Last week George Osborne claimed that reducing the top rate of income tax from 50% to 45% had had the effect of increasing the tax take of the government. He hoped to get away with using the data to underline his low-tax ideological stance. He hoped to show that reducing the top rate of tax reduces the disincentive to work hard, or, at the very least, it reduces the incentive to cheat, and so, he claims, taxing high earners at a higher rate is counterproductive. Lower taxes raise tax revenues, or so Osborne tells the gullible public.
Within hours his analysis had been exposed as ludicrous. What in fact has happened is that income has been brought forward to come under the new reduced tax rate time frame, so a one-off gain spuriously appears in the data. One must assume that Osborne is well-advised by sensible analysts and that he is capable of understanding both the data and the analysis. We can safely assume, therefore, that Osborne’s claim was a deliberate attempt to mislead the public.
Osborne continues with this implicit deception in the current budget, suggesting a link between his cut in corporation tax to just 17%, and his drive towards achieving a rise in profitability and thereby in investment and productivity in Britain and in government tax revenue. Mariana Mazzucato, the opposition party’s economic advisor, says there is absolutely no evidence that the cut in tax will raise investment, productivity or tax revenues.
Osborne claimed last year in the Autumn Statement that a change of heart on withdrawing in-work tax credits was not a turnaround, but a response to additional amounts of money coming into the treasury as a result of the success of his policies. In effect he claimed that sound economic management had enabled both him and the nation to begin to move from austerity to prosperity. Strangely then, that in the current budget statement growth is down, government revenues are down and government borrowing is still stubbornly too high despite, or perhaps because of, the government’s austerity measures.
Rather than helping the least well off directly Osborne has introduced a new saving scheme for younger savers. These rely on those with very little squeezing out some meagre level of savings in order to benefit in any way from the government pay-out. The devil is in the detail and there are many restrictions on uptake of these schemes. Savings are to encourage those who have not yet bought property and who do not have a pension. Many will be excluded, therefore, and many others will find the scheme totally unaffordable. It might turn out to be a red herring.
In addition it might be that that Osborne intends to use evidence of saving by the lowest paid as an argument in future budgets for not offering any further support to those who, he will argue, have clearly demonstrated they are able to save out of their incomes, so they are not really considered to be on the breadline. He is, in effect, setting up a Catch 22 situation for low earners. In the meantime those who can afford to save up to £20,000 a year in an ISA get a tax break up to this amount, and the higher your tax band the more that is worth having. It is infinitely easier for some than for others to take advantage of what is on offer in this budget.
The chancellor has utterly failed to meet the targets of his so-called long term economic plan. Worsening figures for growth, borrowing and productivity and lower than expected tax receipts, have blown a hole in public finances. In a fit of cynical political electioneering, Osborne has tried to distract the public from this failure with a topical, slightly controversial though largely popular sugary drinks tax. He has also tried to buy off opposition with income tax changes. These changes, according to the Resolution Foundation and other economic analysts, benefit higher income households far more than others. The lowest income households stand to lose several hundred pounds a year on average from these changes, while higher income families will be made better off.
At a time of sharply deteriorating figures for inequality the chancellor’s budget is hard to fathom. In order to have any chance of achieving his financial surplus for 2020 the chancellor will have to shift revenue and expenses about from one year to the next. The Office for Budget Responsibility (OBR) makes it perfectly clear that Osborne’s financial gymnastics are no more than accounting fiddles, little more than more lies, damned lies and statistics.