Budget 2012: The Verdict

Simply put the verdict must be fiscally sound but politically inept. Because of the political ineptitude headlines about a mysterious Granny Tax abound. There is no such thing. What has happened is both simple and fair. The very generous £10,500 personal allowance for pensioners will not now rise with inflation until the increasing personal allowance for everyone else catches up with it, when the two will merge. So far pensioners have been well treated by the government; it is the young and the low paid who have been hit hardest by the cuts. It is perfectly reasonable that pensioners, I speak as one, do something to help. Pensioners on the lowest incomes will not be affected and those who are will not be poorer in cash terms; it is just that they will not get any more increases in their allowance for the time being.

The increase in the basic personal allowance which benefits all other taxpayers is of huge benefit to the lowest paid. It is fair, progressive and economically beneficial. The easing back of the level when higher rate tax comes due is not unreasonable, given the state of the economy. The changes to the levels at which child benefit will be withdrawn have taken the worst of the sting from an awkward but necessary curtailment of a universal benefit which many do not need but others survive on.

The reduction in the rate of corporation tax must be good news for the economy as a whole as the more businesses arrive, start up, invest and expand, the more they employ. So what has gone wrong?

First of all the leaking of all the good bits in the budget in the previous days, which fifty years ago would have been regarded as a high crime little short of treason, whilst at the same time glossing over the freeze in the tax allowance for the old and the lowering of the threshold for higher rate tax, neither of which had been trailed, in the actual budget speech, was a very grave error of judgement which has seriously undermined public trust. It meant that the interpretation of the figures and the exposure of their impact was left to excited commentators, hysterical newspapers and a rampant and re-energised opposition. All of this is disaster enough, but Osborne and the Treasury managed to turn it into a calamity.

In reality the increases in tax or potential tax about which the Chancellor chose to be coy were required to pay for the increase in the personal allowance. Sadly that is not what is perceived. No. The message was that it was  required to reduce the 50% rate to 45% on the highest paid in the land. Robbing the poor to help the rich or squeezing the already squeezed middle to enhance the quality of life for those already in luxury. It is not possible to get worse than this.

Of course it is right that fiscally the 50p rate should never have been introduced and is counter productive, producing little if any gain in net revenue. But it was not introduced as a fiscal measure. It was introduced as a political necessity. If the cohesion of the country was to be held together in the longest and most draconian period of austerity since WWII and which may turn out to be the longest ever, there had to be a clear signal that those with the most money were being squeezed too. Ultra high stamp duty on mega properties is no substitute. After all if you are not moving you do not pay. Even up to the eve of the budget 65% of voters supported the 50p top rate. This should have sounded a very loud political warning.

Add to all this the fact that half the cabinet is found to be better off and you have a political blunder, from which there is no certainty that the Conservative Party can recover this side of the general election. At the very least trust in the Chancellor is shattered entirely. He now has the aura of a snake oil salesman of the dodgiest  kind. This is a pity because he is a sound, but progressive, monetarist. But unless this is allied to political understanding of the emotions which drive voters, the harm done will outweigh the good.