Tuesday, June 22, 2010

Nasty little budget



And so Osborne delivered his budget, flanked by a matching pair of nodding poodles in the forms of Clegg and Alexander. And as forecast, he put the boot into the poorest in our society as part of a budget that the Office of Budget Responsibility admits will increase unemployment, increase inflation and cut growth. Great work, Chancellor.

While it is true that increasing the tax allowance will take 800,000 people out of the tax system, that ignores the fact that for a third of the population, the tax allowance change is meaningless because they earn less than the current allowance. Similarly, freezing the council tax has no benefit for the poorest in society, because they do not pay it. Teresa Perchard from Citizens' Advice notes

"The reality is that the proposed changes to personal allowances will be of little benefit to working families on the lowest incomes who live in rented accommodation. Although these families are in work, they are also likely to be in receipt of housing and council tax benefits and since both are means tested, any rise in take-home pay will result in a loss of entitlement to these benefits"

Philip Hammond, the former shadow Chief Secretary, had the nerve today to describe VAT as a progressive tax and Vince Cable - who should be ashamed of himself - popped up to defend the budget as something of which they should be proud. Vince, working overtime to destroy the considerable reputation that he had built up, then announced that the rich pay more in VAT than the poor. If you look at total tax take, that is of course true, but it is not proportionately true. Yet they are the ones who will be affected by the increase in VAT, because the bottom 10% in society pay proportionately more than the top 10%. In fact, the richest people pay £1 in £25 in VAT, but the poorest pay £1 in £7 in this regressive tax.

And then we come to benefits. In a sneaky little move, benefit increases have been linked to the CPI inflation figure rather than the current, higher RPI, so over the next few years, people who rely on benefits will see their incomes drop. Osborne is also promising other, as yet unspecified, reforms to the system, driven by a desire to take money away from the scroungers, not to support those in need, hence a refocussing on disability living allowance as well - more detail on that here.

Fiona Weir, Chief Exec of Gingerbread: A family having a second child could be over £1,200 worse off this year. These cuts will really hit families with young children hard."

The tax credits system is also tampered with, as Hopi Sen spotted some stealth cuts

The disregard for in year income changes is plunging, which anyone involved in the history of Tax Credits knows will mean a lot of people who just got a better job getting letters from HRMC demanding the return of monies paid out. There’s also less going to parents of very young children – which by itself accounts for half as much saved as from no increase in Child benefit. There’s also going to be a disregard for income falls, so if your income falls by £2,5o0 in a year, you get nothing extra in compensation. Oh, and just in case you’re wondering – very little of this comes from those on over 40k, c£150 million or so, about 5% of total savings.

And all of this is before we even see how departments are going to cope with 25% budget cuts.

I so want to be proved wrong on this, but I do get the feeling that a second recesson is on the cards. In the meantime, let's try to find out what has changed in the past 50 days to get Clegg and Co to reverse two of their key policy stances. Not even to an abstention status, but full-throated support for the Conservatives and Danny Alexander pushing himself to the front and simply begging to be allowed to put his axe to work.

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