Blog:Balancing The Books
From Bolton Interweb
del.icio.usBen Debusse, Budget Correspondent, 23rd June 2010
As a sceptic on the question of George Osborne’s qualifications and ability to perform the job of Chancellor, and a Lib Dem voter on the assumption they would throw their lot in with Labour, I have to say I am reasonably impressed with this first Lib-Con Budget. Boy George in charge of the public purse was my worst nightmare come true. But give the boy a chance and he actually did quite well, with a firm Lib Dem imprint on the final result.
The discredited financial management of the Labour Party means that their ranting and bleating at the unfairness of it all is falling on a lot of deaf ears outside their staunchest of supporters, and I suspect many of them are just going through the routine for the sake of it. The SNP and Plaid Cymru, socialists as well as nationalists, have at least welcomed some of the measures though Labour rejects it all.
Is it unfair? No. The headline VAT rise to 20% allows Labour to challenge on the grounds that VAT disproportionately hits the poorest hardest. But the poorest have been cushioned by a substantial hike in the level at which income tax hits. Pensions are going to rise at a higher rate than under Labour. Child tax credits for the poorest are going to rise by more than inflation. And no VAT is or will be charged on essentials such as basic food items and children’s’ clothes. The 5% VAT rate on domestic fuel remains. Money for health is saved from the axe. If you don’t consider takeaway meals and 40 inch TVs essential items then the poorest will be quite OK. I just checked my shopping receipt from Aldi and the VAT rise would result in a 0.8% increase in my bill or 40p for each £50 spent. That VAT rise, in my case, was entirely due to my buying fruit juice and chocolate, everything else was zero rated. Had I bought fresh fruit instead of juice then the rise would have been 0.3% or 15p for each £50 spent. But I usually shop in Asda and the trip to Aldi saved me 25%. The Institute for Fiscal Studies (IFS) produced stats that opponents have selectively latched onto. They have picked on the table that assumes the poorest spend roughly the same proportion of their income as the wealthiest on the non-essentials that the VAT rise impacts on, and this is patently not the case. When you look at the IFS table that factors this in, it is clear that the poorest are hit least both as a proportion of income and of expenditure. Don't listen to Labour politicians with their selective quotations, check the source for yourself. The group the VAT rise hits hardest are the middle classes with some cash in hand for some of the luxuries of life, and these are coincidentally the Conservative and Lib Dem voters.
At the same time, some of the tax avoidance vehicles for the wealthy are being removed and they will pay substantially more for their capital gains. But not so much that they will flee elsewhere. Corporation tax is being cut and there are national insurance holidays for start-ups. These are major business costs and should encourage more British businesses to create more British jobs. As well as encouraging foreign investment. But because the VAT hike will impact on retail sales, the balance of the type of businesses in the economy should be steered away from retail consumers towards manufacturing and services for export. The reduction in tax on corporate profits should enable retailers to absorb some of the VAT hike.
There is a big hit on benefits and whilst there are many genuine cases of poverty that needs society to lend a hand, most people know of someone who getting benefits without trying to help themselves. Disability benefits have been abused by claimants and by previous Governments attempts to massage unemployment statistics. My grandmother was severely disabled, in constant pain and confined to a wheelchair back in the ‘60s. It didn’t stop her working in a factory until the age of 68, 20 years later. She could have gone on benefits then but the thought would have appalled her. And that was before laws preventing disability discrimination; she was a hard worker, valued, and made a profit for her firm. Being disabled doesn’t mean you can and should sit back and allow others to wait on you hand and foot. There are always exceptions, those with mental disabilities or the severest of physical disabilities that mean they cannot work or support themselves, and we must look after these people better. Maybe we can if a lot of the bogus disability benefit claimants are disowned, and those disabled people capable of working are encouraged to. Where are the jobs coming from? Look deeper and listen to big business. Adjustments to Corporation Tax and National Insurance is a recipe for investment and growth built on sound economics, not the falsehoods of public spending on creating and sustaining jobs with no economic value.
Was it tough? Actually not very. Given the power I would probably have gone further in some areas. I would have stung smokers (of which I am one), and drinkers of alcopops. I would have imposed VAT on gambling stakes. I would have upped the pension age to 66 for men and women from next year. I would have removed free bus travel for the under 65s immediately but extended the bus and tram fare policies in London throughout England. In Bolton and Bury bus fares are totally ridiculous. And I would have ringfenced investment in green energy security projects. I would have been inclined to put an end date on the 20% VAT policy to show that it is a temporary emergency measure, and maybe that might still come about as deals are struck with backbench Lib Dems. Some fiddling around the edges of VAT - it is nonsense to charge VAT on fruit juice but not on cakes so swap them - is needed too. The Government also need to address usury, that is the charging of excessive interest rates on credit cards and loans. This would enable households to repay the record levels of personal debt faster. Nevertheless, all in all it is a good budget for the bumpy times ahead.
How did we get here though? Buying on the never-never used to be frowned upon. It was something people did as a last resort. The nearest most people got to credit was paying weekly for goods from the Kays and Freemans catalogues. For 30 years from 1980, mostly under Tory rule, the credit card became not only socially acceptable but encouraged as the UK economy was steered from having a manufacturing-based economy to one dominated by financial services. We were encouraged to buy our own homes, buy cars on personal leases or deals with balloon payments. We developed into a nation of consumers locked permanently into debt where the financial services industry was sustained on the back of servicing those debts. Not only consumers, but business too. The way to grow businesses was not through reinvestment of profit or raising share capital but by borrowing from banks. And Government borrowed from the markets, not just overtly but via the pernicious, expensive, and devious debt mountain building technique of PFI, Private Finance Initiative, invented by the Tories and pursued with gusto by Labour. PFI is nothing more than buying schools and hospitals, roads and rail upgrades, on tick. It was a way of building big capital projects without having the ready cash and without it appearing on the Government spending books. 10p in every tax pound raised now goes to service debts we have built up. I’d be willing to bet that PFI payments are not included in that as it isn’t classified as debt, more like paying rent rather than a mortgage.
And so this would have gone on forever had it not been for the global economic crisis that started a couple of years back. Well, not forever, as Canada, Sweden, and a few others found out earlier. It could only last as long as strong economic growth was hiding the borrowing. As soon as there is a dip the plan unravels. It is like the family who have built up debts equal to their annual income and redundancy comes along – you have to cut back, try and ride it out, and hope a new job comes along fast. What you don’t do is try and spend your way out of trouble. I did that once and am still paying for it heavily. The UK, with its reliance on the financial services sector, was hit badly. Previous Conservative and Labour governments are totally responsible for this situation.
Having assigned the blame we now have to sort out the problem. The Labour answer is to carry on spending money we don’t have, increasing the already record debt. And then, next April, cut public spending severely. The Lib-Con answer is to start to tackle the problem now by cancelling some projects where contracts have not been signed. And so local interest groups associated with the cancelled projects have been trotted out to condemn the cuts. Of course they will, everyone wants their pet project to go ahead. But the Government has to look at the big picture and ensure the money that is spent is spent wisely and to maximum impact with a positive return. Sheffield Forgemasters have had their loan cancelled and must go to private finance. If the idea was that good then they should have no problem getting the loan. What about the jobs lost! Disgraceful! Not so. These are jobs not created, not jobs lost. And the cost was £450,000 per job. That cannot be a good investment if employment is the objective. When it comes to “regeneration” projects, whilst there are empty shops and offices in town and city centres there is not the demand for more. You build more when there is demand for more. And if the demand exists then it is good private investment and needs no public money. Where there is no clear additional demand and no private funding a public investment only shuffles the pack at great expense to thee and me.
New hospitals have been cancelled but did we need them, were they being built simply to create construction jobs? It is plain stupid to spend money we don’t have on things we don’t need. Other hospital projects and regeneration plans are going ahead. Presumably because there is a strong business case to say that the project clearly shows a net profit to the tax payer. For example, if your hospital is costing more to maintain than it would be to rebuild, then rebuild. If your hospital building is sound but is a little shabby, then paint it. For too long government has authorised big spend projects on political grounds rather than based on good business sense. There needs to be a major culture change and the extent of the cuts means no stone can be left unturned so there is no chance of idiotic spending continuing, like that on replacing perfectly good steel crash barriers on motorways with concrete.
So far we have had cuts on wasteful government spending or at least spending not proven to be a sound investment. We have a budget that is, no matter what the Labour crazies say, a fair and balanced one that encourages business and inward investment where we need it most. And the biggest surprise to me is that Boy George has come good and may actually deliver on a balanced budget by 2016. I want my taxes to be spent on services not on interest on public debt that paid things that were never needed. I won’t become a Tory but I’m happy with being a Lib Dem supporter.
© Evrose, 2010
