Lib Dem’s turn to have Darling steal their policies

The great policy thief looks like he is about to strike again!

Alistair Darling, Labour Chancellor and policy plagiarist, is rumoured to be about to “unveil a host of new measures in his first budget on Wednesday aimed at cutting carbon emissions” in what is to be billed as “Labour’s greenest [budget] to date.”

Should we be surprised? Of course not. In his first pre-Budget report, Darling ditched months of Labour plans in a naked attempt to out-Tory the Conservatives by offering an Inheritance Tax cut that Nick Clegg argues will help just 6 per cent of the population. Nick suggests that these are richest 6 per cent, though the most South Easterly 6 per cent might be nearer the mark!

Now, Darling appears poised to out-Lib Dem the Liberal Democrats by finally addressing Climate Change in his budget. Naturally, however, the real motivation is not the global but the financial climate, as he faces a hole in his budget that will require tax rises of £8 to £9 billion a year

In truth what we can look forward to is a token gesture on the environment in a budget that will not satisfy environmentally or equitably.

The Liberal Democrats have proposed a massive shift of taxation from income to pollution. Lib Dem proposals would seek to raise (if I remember correctly) £18bn a year from new environmental taxes, with which we would finance a massive tax cut off the basic rate, reducing it to the lowest level since… well… the last time the Liberals were in power. The personal allowance would soar to well over £7,000 a year, so that those on very low wages would pay almost nothing. And the Council Tax would be abolished forever – a long overdue measure.

By comparison, we can expect a rather lukewarm series of ill-thought-out measures from Darling. For example, the rumoured "showroom tax" of £2,000 on the price of the most gas-guzzling cars may indeed discourage consumers from buying them, but it is not the purchase of these cars but driving of them that is the source of pollution: this measure will not only unnecessarily penalize those who drive very short distances in very flash cars, but will also create no incentive to those who have already bought such a car, or who choose to do so despite the new tax, to economise on fuel. Indeed, perversely, economic theory suggests that if the car is more expensive, the owner needs to drive it more to ensure that they get their money’s worth!

By far a more effective means of tackling carbon emissions would be to abolish all taxes on the purchase of cars, and raise the money instead by increased in fuel duties. As somebody who has become painfully aware of the cost of petrol recently, I can attest to the fact that there is nothing more effective at encouraging economic use of fuel than seeing the counter on the petrol pump spin round.

Sadly, while it is unlikely that Darling will satisfy anybody with his budget, it is equally unlikely that the media will recognise that he is beginning to accept the wisdom of Lib Dem policy. And with a General Election probably two years away, we are saddled with Labour incompetence for some time to come.

BBC readers think Brown's budget is a disaster

As regular readers (or should that be "reader"!) will know, I am the first to point out that the BBC does not represent the views of the public, and its viewers/listeners/readers are not an acurate cross-section of the populous.

However, after 3697 votes cast in a BBC poll on the budget, over 57% believe the budget has not been good for them, while barely 20% think that they have benefited. Over at Have Your Say, the commentators are furious!

The British people are clearly more perceptive than than the cheering Labour backbenches. Or is it simply that Gordon Brown is unlikely to offer them a job (or even make it easy for them to find one!).

Brown’s “sleight of hand” budget hurts the poor as well as the rich

It came as no surprise that Gordon Brown delivered a few headline-grabbing surprises in his last budget as Chancellor of the Exchequer. By far and away the most eye-catching (though not unpredicted) measure was the grand finale, the cut in the basic rate of income tax from 22p to 20p in the pound. It seems like the tax cut that Middle England has been waiting for, but in truth it is what Menzies Campbell called a “sleight of hand”, giving with one hand while taking away with the other.

Tax measures are never equal, however – there are always winners and losers – and this one appears to squeeze those on low incomes the hardest.

Without having the leisure to browse the Red Book, a brief analysis of the measures looks like this:

• The 10p lowest rate of income tax is abolished, applying the basic rate from the very beginning
• The basic rate is cut to 20p
• The upper rate allowance is set at £43,000 from 2008
• National Insurance is aligned with income tax
• Tax credits are increased

The effect of the first two measures is to take more income tax from the roughly £2,000 one earns after one’s personal allowance is used up, but less from the next £30,000 (or £35,000 from 2008). So an extra 10% of £2,000 but a saving of 2% on £35,000, which means that if you are earning around £40,000 you will pay slightly less income tax, but if you are earning just £10,000 you will pay a lot more.

Ed Balls, the Chancellor’s closes ally, admitted that it was “not a very big tax cut”. It was worse than that, however. The poor are squeezed to pay for an income tax cut for the rich. But the National Insurance changes undermine what benefit higher earners see. By applying the 11p rate of National Insurance on earnings up to £43,000, instead of £35,000, an extra 10% of that last £8,000 is taxed, undermining much of the gain from the income tax cut outlined above.

Thus those earning very little will end up paying more tax, as will those earning a goodly sum. Only those in the very middle appear to gain (though it is interesting to note that other commentators seem to have interpreted this differently, so I would welcome an explanation as to why others seem to think that it is those earning in the twenty thousands who will suffer most).

The budget raises taxes on low-income earners and so presumably raises the barriers to people leaving benefits and returning to work. Brown’s solution is to fall back on his tried-and-tested-and-frankly-failed Tax Credits. He promises to increase the amount of tax credits, but the tax credit system is already costing £16bn and requiring 8,000 civil servants to administer. Yet last year half of the awards were wrong. Furthermore, too many of the poorest do not even claim the benefits, so complicated and obscure are they.

In other budget news, Brown has raised taxes on small businesses while alleviating them on bigger firms. The latter a welcome measure if we are to compete with low-tax emerging economies, but to increase taxes on struggling small enterprises if frankly perverse and pernicious.

Public spending will remain at record highs of 42% – not far off a level where the state takes every other pound we generate to distribute in on our behalf – yet there has been precious little to show for it.

The environmental taxation remains both parlous and interventionist: while the overall level remains lower than under the Conservatives, the measures introduced are meddling (levied specifically at Tory-voting car owners, for example) rather than economically (which is not to say fiscally) neutral (taxing all carbon and so allowing people to decide how to cut back – the policy I have advocated).

Despite the bluster of the Chancellor and the raucous support of his party, this budget is a disappointment. The tax code remains more complex than anywhere but in India as Brown intervenes and meddles in ways that distort the economy and make work for civil servants. It may serve his personal goal of looking good as he moves next door to No. 10, Downing Street, but it does little to address the real problems in Britain: excessive and ineffective public spending, taxes (not just headline rates but overall burdens) that are too high, an over-regulated economy and an underclass of poor people increasingly struggling to provide for themselves and their loved ones.

As an exercise in Public Choice Theory it is exemplary: the politician serves his own interests rather than those of the nation. As an economic plan for Britain’s future it is a sham.