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Labour distances itself from the competition with serviceable Budget

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24th Mar 2010
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The chancellor had a choice: People or bankers, and he seems to have put people first, argues Richard Murphy.

The UK needed three things from the Budget:

  • The first was a policy for growth.
  • The second was commitment to only a limited range of cuts until growth is restored and unemployment is falling fast.
  • The third was a commitment to increased taxes on banks, bankers and the well off to ensure that those who have benefitted most from the government bail out of banks, savings and all matters related to the financial sector pay most for the recovery process now needed to cure its excesses, which is now under way.

There were three things the UK did not need:

  • The first was a commitment to cuts in government spending, come what may. This would have been disastrous at this stage in the economic cycle, leading to massive increases in the public sector, and the private sector in turn, which is heavily dependent upon the public sector for the maintenance of demand.
  • Second, it did not need across the board tax cuts making the least well off worse off - that’s because they have the highest likelihood of spending most of their income and in the process they keep the economy buoyant.
  • Lastly, it did not need a massive boost for savers, who simply suck money out of the economy when there’s a need for more spending. The fallacy that saving creates investment is just that – a fallacy. It is credit and demand that drives investment, not savings in search of a home.

Alastair Darling delivered. Not in quite the way I would like of course, Budget day being a day of universal moaning, but he delivered nonetheless.

First he committed to growth. I have argued for a Green Investment Bank and I am a member of the Green New Deal group that has been pushing that agenda. It’s not got enough capital, and it’s not clear it will be a bank, more a fund. But the messaging is clear, and the cash is important. The yield for the economy will be much more than the sum to be invested.

The commitment to providing better funding for small business is also vital – and I especially welcome the appeal process on credit. Simple forcing banks to have to account for their decision making processes will both open these up and make the lending market more competitive. That’s good for the SME sector, but it’s also real operational pressure on banks to improve their performance. That’s on the ground reform that could deliver real change.
Third, he has not played with the tax system today in any serious way. How often can we say that after a budget?
That does mean some opportunities were not lost to tackle avoidance – in particular through capital gains tax where the increased allowance for entrepreneurs was welcome but keeping the rate at 18% when the income tax top rate is 50% is an open invitation for abuse.

Other measures on evasion and avoidance also disappointed. The emphasis on increasing penalties for those using offshore is, of course, good news. Those using secrecy jurisdictions increase the tax burden on all honest people. However, there was, unfortunately, no news on the end of the domicile rule despite the obvious problems it causes and no news on change to our outdated and uncertain residence rules which continue to allow abuse. Announcing consultations on both would have been good.

Even better, announcing consultation on creation of a general anti-avoidance provision could have put down a clear marker on the future direction of tax policy that would have been politically popular and which would have provided enormous stability for tax the tax system – by outlawing avoidance the moment you think of it. But it did not happen.

However, grab what is available. Business rates relief is good news. It’s overdue and the whole business rates system needs reform.

Stamp duty reforms are not as significant – and the backlash from people who have just moved will be strong (I was on air at Radio 2 at lunchtime and the email complaints flooded in). In addition, these changes will be capitalised in house prices in days.

Let’s cut away all the wrapping, the rhetoric, and the horseplay, of which there was too much. Alastair Darling presented a choice which contrasts markedly with the Tories. Labour puts employment first, and will spend now to keep people in jobs and businesses that supply them open here to generate the wealth that pays the taxes that will repay the debts. The Conservatives, alone of all political parties in the G20, argue for cuts now top keep financial markets happy when there is no evidence that markets are unhappy. So this was politics: People or bankers first. All else was wrapping around that choice.

You decide. Those listening to Radio 2 have no doubt where I stand.

Richard Murphy
is director of Tax Research LLP.
 

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By User deleted
24th Mar 2010 19:23

What nonsense!

We all know where you stand, Richard. We don't need to listen to Radio 2 to find out.

Opinionated Budget commentary is one thing but I believe a political polemic such as this is out of place on Accounting Web.

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By BryanS1958
24th Mar 2010 20:08

The Tories may well be right

It is often those who do not follow like lemmings falling off a cliff who prove to be correct. 

Who is to say that the 'herd' are right? The Tories may well be correct to try and get debt under control as fast as possible.  It doesn't necessarily follow that the economy will be ruined.  Those who make hard decisions early in the face of opposition and ridicule are often the most successful.

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By cymraeg_draig
24th Mar 2010 22:55

Servicable? Someone's having a laugh.

This budget was about as "servicable" as a 30 year old Ford Cortina with terminal body rot and no wheels.

Public spending MUST be cut - and drastically, because we simply cannot afford to keep on paying more and more out.

Punishing the wealthy with tax increases simply means that those who generate the wealth will go elsewhere. We used to renovate houses here - now we buy and renovate in France.

O)f course savers must be encouraged. If no one saves the banks dont have the money to lend to businesses.

Its not rocket science, its simple first year economics.

 

And above everything else - we need to be rid of Labour because there will NEVER be any confidence while Labour are in power. Just look at the foreign exchange maerkets already - straight after the budget - already investment is flowing OUT of the UK.

 

Another Labour disaster by Mogadon man and his boss McDoom.

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By listerramjet
25th Mar 2010 16:14

what a con!

The only good thing about this budget is that there will be no parliamentary time to pass it.  And what an insult to parliament that he did not talk about his proposals for cutting departmental budgets, but instead allowed them to be put out as press releases later.  Goodbye Darling, and turn the lights off on your way out!

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By listerramjet
25th Mar 2010 16:26

bankers are people; discuss

what a strange commentary.  Well below the standards you would expect from an Accountancy site.  I'm sure growth would be a good thing - Darling's budget will not deliver it.  A limited range of cuts?  As it happens his budget did not talk about cuts. All we have had is their fiscal responsibility act - and what a waste that was.  But what we need is removal of the structural deficit, and significant reduction in spending as a proportion of GDP.  what we have is too much Government.  Increased taxes on bankers?  How lovely.  Lets have a pop at the bit of business we have expertise in!  What these lefties don't seem to understand is that policy like this simply reduces the banks capital base, and hence restricts their ability to lend.

But enough of the politics.  What we really needed was a commitment to a simpler tax system - no sign of that.

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