Saturday, March 24, 2012

Bad news management costs Osborne dear

There is a hoary old adage in British politics that a Budget that looks good on the day invariably looks like a turkey a few weeks later.

But there can be few Budgets in the recent past which have unravelled quite as quickly as George Osborne’s latest package unveiled to MPs on Wednesday.

Within an hour of him sitting down, #grannytax was the top trending item on Twitter and the revolt against the Chancellor’s ‘stealth tax’ raid on pensioners was under way.

Rarely have the following days’ newspapers seen such a degree of unanimity over a Budget statement – or made such depressing reading for the man from Number 11.

Part of the largely hostile press reaction can be put down down to poor presentation and rank bad news management on the part of the government.

As one Labour veteran reminded us, Gordon Brown’s modus operandi was to get all the bad news out there beforehand and hold the good stuff back for a big ‘rabbit-out-of-the-hat’ announcement on the day.

The government appears to have taken the opposite approach with this Budget, with more leaks than a St David’s Day parade as one heterographically-minded blogger put it.

Indeed one reason it has had such a bad press is that most of the more positive measures were old news by the time the Chancellor got to his feet.

There were at least some good points. Annual tax statements will be a welcome addition to the public’s right to know, while the 2p cut in corporation tax ought to help meet the desperate need for new jobs.

And the imposition of 7pc stamp duty on the purchase of homes over £2m is the nearest we are likely to come to the Lib Dems’ cherished “Mansion Tax.’

Furthermore, despite its appalling presentation, I don’t necessarily go along with all the criticisms that have been made of the so-called ‘granny tax.’

As the Institute of Fiscal Studies has pointed out, pensioners have so far done better than younger people from the government’s austerity measures, and this at least helps even things up a bit.

Inevitably, much of the ire of left-of-centre politicians and commentators has been directed at the 5p cut in the top rate of income tax, worth around £42,500 a year to someone earning £1m.

It provided Ed Miliband with the best joke of the week – and perhaps of his leadership – telling the Prime Minister he will save so much that he “will be able to afford his own horse.”

A more serious moral point was made by the commentator Martin Kettle, arguing that the top-rate tax cut highlights the different worlds inhabited by the super-rich and the rest of us.

“The vast majority of us would be prosecuted if we opted not to pay [tax.] If the rich don’t pay, the law is changed to reflect the fact that they won’t pay up,” he wrote.

The economic arguments over the efficacy of the 50p rate will doubtless run and run, but this is perhaps one area where the politics should have trumped the economics.

If the 50p rate symbolised the fact that ‘we’re all in it together,’ then the political damage to the government engendered by its removal may well outweigh any economic benefit in the longer term.

The move towards a single personal tax-free allowance of £10,000 has been widely welcomed, but - just as Mr Brown once did – Mr Osborne is recouping some of the cost through so-called ‘fiscal drag.’

It means around 300,000 middle-income earners are finding themselves dragged into the 40p tax rate at the same time as top-rate taxpayers see their own rates cut by 5p in the pound.

But saving the worst till last, for me the most pernicious of all the Budget measures – at least as far as the North-East region is concerned - is the proposed introduction of regional rates of pay in the public sector.

As has been pointed out, this will only serve to entrench existing regional economic inequalities and institutionalise low-wage economies in areas such as the North-East, Wales and South-West.

The government’s argument seems to be that as private sector pay is lower in these regions, so therefore public sector pay ought to be lower too.

To me, that sounds suspiciously like two wrongs make a right.

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