Analysis of Budget changes – Summer 2015 Budget

Derek W Louden

Abbian House

Tower Street

Tain

Ross-shire

IV19 1DY

Tel: 07876 774412

Mob: 07876 774412

Email: LoudenDW@aol.com

For the last five years George Osborne has been delivering austerity budgets. These have been

somewhat constrained by the Lib-Dems. Following the May General Election there is no such

constraint operating to restrict Osborne’s budgetary activities. What we’ll get from now onwards is a

Tory party blue in tooth and claw convinced that what people voted for was further and deeper

cruelty towards people with disabilities and people who are out of work due to the austerity

measures which will form the core of the most ideologically extreme government the UK will ever

have seen. The Labour Party is convinced, following the instant reaction on the Andrew Marr show

of eminence gris Peter Mandelson, that Labour lost the election by being seen as “too left-wing”.

The idea that core voters may have deserted them for the SNP or just stayed at home because

Labour’s offer was essentially a competition with the Tories and the Lib-Dems to see who could offer

the most extreme austerity package was entirely dismissed as a possibility at the outset. That’s great

news for us. Labour will continue to head off in the wrong direction.

What did Osborne deliver?

Osborne didn’t disappoint his supporters, although there were a few surprises even for them. The

core of his message was that the UK could not afford to continue providing a safety net to those who

will not work and that even the safety net provided to those who are in work is and would be

unaffordable. What the budget sets out to do is to provide tax cuts for the rich and for corporations

paid for by the poor. It is the most regressive budget ever seen with the burden being placed almost

entirely on those least able to bear it.

Who lost out?

“On my first night as Prime Minister, I said we would build a more responsible society.

Where we back those who work hard and do the right thing.”

Speech by Prime Minister David Cameron on welfare reform, at Bluewater, Kent on Monday 25th

June, 2012.

http://www.telegraph.co.uk/news/politics/david-cameron/9354163/David-Camerons-welfare-

speech-in-full.html

Who lost out? Er, those working hard and doing the right thing. The strivers who through no fault of

their own are in part-time (or zero hours) low paid work and are reliant on top-ups to make ends

meet. They’ll see big cuts in disposable income until the Minimum Wage catches up with the benefit

cuts in 2020. Until then, misery. The cuts are unnecessary but their implementation will allow

Corporation Tax to be cut and Inheritance Tax relief to be extended to those with £1m homes.

The measures are given in detail below with their placement based on whether they help working

people on low or average wages, people who are out-of-work or people with disabilities:

Income Tax – Higher Rate to start at £43,000 for 2016/17

Working Age benefits frozen for 4 years

Tax Credits Frozen for 4 Years

Local Housing Allowance frozen for 4 years

Reducing the Benefits Cap to £20k and to £23k in London

Reducing Working Family Tax Credits

Reducing Child Tax Credits

Reducing Universal Credit

Tax Credits limited to 2 children in future

Insurance Premium Tax up from 6% to 9.5%

New Transferable Nil-Rate Band of £175,000 per estate for Inheritance Tax

Cut in Corporation Tax Rate from 20% to 19% and then 18%

Increase in Annual Investment Allowance for businesses to £200,000pa

Remove Maintenance Grants for poorer students and replace them with loans

Privatise the Green Investment Bank

National Living Wage £7.20 from April 2016 to be £9.00/hr by 2020

Taper to Annual Pensions Tax Relief in excess of £150,000pa

Reducing Social Housing Rents by 1% pa for next four years

Income Tax - Personal Allowance up to £11,000pa for 2016/17

Free Childcare doubled in England from 15 to 30 hrs per week for 3/4yr olds if both parents working

Reduction in Mortgage Interest Relief for buy-to-let properties to basic rate over 4 years

End permanent non-dom status for those who’ve lived here for 15 years

Replace unlimited Dividend Tax Credit with a £5,000 Dividend Tax Allowance

Levy on large employers to fund 3 million modern apprenticeships

Employment Allowance up from £2,000 to £3,000

We will now look at each of these measures in turn:

Income Tax – Higher Rate to start at £43,000 for 2016/17

This measure rewards high earning Tory supporters by giving them a tax cut. The Higher Rate of Income Tax will now start at a higher level of income and this will reward them for voting Conservative.

This measure reduces the Government’s tax take by £1.045Bn over the time period shown. As this is being given away benefit cuts must be increased to pay for it.

Working Age benefits frozen for 4 years

Tax Credits Frozen for 4 Years

Local Housing Allowance frozen for 4 years

The Conservative agenda is predicated on the “undeserving poor” the benefit scroungers who could work but who choose not to do so. Their view is that they would all have been back to work years ago had their best attempts in this regard not been thwarted by the weak and lily-livered Lib-Dems who chose to defend the indefensible and would not let the Tories give the lazy what they deserved. Well, they’re going to get it now.....

The above table shows how freezing working age benefits, tax credits and Local Housing Allowances will save the Government increasing amounts of money over time. Conversely, this is the amount that the poorest individuals and families will have their income cut by over the same time frame. Taking a total of £11.25Bn away from the poorest families in this manner is regressive in the extreme. This is fetishistic and almost Aryan in its methodology. These extreme measures will throw responsibility for making up the difference back on the individuals themselves and on communities and charities. The Big Society will simply have to grow to fill the void left by the dismantling of the Welfare State. Whether it can do so or not remains to be seen.

Reducing the Benefits Cap to £20k and to £23k in London

Freezing Benefits is not the only way in which the Undeserving Poor are going to get it under the Osborne plan. The benefits cap will also be lowered so that large families dependent on benefits will see their income reduced:

This measure will chisel off a further £1.67Bn in benefits over the same time frame with the saving to the Treasury becoming larger as time goes on.

Reducing Working Family Tax Credits

Reducing Child Tax Credits

Reducing Universal Credit

Tax Credits limited to 2 children in future

Those working hard and doing the right thing should do the right thing after two kids and have a vasectomy. The range of changes to Working Family Tax Credits set out below will give them an incentive to do so. This is social engineering of a pretty frightening sort. The Tories have decided that

people reproducing beyond their ability to pay should be offered incentives to stop doing so and penalized if they fail to listen. Eugenics is back! Dr Mengele would unquestionably approve.

A number of large blows are being delivered to poor people and working people by the proposed changes shown above. A significant reduction has been made to the amount people can earn before their eligibility to claim benefits is affected. We can see that £22.070Bn will be lost by the poorest people over this period. Reducing the income threshold from £6,420 to £3,850 will result in major changes over the above time frame. Clearly, a family on an income of £4,000 per annum is seen by the Tories as freeloading if they need help from Tax credits and benefits. Most sane people would just see them as poor, low paid and in need of some help. I’m struggling with this threshold reduction more than the bedroom tax. It is simply cruel and cannot be justified in a society which considers itself civilised.

Insurance Premium Tax up from 6% to 9.5%

Insurance Premium Tax is a regressive measure which, as it increases, makes it more and more likely

that poor people are excluded from the cover they need to prevent a total loss in the event of a fire

or a flood. It also makes it certain that in poorer areas, often those more likely to claim, cover

against theft will become unaffordable. I hate this tax which is illogical and cruel.

New Transferable Nil-Rate Band of £175,000 per estate for Inheritance Tax

At present each individual has a personal Inheritance Tax allowance of £325,000 to use before the

tax can be levied. For couples this means the effective rate of relief is £650,000 as the spouse can

claim any unused allowance from their partner. In most cases this means the survivor can leave

£650,000 to the next generation, or whoever they like, without Inheritance Tax being paid. The

Conservative manifesto pointed out that such a miserly allowance had failed to take account of the

rise in property values over many years and promised to change things if they won the election.

Welcome to the new Main Residence Nil Rate Band of £175,000 per person, £350,000 for a couple.

This takes the total useable allowances before Inheritance Tax commences up to £1,000,000. That

this has been achieved by reducing the threshold for Tax Credits and Universal Credits is in

Osborne’s mindset even more commendable. I’m somehow reminded that George strikes me as the

sort of young chap who would, without showing any emotion, have plucked the legs off a daddy

longlegs in a classroom just to see what the effect was.

Cut in Corporation Tax Rate from 20% to 19% (2017/18) and then 18% (2020/21)

Just as the super-rich have to be rewarded for voting Tory so too must the Government see that Corporate Donors are adequately compensated. The cuts in Corporation Tax are unnecessary and particularly indefensible in such a time of austerity when the cruelty being meted out to the poor by Government is of such a draconian nature. These tax cuts are being paid for by the people corporations pay so poorly that they desperately need the help of Tax Credits. To have them taken away to reward corporations seems particularly sick.

Increase in Annual Investment Allowance for businesses to £200,000pa

Another major item of expenditure allows businesses a bigger deduction for investment against their tax bill. This is again being paid for by the poor.

Remove Maintenance Grants for poorer students and replace them with loans

This measure doesn’t appear on the summary sheets of the Red Book (Pages 72-74) and appears to have been overlooked despite being shown as a “saving” of £2.5Bn in the paragraph above (P 59).

This is another Social Transfer by Osborne. The entire cost of the proposed increase in Childcare in England will be borne by England’s poorest students. What a hoot, bravo George!

Privatise the Green Investment Bank

“After everything we’ve done for them!” It’s payback time. “Privatise the Green Investment Bank” is only part of the story. When privatised it will be moved to London as payback for the ingratitude shown to the Conservatives by us failing to recognise the generosity of spirit responsible for setting it up in Edinburgh in the first place. You have been warned...... Well, we’ve seen a whole host of regressive measures which will make the lives of the poorest in our society more mean and miserable over time. There are some areas where changes have been made which might be seen as beneficial. We’ll look at these next.

National Living Wage £7.20 from April 2016 to be £9.00/hr by 2020

The acceptance of the case for a significant increase in the Minimum Wage is a genuine surprise. The way that it is being implemented is however dreadful. The increase in the Minimum Wage lags the reduction in benefits via the Tax Credit regime and Universal Credit by several years meaning that poor people will be worse off in the interim. It is “jam tomorrow” for the low waged.

Taper to Annual Pensions Tax Relief in excess of £150,000pa

Very rich people are able to make use of massive pension pots to shield their income from taxation. This has been the case for many years and was a feature of the “New” Labour regime prior to the Con-Dems. The Conservatives propose to introduce a taper to this relief which will reduce the tax savings being made. Again, this is a bit of a surprise.

Reducing Social Housing Rents by 1% pa for next four years

I was a bit slow on the uptake where this item is concerned. This is actually a reduction in the amount of money the Government has to pay to Housing Associations and Councils. Clearly this will be a problem for them. For Social Housing users however it is obviously a benefit.

Income Tax - Personal Allowance up to £11,000pa for 2016/17

This above inflation increase in Personal Allowance takes more people at the lower end of the income scale out of taxation. We should welcome this. Spare a thought for the Lib-Dems who struggled to get the Tories to accept this and now find it being waved in their face as a Tory policy and the main plank in their appeal to represent working people.

Free Childcare doubled in England from 15 to 30 hrs per week for 3/4yr olds if both parents working

This is however paid for, as we saw above, by replacing Grants to poor students with Loans to poor students.

Reduction in Mortgage Interest Relief for buy-to-let properties to basic rate over 4 years

This stops relief at the Higher Rate of taxation being given for mortgage interest on buy-to-let homes. We should welcome this.

End permanent non-dom status for those who’ve lived here for 15 years

This measure stops people who live here permanently claiming not to live here for tax purposes. We should welcome this. We might consider whether fifteen years is the right number or if this might be lower.

Replace unlimited Dividend Tax Credit with a £5,000 Dividend Tax Allowance

The old system significantly reduced the Income Tax bill of the very wealthy when this was received in the form of Dividends. These were paid with an attached Tax Credit which could be used to offset your income tax bill. What this change does is to abolish the old system and to replace it with a personal allowance of £5,000 per annum. You can receive up to £5,000 in dividends tax free under the new system but won’t receive a tax credit from a company any longer to offset against your Income Tax bill. This is a major source of additional revenue for the government from the wealthiest

shareholders who will no longer get credits to offset and will pay their taxes on dividends received at the higher rate. This is progressive and we should welcome it.

Levy on large employers to fund 3 million modern apprenticeships

This measure appears to be considered “revenue neutral” with the belief being that large firms will invest rather than be surcharged. There is no line with this heading on Pages 72-74 of the Red Book.

Employment Allowance up from £2,000 to £3,000

This measure encourages firms to hire additional staff. The increase in the allowance should be welcomed. Well, my summary of the budget seems to have identified good things and bad things and this is usually the way with them. This year however the impact has been most effectively summarized in one graph produced by Andrew Hood of the Institute of Fiscal Studies. It is reproduced below:

Source: http://www.ifs.org.uk/publications/7855

The pain from this budget is suffered in large part by the poorest in our society, in other words by

those least able to bear it. That’s no way to run a country.

Something that might be worth considering in terms of the Austerity Agenda is the effect of this

budget on the public finances:

Source: HM Treasury Red Book Page 18

The effect of imposing deeper cuts on spending than those produced in March is to shrink the

economy and require the Government to borrow more as a result in the period from 2016-17 to

2018-19. Why would a Government committed to reducing borrowing adopt policies which result in

it going up?

How has the budget been received by the press? I’ll leave the last word to “The Economist” no left-wing stooge:

“cutting benefits to the very poor while reducing inheritance tax for the wealthy is indefensible.”

Sources:

HM Treasury Red Book

https://www.gov.uk/government/publications/summer-budget-2015

Andrew Hood, Institute of Fiscal Studies

http://www.ifs.org.uk/publications/7855

The Economist, Leader column, P13, July 11th 2015

http://www.economist.com/news/leaders/21657393-george-osbornes-political-vision-brave-

boldand-many-counts-wrong-new-conservatism