Saturday, 23 March 2013

Budget 2013 - short-term gain, long-term pain?

I am a busy person with a family and a job that does not require me to spend hours researching the entire breadth of the budget so I can't possibly cover everything. I will merely record my initial thoughts on some of the aspects that grabbed my attentions.
Despite the measures that were loudly announced for SMEs this budget appears to me to be mainly for the benefit of large corporations.
The cut in NICS for small businesses will not create any jobs and will have a negligible impact on the balance sheet of the business. It may provide a little extra cash for the director of a small company but not enough to generate investment.
The cut in corporation tax will not affect SMEs as many will already pay small business rate of 20%. This will massively help corporations to save on their tax returns. George and Co may think that this will be of benefit but the direct evidence says otherwise. Left Foot Forward go into far more detail then I can; suffice to say that German corporations pay 29%, I don't see any lack of investment in Germany. The main outcome of this is not a more competitive industrial economy, just richer corporations. Their recent track-record of investment has not been that good either, corporations are sitting on record levels of cash. They don't need extra incentives, they need confidence in the market.
Confidence in the market was the reason behind the two, seemingly rather hurried, policies on leveraging in extra investment to the house-building industry. The historical evidence seems to point towards increased availability of finance massively increasing house-prices. So short-term gain for a few, long-term pain for the many. The practical application of these schemes does not seem to have been thought through either. These schemes will probably work to get more houses built, but at what cost? Furthermore the type of house-builders that will benefit the most are the large corporations; the ones that haven't stopped building for the last five years. They may have cut back in some areas, but they haven't stopped building. They are, however, sat on land banks that are not being used and not being taxed.
Child-care tax incentives; apart from the fact that this disenfranchises stay-at-home mothers and won't come in till 2015 this policy will simply drive up prices of childcare. IPPR (I think, haven't got time to find the link) have done some research on the best way to increase the availability of childcare and they found that tax incentives are the least efficient way.
VAT - should have cut this and left fuel and alcohol duty escalators in place. VAT is a highly regressive form of taxation benefiting the wealthy more than the poor.
Income tax - raising the tax threshold is not the best way to lift people out of poverty. I am aware of research (again sorry but not enough time to find the link - I think Richard Murphy and IPPR have both done work on this) that unequivocally finds that raising tax thresholds benefits the wealthier disproportionately. This leads to an increased differential in wealth and thus increases (relative) poverty. Furthermore taking people out of tax disenfranchises them. Taking part in taxation gives people a stake in their society. Reducing indirect taxes and VAT should be a priority, not income tax, if politicians genuinely want to help the poorest.
Beer - clearly done as a sop to the leisure industry but at odds with the overall strategy on reducing alcohol consumption. Short term gain, long-term pain.
In general a tinkering at the edges budget but with some policies that are designed to help the better off rather than those suffering at the bottom of our society.

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