Thursday, March 22, 2007

The Budget, some analysis

Firstly this budget is mostly neutral. It was only ever going to be that way, because there is no money to give away.

Indisputably there are some useful things in it, but some bad ones as well.

Overall the budget seems to simplify things which is good. However it does beg the question why did Joseph Stalin, sorry, Macavity, no wrong again, Gordon Brown make it so much more complex over the last 10 years?

Big Corporation tax is down by 2p, good, it will hopefully help the economy. This in part is paid for by simplifying allowances for big business so is broadly neutral.

Corporation tax for small business is up 2p, and will rise again, ostensibly to stop tax fraud where people who are effectively fully employed try to make out they are a company.

This is offset by allowing a 100% allowance on certain types of investment to all companies of up to £50,000 per year. Gordon trotted out some numbers on the effective corporation tax for small businesses who take up the offer of the tax relief on investment.

There is a big problem here. Firstly 53% of all private sector jobs are in businesses this size, so that is a huge part of the economy that has just had a tax hike. Also, small businesses do not necessarily need or want to invest £50,000 per year in new equipment. Small business comprise a very diverse sector from small niche manufacturers who may be in that niche for using old fashioned methods, like hand made pottery manufactures, to others like small scale foundries supplying castings to the model engineer community, to window cleaners, florists, gardening contractors. There are many businesses which will not benefit at all or seldom benefit from the tax break, yet will be hit by the tax hike.

Small businesses are the engine of the economy. They employ more people than any other sector, and have the capacity to employ a lot more, if the environment is right. So that aspect of the budget is a very bad thing.

Green taxes are up a bit, but lower as a proportion of GDP than under the Conservatives.

Cigarettes up by 11p a packet, great news for tobacco smugglers, I expect they are ecstatic. Beer and wine up, but bizarrely spirits (mostly produced in Scotland) frozen for the 10th year running. Is Gordon Scottish?

There is a rationalisation of National Insurance and Income Tax rates so that they cut in and out at the same levels. Looks good from a simplification point of view, seems to benefit those around £35K per year and gets neutral at around £42K, so bar some losers in odd places, fair enough.

The basic rate of income tax has been cut by 2p. On the face of it very good news, but as ever the devil is in the detail. The 10p band is cut. It looks like a simplification and indeed is to some extent, but those currently on the 10p will now be paying 20p rather than nothing.

In short if you earn between £5,250 to £17,800 you pay more tax. That in principle is wrong, as I said here. There is more detail though, some of those affected will benefit from more tax credits.

Well, lets look at that a bit. Firstly there seems to be a combination of fraud and mistakes in the tax credit system running at a colossal scale, I have heard estimates that 50% of the payments are wrong. That is bad. Secondly whilst those who have children are better off with more tax credits, those with out suffer from two problems. The increase in their tax credits still leaves a lot of them worse off, then the fact that people without children just do not claim working tax credit even when they are entitled to. The take up rate is 20% (See this here, table 10). You do not have to look that far or that wide to see why. People just do not need the grief of dealing with tax credits unless they really have to.

In short, tax cuts for the rich, big companies, "working families", tax rises for the poor, but childless, and small businesses.

Hat tip to Neil for the take up rate on tax credit information.

8 comments:

Anonymous said...

I have just spent an hour or so going over the first ten pages of comments on the BBC's Have Your Say about the Budget.

http://newsforums.bbc.co.uk/nol/thread.jspa?sortBy=2&threadID=5821&edition=1&ttl=20070322014041&#paginator

Here is a representative selection of what they have to say. First, those less than impressed:

Stalin would be light relief after this chancellor. He makes Maggie Thatcher look positively caring.

I feel so priviledged that as a low income tax payer, my 10p in the pound tax increase will help to fund the 2p in the pound decrease for those who are better off than I

a candidate for the worst Chancellor in living memory?

the abolition of the 10% Income Tax band is another slap in the face for low income earners.

one PM more spin than substance replaced by another just the same !

BBC, please do not run with headlines shouting about tax cuts when they do not apply to many low income people. Many of us are not eligble for working tax credit

all the Chancellor has done is ensure that the working poor pay more in tax.

He's presided over ten years in which the poor have seen their life chances worsen, and now he sticks the boot in with a huge tax increase.

Is this really a Labour government?

This government is a joke, roll on the General Election

The sooner we see the back of the Labour goverment and all it's cronies and spin doctors, the better.

Give someone else a chance to deliver a Budget for the "NORMAL" family...

People on low income lose out, those on higher income gain.
Does that sound fair?

Choose misery and corruption, choose Labour!!

I will be worse off over the next 12 months then I was over the last 12 months...

For those on low incomes, work is now even less worth having. A decade ago, who'd have thought a Labour government would be the ones doing that?

if you were in the 10p tax band.The Chancellor has just doubled your tax !!! Probably the greatest increase ever, and it will affect part-time workers,semi-retired's etc

Supreme Soviet "Incapability" Brown rips us off again

This government is not encouraging innovation or independence and is actively rewarding bad social behaviour. Shabby. Small businesses need more help, not more tax.

What a tedious budget from a tedious Chancellor who will no doubt make a very tedious, though hopefully rather shortlived, prime minister.

I'm appalled that this budget clobbers small companies with a tax hike and reduces it for large companies.

unless you are very rich or a complete waster, you are a soft target to the governments tax

Where's the money gone Gordon ?!

Am sick to the teeth of this goverment wasting money and kicking the hard working people in the teeth again and again

This budget was a waste of time and effort

I'm one of the low earners who will be subsidising Gordons PR stunt.

How many elderly are working part time, trying to boost their pensions and now will have their tax doubled!

By scrapping the 10% rate, Brown has taxed the poorest to subsidise the slightly less poor

No, not a tax cut after all. The 10p rate has gone

At least this budget will finally finish off Labour.

The chancellor rips us off, the PM laughs and slaps him on the back, and the labour party cheers. They realy do think we're stupid.

with abolotion of 10p rate I will be worse off

Taking money whilst not delivering what was promised in return is commonly known as fraud.

Just how does Gordon Brown sleep at night?

Well, a big sarcastic thank you to everyone who voted labour.

What an atrocious budget

DISCRACFULL

Today, once again, they have betrayed the very people who believe in them.

We do not qualify for tax credits AND we're NhS Staff only get 1.9% payrise this year

The budget will again fail those of us who work hard to prop up Labour failings

Since New Labour came in living in Britain has been one unrelenting fight for survival.

A cynical and unscrupulous budget.

Please God let me win the Lottery so i can get the hell out of this Godforsaken Country.

continuing their policy of treating the people of this country with utter contempt

Brown is a con man. GOd help us if he ever becomes Prime Minister

On reflection the budget was full of spin and theatre.

Something is very wrong here.

What the headlines giveth, the small print taketh away.

Tax, more tax, lies, more lies, Labour Government whats new?
This lot makes me sick!

Gordon Brown has punished low earners.

Take from the poor and give to the rich. Gordon Brown is a modern day Sheriff of Nottingham.


Gordon Brown is certainly not encouraging anyone to start a business is he?

Every body swamp the government e-petitions web site with cries for new elections!

as a labour voter, Ive learnt not to vote again !

it is time the 10 million pensioners voted this dreadful man out of office!

2p off income tax is not so eye catching when you realise the 10p rate is abolished.

Another elaborate stunt from Gordon ! But he looks more like Tommy Cooper than Harry Houdini !


And those in favour of Gordon Brown and/or his Budget:








I read the comments on here with a sense of disbelief. We have had an economy that has grown every year (without exception) for 10 years…..



Yep. Just the one. Oh dear, Gordon....

Every part of the UK has piled the smelly stuff onto him from a great height. Do the Labour astroturfers still think this was a clever, vote-winning budget? If this sample is remotely representative then... oooops!

PS I LOVE "Incapability Brown".

Benedict White said...

Many thanks for that Mark, but I liked this one the best:

"What the headlines giveth, the small print taketh away."

Brilliant. Wish I had that as a headline!

What I don't think Gordon quite took into account is that 53% of private sector employees may have an issue if their employer can't make up the tax hike through claims for capital investment.

Besides which was there not some allowance before?

Ash said...

It was great to see your blog listed for the keyword 'tax relief ' at blogsearch.sg ... I found your article about tax relief quite interesting among the many more posts that are listed at blogsearch.sg

Anonymous said...

Well done Benedict for fighting the good fight last night. The straws in the wind this morning look disastrous for Gordon. Sky's poll was running at 91% negative. Eamon Holmes almost choked when it was revealed. And he had to interview Brown 20 mins later.

Benedict White said...

Ash, many thanks. That said .sg is Singapore, so I have no idea why I am listed there!

FR,Thanks for that, I will have to look that up! It looks like the budget may go down like a bucket of cold sick!

Mark, I note your comments, but giving a tax break to one set of people rather than another is not the same as raising the tax take on a set of people is it?

Benedict White said...

Mark, If you give X group of people a tax break you can either fund that through spending cuts, borrowing, taxing group Y more, or by fiscal drag and giving away the benefits in certain targeted areas and not others.

You don't actualy have to pick on the poor though! That is why I am angry.

Benedict White said...

mark, so lets get this straight, if I decide not to raise the higher threashold of tax, affect the high end of the income spectrum, and give that break away else where, how does that affect the poor?

Lets face it Mark, anything any Conservative government has ever done is bad in your book from the introduction of secondary education, the expansion of the university sector, sorting out the mess we inherited in the 1970's.

Anything done by Gordon Brown on the other hand is fine?

Benedict White said...

mark, you view of the Conservative party is clearly jaundiced. If it taxes the poor more it's a tory budget, no matter who delivered it, and so we ought to applaud it, if it taxes them less, then its a leftish budget.

Sorry Mark, but I am having real trouble having a serious discussion on that basis.