire Parliament and given us a very tangible promise kept”

    The promise was tangible but has not been kept. It’s worth recalling, on the day the government has cut air passenger duty on long haul flights, what that manifesto pledge actually was.

    Page 6: “The first £10,000 you earn tax-free: a tax cut of £700 for most people. 3.6 million low earners and pensioners freed from income tax completely. Paid for in full by closing loopholes that unfairly benefit the wealthy and polluters.

    Page 9: “We propose the most radical tax reform in a generation, cutting taxes for millions paid for by closing loopholes at the top and increasing taxes on polluting aviation.”

    Delivered? No.

    As for Cameron’s remarks in the leader’s debate, if you listen to Nick Clegg’s response you’ll find that he claimed the allowance increase would be paid for by abolishing higher rate tax relief on pension contributions. Never happened.

    It’s really dishonest for Lib Dems to carry on pretending that this pledge was delivered. If I tell you I’m going to give you £700 from the rich guy down the street, then proceed to take £700 from your own back pocket and “give” you that instead, will I have kept my promise to you?

  • Graham Martin-Royle 19th Mar '14 - 6:49pm

    The ugly
    That new £1 coin. Ugh.

    No way! I miss the old thrupenny bit. It’ll be good to see it return. 🙂

  • Stuart Mitchell 19th Mar '14 - 7:02pm

    @Simon Shaw
    It’s very clear why I say “Not Delivered”. The Lib Dems were very specific about how they would pay for it, and virtually none of it has come to pass.

    Of course, if I’m wrong you can easily demonstrate this by taking us through the list on pages 13 and 14 of the manifesto, and tell us how many of them (a) have been delivered, and (b) what proportion of the cost of the £10,000 allowance they accounted for?

  • Little Jackie Paper 19th Mar '14 - 7:46pm

    ‘Also on the downside, I think that benefits should be paid out to those who need them. The idea that you have an annual scapegoatathon in Parliament to debate a benefit cap is just ever so slightly distasteful.’

    Well…..The problem there though is that goes right to the heart of this Coalition’s unspoken policy – ringfencing. We have seen some very large budgets ringfenced at a time when, supposedly, all is supposed to be subordinate to deficit reduction. I am yet to hear any compelling economic reason for any of these ringfences. Political reasons perhaps.

    The Coalition has talked the talk on deficit reduction but then how come we have just spent (well, borrowed to be specific) £2bn to send fuel payment out to people who very often are the people on the sweet end of the generational deal. My Dad got his bus pass last year, he drives two cars. Is this really putting money in the hands of those that need it? Locally bus fares for young workers have increased markedly. Are free school meals really the best use of money?

    In fact, let’s say the unsayable, why exactly is the NHS an absolute sacred cow?

    So yes. It is very distasteful to see the scapegoating that goes on. I get that. But it is not enough to just blithely ignore the politically more challenging bits. Now being fair here, Nick Clegg has come as close as anyone else in the Cabinet to asking the question of some of the more populist benefits – he deserves credit for that.

    So yes Ms Lindsay, let’s stop the scapegoating and direct money where it’s needed. But let’s bear in mind that that won’t necessarily be popular.

  • I have never really understood the argument against annuities that took the line that well its not fair as you could drop down dead the first month and ‘lose’ all your money – what gets forgotten is you could live to 105 and cost your annuity provider a lot more… and of course they are looking at their tables and balancing one against another – youre a long time dead anyway and fussing about something like that I think peculiar. So on the whole Im not a great fan of this freeing up of saved money… it all sounds oh so liberal to let people spend their money on what they want, but like Keith Legg Im concerned that this could brew up problems for any government in the future – oh I blew all my saved pension money in my sixties, but now Im in my eighties I want the state pay for my care home. In my view its a typical Tory wheeze – lets get the consumer bubble going by allowing the pensioners to take out their money and go on a shopping spree… never mind the future!

  • Stuart Mitchell 19th Mar '14 - 8:53pm

    @Simon Shaw
    “I can’t understand why you say that.”

    Read pages 13-14 of the manifesto and all should become clear.

    http://network.libdems.org.uk/manifesto2010/libdem_manifesto_2010.pdf

    “Tax relief on pensions being the obvious one.”

    The manifesto promised an end to higher rate tax relief. Tax relief at the basic rate only. Has that happened?

  • Julian Dean 19th Mar '14 - 9:16pm

    Genuine Grant Schapps tweet, says it all really.

    Check out @grantshapps’s Tweet: https://twitter.com/grantshapps/status/446363611972534272

  • Who has £15k a year to put into

  • Oops. Didn’t mean to press enter then…

    Who has £15k to put into an ISA? And do they really deserve a tax cut while the pay of nurses is being hacked back in real terms and the poorest in society are having the money they live on cut?

    If the Lib Dems wanted to impress me they’d stop bragging about giving tax cuts that mostly go to the middle classes and actually try and get more money to the poor.

  • Mark Valladares Mark Valladares 19th Mar '14 - 9:52pm

    Stuart and Simon,

    Actually, what has happened has been somewhere between the two, in that the amount of relievable contributions has been limited quite substantially with the introduction of a cap.

    This in turn has a similar effect to that of limiting relief to the basic rate, in that it limits the cost to the exchequer and only hits the relatively well-off.

    So, Stuart, you’re right in that the limiting of relief to the basic rate hasn’t happened, but wrong in that relief for the well-off has been restricted by other means.

    And, if I may be so bold, achieving the goal is rather more important than the precise means in which success is gained.

  • Mark Valladares Mark Valladares 19th Mar '14 - 10:00pm

    Jack,

    I have to admit that I see your point and agree with it. It does smack of “to those that have, we will give more”. Yes, abolish the ludicrous restriction on cash ISA investments so that savers have a real choice, but is even £10,000 necessary as an incentive – you could halve it and still be out of reach of the vast majority of the population.

  • Overall considering we are in coalition with the Tories I thought it was pretty decent. On the pension changes I think as liberals we have to trust individuals to make the right decisions, with help. Although it will be interesting to see how quickly Government can get this advice service up and running!

    I liked the change whereby those trying to use tax loopholes have to pay their tax up front and then try to prove why they should get it back.

    And the changes to support investment, exporting and saving are all positive.

  • Following the debate, what is most remarkable is the turnaround in Labour’s criticism of coalition economic policy – from claiming cuts were “too far, too fast” and would delay recovery, to complaining deficit reduction is happening too slowly because the recovery is helping the ‘wrong people’.

    The partisanship of Balls and Miliband (or ‘eat cake’ and ‘have cake’, as they are known in these parts) is blinding them to the inconsistency of their approach and this strategic shift in the debate will be more telling come election time.

    While Labour’s analysis may appeal to popular sympathy of the moment their leadership are being proved wrong at every turn – clearly they are unsuited to make or take any difficult decision, and cannot be trusted with the economy.

    I would be very worried about any single party gaining an overall majority at the next election.

  • Chris Manners 20th Mar '14 - 6:01pm

    “Following the debate, what is most remarkable is the turnaround in Labour’s criticism of coalition economic policy – from claiming cuts were “too far, too fast” and would delay recovery, to complaining deficit reduction is happening too slowly because the recovery is helping the ‘wrong people’.”

    Oppositions oppose, it’s all they can do.

    The government has changed from “never mind growth, deficit has been cut in out first year” to “look at the growth!” when they’ll be missing deficit targets by 3 years.

    If people’s incomes don’t rise, then you get growth by credit and immigration. OBR have personal debt heading back up to pre-crash levels.

  • Chris Manners 20th Mar '14 - 6:03pm

    ” there has been a massive closing of loopholes that unfairly benefited the wealthy. Tax relief on pensions being the obvious one.”

    But when the pensions are taken as income, they get taxed.

    Reducing tax relief on putting money in a pension is getting the wealthy to take more income now. It’s effectively depriving a future Chancellor of that tax on income.

  • Chris Manners 20th Mar '14 - 6:08pm

    Excellent post from Stuart Mitchell.

  • James ” claiming cuts were “too far, too fast” and would delay recovery”

    Recovery WAS delayed as it as the economy was starting to grow in 2012 so it has been delayed by four years. As for your general point, when the facts change you have to change your view. After all, Lib Dems changed from wanting HE to be funded out of general taxation to supporting a massive increase in tuition fees.

  • 2012 should read 2010, oops!

  • Sorry Phyllis, your so called recovery was a dead cat bounce, caused by a few short term Labour bodges like the VAT cut.

  • David Evans, if I remember correctly manufacturing was on the rise. And as it happens Osborne promised much in 2010, the promised growth did not materialise as predicted. If I recall he also promised to wipe the deficit by 2015 withsavage cuts. In reality he has had to progress at the pace that Darling advocated.

  • David Evans, I thought Lib Dems were in favour of lower National Insurance. Didn’t I see big billboard posters about the “Tory VAT bombshell” just before the General Election? Oh wait Lib Dems supported that a few weeks later!

  • David Evans 23rd Mar '14 - 1:29pm

    So Phyllis, are you saying that the recovery was delayed because Osborne actually followed Darling’s proposals on the speed of cuts? You really need to think your arguments through on this one. Likewise as Darling wasn’t in government post 2010, I wonder who was who prevented Osborne from his savage cuts. Certainly wasn’t New Labour, they ran away from talks so fast you couldn’t see them for dust!

  • I’m saying that recovery was delayed because of Osborne cut too far and too fast and thereby choking off any recovery fir three to four years. It’s not rocket science that if you cut so many jobs in the public sector that that’s fewer people paying taxes and spending money in shops.

  • Your original point was that It was WRONG to say that recovery was delayed. I am saying that recovery WAS delayed. Our AAA Grading was lost, the growth forecasts all had to be downgraded. I can’t understand why you are having a problem understanding this.

  • David Evans 23rd Mar '14 - 3:30pm

    Phyllis, I suggest you re-read the whole thing, then take a 50:50 or even phone a friend. Then you might just understand where you are going wrong with your arguments.

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