How can this be called a 'fair' budget?
The main bulk of the tax increase comes from the VAT hike, which will push thousands of families into poverty
o Benjamin Fox
o guardian.co.uk, Wednesday 23 June 2010 18.30 BST
The government had an opportunity to make the tax system fairer – and one that was supposedly the Liberal Democrats' justification for joining the Tories in coalition. It has been completely flunked in George Osborne's budget. Capital gains tax (CGT) increased to a meagre 28% – with exemptions – to appease the Tory backbenches, reforms to inheritance tax and the creation of a 'wealth tax' (used successfully in France and elsewhere) were completely ignored, and a slight increase to the personal allowance was cancelled out by a 2.5 percentage point hike in VAT and the public sector pay freeze.
Neil O'Brien, of Policy Exchange, described yesterday's butchery as "fair". I'm not sure what planet, other than one populated only by Ayn Rand and Friedrich Hayek, he is living on.
The Treasury documents state that a net figure of £8bn will be raised in taxes. But where does this money come from? O'Brien claims that the bank levy and increased capital gains tax will "mean that the rich pay more". This is simply untrue. The net take from the CGT rise will be less than £1bn. CGT will not hit main residences, only second homes and shares, it will only affect those on the top tax rates and, at 28%, is far lower than the 50% top rate. Meanwhile, the 10% CGT tax rate for business activities is actually extended from the first £2m to £5m. Consequently, on capital gains up to £5m, the recipient will pay a tax rate that is half that paid by someone earning £7,475. Not only is this deeply unfair, but it will not curb property or share speculation, two of the main causes of systemic risk in the British economy. Meanwhile, corporation tax will fall to 24% – the lowest rate in British history.
Although it is right that bailed-out banks should pay their share, the new levy will raise about £1.2bn next year, according to the Treasury, and I suspect the banks will raise the cash by increasing costs for customers on the high street. Besides, £1.2bn compared with the estimated £850bn pumped in to save the banks from collapse is a piffling sum.
However, the main bulk of the tax rise comes from increasing VAT from 17.5% to 20%. Indeed, Osborne estimates this will raise £12.1bn, dwarfing all other tax revenues added together.
I think Osborne will rue this decision the most when, as seems inevitable now, Britain suffers a double-dip recession. He has certainly learned nothing from Tory party history. Raising VAT was the method used by David Cameron's former employer Norman Lamont during the recession of the early 1990s. It proved hugely unpopular and Lamont was sacked as chancellor in 1993. VAT is deeply regressive because it hits the poorest hardest. Like the poll tax, the cleaner on £15,000 pays the same rate as the financier earning £150,000 – but proportionately far more of their income. I suppose we should be grateful for small mercies – the list of items exempted from VAT is unchanged – but it will push thousands of families into poverty, especially since child benefit will be frozen.
Make no mistake, this brutal budget makes the tax system less fair and will disproportionately hurt society's poorest and most vulnerable. A fair budget? Get real, Neil.
How can this be called a 'fair' budget? | Benjamin Fox | Comment is free | guardian.co.uk
How can this be called a 'fair' budget?
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