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Wednesday, July 08, 2015 

The rat and the rabbit.

After all the leaks, the raid on the BBC, the talk of how this one nation Conservative party would be creating a low tax, low welfare, high wage economy, there was only one real question left to be answered by George Osborne's wholly unnecessary second budget in three months: what's the fucking rabbit going to be?

First though, if on presentation and build-up only, today's budget is difficult to fault.  Almost all the nasty stuff was briefed about in advance, from the swingeing cuts to both tax credits and child tax credits, the reduced benefit cap and the abolition of inheritance tax for all properties under £1m.  There were still some extremely devious measures that weren't announced beforehand, like the abolition of grants for the poorest students, to be replaced with loans, but in the main all the changes to welfare were expected, leaving the way open for Osborne's surprise to dominate the headlines.

This budget was then all about him.  That Osborne is an exceptionally overrated politician, and unlike some of those also lauded by the press and commentators, believes his own hype, matters little.  Despite loathing him, he is more than the heir to Gordon Brown, only unlike Brown he hopes to make a success of taking over from his predecessor.  The difference is that whereas Brown and Osborne are remarkably similar beasts in how they always put personal political advantage ahead of everything else, Brown had the nous to recognise when he had gone too far, and also to act in a crisis.  Osborne by contrast just keeps on pushing ahead regardless, covering up his mistakes as he goes along, hoping no one will notice.

That something would materialise to sugar the pill was then apparent; not even with the backing of the majority of the press, a cowed opposition and a BBC in disarray would Osborne have got away with making the poorest undeniably poorer while cutting inheritance tax and raising the 40% threshold.  That Osborne decided to steal almost directly from Ed Miliband's Labour manifesto, the one that apparently no one can defend such was its rancidity, ought to have surprised no one.  Rather than abolish non-dom status outright though, perhaps the most obvious choice, Osborne opted to filch Miliband's minimum wage rise policy instead.  Only he went even further, promising that whereas Miliband outlined a rise to £8 an hour by 2020, Osborne's new "national living wage" will be £9 an hour by then.

Except, of course, Miliband's proposed rise in the minimum wage was meant to operate alongside the living wage, with sweeteners for businesses that opted to pay the latter.  Osborne's national living wage is nothing of the kind, for a whole host of reasons.  First, the living wage in London is already calculated to be £9.15 an hour.  Second, the living wage has always taken into account tax credits; remove them entirely or cut them viciously, as Osborne has done, and it would need to be even higher.  Third, as the IFS has already pointed out, not all businesses, especially small ones, can afford to pay the living wage, or at least not without raising their prices dramatically.  The further cuts in corporation tax will not help them one jot.  Workers over 25 will either have to be replaced with younger ones still on the lower rate, or another slew of smaller retail businesses are likely to be forced to close, or break the law to survive.

The distributional analysis from the Office for Budget Responsibility lays it bare: just as with the continued rises in the personal allowance, those who will gain the most are once again the already comfortably off.  The end result is that regardless of the rise, the cuts to tax credits will mean the vast majority will still be worse off, albeit by perhaps half as much as they otherwise would have been.  The poorest in society are in effect being asked to subsidise what David Cameron described as the "most basic, human and natural instinct", i.e., to pass on what even they themselves may have received entirely tax-free, at a cost estimated at £940m by 2020.  This truly is, as Chris said, the something for nothing culture in action, and as Rick argues, sets the Conservatives out not as defenders of wealth creators, but those who buy a commodity and do nothing with it other than just watch it grow in value.

Much the same thinking is presumably behind the cutting of rents in social housing by 1%.  What looks on the surface to be about helping the low paid is more than counteracted by how the OBR points out this is likely to reduce further the building of social housing.  Combined with the government policy of extending the right to buy to housing associations, this seems destined to further inflate the housing market bubble, and indeed in turn, the housing benefit bill, despite the motive being the opposite.  The new lower benefits cap will also have an effect, and is likely to lead to more landlords rejecting housing benefit claimants outright.  That buy-to-let mortgages will only be able to be offset against the basic rate rather than higher rate of tax is also likely to lead to a race to do so before the measure kicks in in 2017, further overheating the market.

Underneath all the wounding cuts to benefits and the rise in the minimum wage is the fact this was a tax-raising, rather than a tax-cutting budget.  With the major taxes off-limits, as promised and set to be legislated upon so they cannot be touched, Osborne has resorted to the stealth taxes Gordon Brown was so pilloried over.  <