Thursday, 17 March 2016

Judge a Budget by its critics

As a direct result of our moderate, mixed, pragmatic popular-capitalist approach to economics in this country, I have a couple of days off work. I am putting my free time to good use by letting you know how people thought the Budget went. You can thank me in the comments. 

The Shadow Chancellor decries yesterday's Budget as evidence that the "capitalistic" system has failed. (This was quoted in a BBC article, but the text has been subsequently removed, so you will have to take my word for it.) Mr McDonnell continued with some waffle about wanting a fairer system, with more opportunities, more happiness, and generally everything nicer. Specifics were thin on the ground, although he does seem to think that there is a rich seam of economic development to be tapped by investing more state funds in roads, railways and connectivity while cutting spending on welfare. So he agrees with George - and much of the centre-right - on something.

The libertarians are furious about the sugary drinks tax. Personally I am generally against nannying by the state. After all, we already know that soft drinks are bad for you and red wine is good for you, so why should the government interfere with our choices? But if we are going to have a nanny state, Osborne's proposal is at least less bad than a blanket duty on sugar across the board. He is giving manufacturers plenty of time to introduce new versions of their drinks before the tax comes in. He is exempting hipster East London tonic-makers. And most importantly, he is sending a strong signal (which is all economics is about in the end) that those small tins of Coke (other tasty fizzy pop is available) have huge amounts of sugar in them and really are best avoided. Our readers are already well-informed and thus probably won't be affected in the slightest. Let them drink tap water, I say.

Nigel Farage thinks that the only result of the sugary drinks tax will be increased smuggling. I don't know about Nigel, but when I go to France next I will not be wasting valuable boot-space on crates of Fanta.

The land-value taxers are angry because the Chancellor has cut business rates at the lower end of the market. This will help land-owners and not small business, according to them, because rents will rise to compensate. That might well be the case in places where the supply of commercial space is insufficient, but it seems to me to be less obvious in our depressed high streets and industrial estates. The business rate reduction hopefully begins to address some of the difficulties that small businesses in the UK have competing with home-based online sellers who avoid paying for premises in the first place at one end and the Amazons at the other end who can manage their affairs to take advantage of the complexities of the global tax system at the other. I will be interested to know what Bill Quango MP thinks.

Overall, my impression of the business tax changes as a whole is that small business pays less, and big business pays more. Some are saying that there is nothing inherently evil about big business, so why should they be hammered. Capitalists are not against big business, but large organisations find it much easier to navigate the regulatory and tax minefields and can be more productive because they have the resources to be more specialised. This is not something that should be punished, but I see nothing wrong in giving small firms some compensating advantages. After all, small firms are an important part of competition and innovation. In an ideal world, we would have a lighter burden overall, but we are where we are.

There was also a small helping of red meat for those on the right of centre. I didn't catch the exact figures, but George announced that public spending as a proportion of GDP is falling, and is planned to fall to its lowest level in many years. There was a slight easing of income tax for both lower and medium earners. Savers get an increase in their ISA limits, and no blunt end to the pension-contribution system for now. 

In summary, the Budget was hated by the hard left and the unrealistic right. Those who love to hate Jamie Oliver will be apoplectic. But given the British electorate's usual preference for something middle-of-the-road, a fairly solid Budget. The direction of travel is clear: the state is gradually getting smaller; the public debt will eventually start to come down; but nothing too radical to cause an upset to our slow recovery.

As an aside, I think the OBR has done us a favour by predicting low growth from here to eternity. Osborne's big mistake in 2010 was to base his deficit plans on stellar future economic growth. His predictions were dismissed as laughable at the time, and so they turned out to be. It is A Good Thing not to assume that everything will turn out super-rosy, and then be disappointed when it doesn't.

11 comments:

Anonymous said...

I can't abide Osborne he's an odd fish (guppy).... out of water and no mistake but some stuff was good - Verily are the only wealth creators: our SMEs!!! Thus, there is hope for him maybe yet, if one sets aside the liquid confections.

6/10.

lilith said...

I found myself spontaneously cheering the abolition of Class 2 NI. It negated the benefits of a higher tax allowance for us self employed on a low income.

lilith said...

Elby had fun congratulating the BBC who ran with a "not enough cuts" challenge to Treasury ministers yesterday. Normally they scream blue murder if the nasty Tories cut so much as a toenail.

Bill Quango MP said...

On the business tax - it was a welcome, if long overdue move. On a tour of a high street I did my usual, count the empty units, divide by total and if its over 5% its a failing area.

One of the big problems with business rates, apart from the fact its a tax like council tax, but no services are received for it, is the jump.

A small business, say a hair salon, if it had a rateable value of under £6000 would pay no tax. But a salon with £6500 rateable value, in a small town or village this might be just 600 feet of floorspace, they would pay thousands of pounds.

The small, odd shaped, about the size of a small convenience store unit I was looking at had a rates bill of £9800. On top of the £16500 rent bill. That alone is very roughly the profit from a £100,000 of retail turnover. A small unit along the way that shopwonks told me couldn't actually fit in the stock we would need to make it worthwhile, was £3500 in rates. The unit was about the size of a normal living room.

Small business recently has had exemptions from rates. Many business have had rates relief meaning they are paying very little in rates. Which is good. But it was temporary. When I was trying to explain my decision to close a unit in January, a lot of the reasons were future costs. By doubling the rate to £15000 permanently the chancellor has actually done what he said. The costs of operating in very many small towns and villages will shrink to enable even a poor trader to struggle along.

Another problem currently is a business looking to start a second business has to pay rates on BOTH.

You can get small business rate relief if the rateable value of each of your other properties is less than £2,600.The rateable values of the properties are added together and the relief applied to the main property.
You’ll keep getting any existing relief for one year when you get a second property.


A killer blow. £2500RV is the size of a largish bathroom. Any business wanting to expand suffers a very considerable cost base increase on the second one.
Usually, they have to suddenly find an extra 'X' for the rates they don't currently pay on the first and an increase in wages, as the working owner won't be there. The second business brings in a fraction of the profits of the first.

So even the best salon is usually just the one. Even if there is demand and need nearby.

The change from Ozzy will certainly help. Especially for the newsagent, craft shop, gift and antique shop type businesses



Bill Quango MP said...

I think there is some nasty small print coming on that class 2 Lilith.

Electro-Kevin said...

Thank you.

I find the situation on the debt and deficit depressing and ominous.

Graeme said...

My take is that I have not seen a more stupid or irrelevant budget since 1976

Electro-Kevin said...
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Electro-Kevin said...
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Electro-Kevin said...

As mentioned in my comment on the previous topic - single mums/absent fathers. Osborne based his policies on economic growth rather than make serious cuts which would have caused riots and conflict with the left wing MSM.

We are going to have to have big tax rises, and possibly cuts to state pensions, but as this happens (and preferably before) the benefits culture should be properly closed down.

In my own circle Little ***** is reaching child bearing age and one can only expect that the cycle will be repeated for a third generation in that family. Doubtless Little ***** jnr will be 'high rate' ADHD too and mum will have no choice but to stay at home for 14 years as her grandmother did.

I asked grandmother of her training. "I'm not in training. I'm getting a job soon."

I thought accountancy. But no. It's in special needs adults. There is a hell of a lot of this about.

CityUnslicker said...

The big issue to me is tax credits. They were originally a big grab by labour for white collar votes in the new service based economy.

Now the Chancellor thought about this in November and baulked at the kerfuffle caused. But fundamentally the state is supporting too many part time works, low paid workers and non-workers by spraying around money.

At a time when jobs growth is stellar and wages starting to rise too.

The budget ignores all this big stuff - bar commercial property taxes and rates, which I agree it acted soundly on. instead, a whole load of tinkering nonsense.

It will bite when the next downturn hits as the books will not be balanced in time and welfare will skyrocket as the underlying payment exposure is set at too high a level.