Monday, 24 November 2008

PBR - it's just a bit crap isn't it

Funny how the Pre Budget Report seems to have overtaken the Budget itself in importance in the political calendar. Is this because of timing - autumn being a more feral political season?

Or is it because the traditions of purdah don't apply to the PBR and so the Chancellor can get away with leaking whole chunks of what he is going to announce.

Or perhaps it is just that it is treated as a statement and so there is much less time for speeches and for opposition comment.

Anyway, the meat and drink of the statement seems to be dividing political opinion purely along party lines. George Osborne in particular ramped up the rhetoric as though this was the beginning of the election campaign. I suppose the Tories are deliberately behaving as though it is. They believe (probably with good reason) that the later the election is, the worse the economy will be and so the better they will do. Brown might be tempted to cut and run if things look good in the spring (as I argued here before). Alternatively, he will hang on and just hope that his plans actually start to bear fruit.

They won't. Particularly if this is anything to go by.

The usual Brownian mish mash of tax credits for 'hard working families' are in there but the major plank is the cut in VAT. As many have said before, and many more will say in the future - just how many businesses will go around cutting prices by pennies? Not so many - particularly at the cheaper end of the market.

For the genuinely poorest there will be little respite. Food and so on is not subject to VAT. Most places are already so desperate for custom that they are knocking 20% off in pre-Crimbo sales. They won't use the VAT cut to trim any more off.

For the middle incomes there is also little. They may spend a little more in the shops as a result of this, but it's hardly enough to start compensating them for the higher credit card bills or negative equity.

The top earners, of course, will be hit hardest by the tax hikes - 45p tax for the richest 1%.

But all of us - including all firms - will also have to stump up with the ludicrous rise in NI comntributions. NI is a form of income tax and corporation tax rolled into one. It is the worst possible tax rate to change if you want people to be richer.

There is apparently a public sector spending splurge coming. But it is coming from a standing start in almost all cases and so will take ages to get off the ground. Building lots of new social housing is welcome, but it will still need planning permission, tendering and so on and so the houses are not likely to start coming on stream for three years and the Polish builders won't see any more work for a year or so.

I'm glad to see the Tories pointing out some of the more obvious flaws in the plan, but they really haven't said what they would do instead. Perhaps doing nothing is better than this, but I think they need something more than their plan to give incentives to employers to ditch long-standing workers and take on the long-term unemployed.

The Lib Dems, from what I've read, have stuck to their guns and said that income tax cuts should be the priority - starting at the lowest end and for good, not just for 13 months. I would have preferred a cut in NI (for both employers and workers), but this is almost there. Let's allow people to keep a little more of the money they earn and allow them to save it or spend it as they think best for themselves. Brown's package seems to be based on the notion that only spenders gain (and even then only if they spend on the right things and in the right places). Under the Lib Dems every worker would be a winner.

No comments: