A True Blue Budget

Alex Mitchell
Latest posts by Alex Mitchell (see all)

Four months on from the previous Conservative-Lib Dem budget, Chancellor George Osborne returned to the dispatch box to deliver the first Conservative only budget for 18 years.

Gone are the deals with the Lib Dems. Now the Tories have a majority they are able to put forward the budget they’ve dreamed of for five years.

Osborne set out his economic vision with what he claims is a budget for ‘hard working people’, which features cuts to the welfare budget in order to ‘balance the books’. The Government won’t face opposition solely from Labour’s acting Leader Harriet Harman, but also the four leadership candidates in Andy Burnham, Yvette Cooper, Liz Kendal and Jeremy Corbyn.

During the last election, the Tories pledged no rises in income tax, VAT and national insurance through a ‘triple tax lock’. The Government pledged to raise the income tax threshold from £10,600 to £12,500, with a raise in the threshold for paying 40% income tax from £42,000 to £50,000.

With inheritance tax, the Government pledged to increase the threshold to £1m for a married couple when passing on a family home. This would be funded through a cut in pension relief tax for those earning over £150,000.

The Chancellor also pledged to get rid of the £30bn deficit in the budget. The manifesto identified £2bn in cuts to welfare but out of the £12bn planned there is still some explaining to do.

£13bn in departmental savings were also pledged with little information given during the campaign. The Tories are determined to bring government spending down. In the final year of Gordon Brown’s tenure, government spending was at 46% of GDP (national income) – this was brought down to 40% this year.

In the budget the Chancellor announced:

1.        A living wage starting at £7.20 rising to £9 by 2020
2.       An extended two year freeze in working age benefits and tax credits.
3.       A reduction in the household benefit cap to £23,000 in London (£20,000 elsewhere)
4.       An increase in social housing rents for those tenants who earn more, bringing such rents close to market value
5.       A ban on housing benefits for most 18-21 year olds (which particularly impacts upon young LGBT people hoping to leave the family home for whatever reason)
6.      The abolition of inheritance tax on homes worth up to £1m
7.       The BBC will fund TV licences for the over 75s, instead of the taxpayer
8.       An extension to Sunday trading hours (which was trialled during the London 2012 Olympics)
9.      Maintenance grants to be replaced by student loans for some students (this will again impact on young LGBT people hoping to leave the family home)
10.    A rise in the personal tax allowance threshold to £12,500
11.    A raise in the threshold for paying 40% income tax from £42,000 to £50,000
12.    Limits on child tax credits to two children for new claimants in 2017, affecting many families
13.     Economic growth at 3% for 2014 with a revised prediction of 2.4% for 2015 with 2.3% next year and 2.4% the year after.
14.     A predicted 1m more jobs by 2020
15.     Spending to be £83.3bn higher up to 2020 than pre-election projection
16.     The budget surplus target delayed by one year
17.     Government borrowing to fall from £69.5bn to £43.1bn this year then £24.3bn, £6.4bn before reaching a £10bn surplus in 2019/20
18.     National debt to fall from 80.3% of GDP to 79.1% this year followed by 77.2%, 74.7%, 71.5% and 68.5% in the following years.
19.    £5bn to be raised through tackling tax avoidance.
20.    Fuel duty remains frozen
21.     NHS to receive an extra £8bn on top of the £2bn already pledged
22.    Student grants to be replaced with loans repayable once the individual earns above £21,000 (again, affecting LGBT young people who need to leave the family home)
23.    Defence spending to increase by the Nato target of 2% per year
RELATED ARTICLE  Motel One, Newcastle - Review

The Chancellor argues the budget is about putting security first, recognising the hard work and sacrifice of the past five years, while cutting deeper and cutting corporation tax twice. Osbourne has set out a five-year plan to move us from what he sees as a low wage-high tax/high-welfare economy to a high wage-low tax/low welfare country.

He argued that growth is faster than in any other major economy and that the long term economic plan is working, while stressing that it would be wrong to become complacent (i.e., change course). He argued Britain still spends too much and borrows too much with a weak productivity through lack of investment, lack of infrastructure and training.

The projections about borrowing look promising with a downward trend in national debt which at present is a staggering 80.3% of GDP. This is the short term legacy of the banking crisis.

I am shocked that the Chancellor is giving in to the big banks by revising the banking levy introduced to provide confidence in the economy, replacing it with an 8% tax. With the Eurozone still in the danger zone of an economic crisis, alongside the U.S and Chinese economies slowing down, we need to provide confidence and security.

A major aggravating factor in the budget for me was the scrapping of student maintenance for universities. The chancellor argues it has become unaffordable at £3.9bn a year and is unfair to universities and tax payers. This in the same speech where the Chancellor argued there was a skills deficit causing a productivity problem within the UK which was dangerous for the economy.

RELATED ARTICLE  Low cost smartphone to retail at only £26

I am firmly of the belief that everyone has the right to an education for as long as they wish to learn. This should not be determined by your financial background. End of. Placing financial entry barriers on people with no control over their financial backing is unfair. It is also counterproductive.

‘What if the cure for cancer is trapped in the mind of someone who can’t afford an education?’ That’s the quote that embodies my beliefs on education for all.

It is also counterproductive, as a predicted 73% of student loans will be written off due to repayments not being made in the 30-year window. This was before the Government moved the student grant into the loan system. It is delaying the problem for the future generation to deal with once they are the generation in charge.

I agree that there is a very tiny minority of people who abuse of the welfare system, just as there are bankers who abuse banking systems and politicians who exploit expenses. However, I don’t agree that the majority of people should suffer for the actions of a tiny minority – especially when the penalties are disproportionately levied upon the working classes, while those at the top continue to get away with their abuses of the system.

A recent report identified that 17% of ‘working households’ had one generation out of work with only 1% of ‘working households’ having two generations out of work. The public perception in a poll was that 27% of benefit claims were fraudulent, when in reality this figure is at 0.8%.

Vada notes: Scrapping housing benefit for 18-21 year olds and the switch from maintenance grants to loans instead for university students from the poorest households impacts especially on young people. When LGBT young people have fewer role models, higher substance abuse problems, higher rates of homelessness, higher incidences of mental health problems, higher risk of contracting HIV and hepatitis, and are more likely to attempt suicide, any cuts that specifically target young people and make them poorer has a doubly negative effect on queer young people. It prevents them leaving potentially abusive homes – as many LGBT people do when they head to university – and takes away a safety net for vulnerable individuals the Government should be protecting. (See this PDF for more information about the specific challenges faced by LGBT young people.)

I welcome the rise in the personal tax allowance threshold, which will lift more and more people out of income tax, however this does not make up for the lost tax credits a working single mum will not be entitled to or to the changes in tax credits for two working adults if they live together and have a child. This latter, especially, may affect LGBT couples as well as heterosexual couples with children – two working parents must earn less jointly than a single parent (£30,000) to claim the same level of benefits.

RELATED ARTICLE  Sweden’s Government Collapses

When it comes to the welfare state I always think back to a politics class at college. We looked at John Rawls and his Veil of Ignorance. Imagine that you are on one side of a veil. You have no human form, no gender, no job, no family background, no money, no name, no skin colour, no given intelligence, no skills, no determined mental/physical health. Nothing. You are a floating mind with nothing else. You are amongst other floating minds.

Once you pass through the veil you will be randomly assigned your human form, your gender, your age, your intelligence, your skills, your family background, your job, your money, etc.

Before you pass through the veil, think about the tax and welfare system you would like to see on the other side, knowing that everything you will become once you pass through the veil of ignorance will be randomly assigned.

What system do you create? (This isn’t just applied to taxation by the way, but to any moral issue).

Is this a good budget? Any economic question is best answered with ‘it depends’. Yes, it’s good the national debt will come down, that borrowing will come down and that Osborne and Cameron claim to have produced a budget surplus. However, these are projections only and five years is a long, long time in both politics and economics.

With a lot of uncertainty still out there in the next week – let alone the next five years – it’s not a time for complacency.

I also don’t feel that we are ‘all in this together’ – I feel those that have the least are hit more than those with the broadest shoulders. A loss of £1,000 to the wealthy might not seem a lot, but a loss of £100 is significant to those on the minimum wage.

Don’t get me wrong: I’m not calling for a Russell Brand-style revolution. What I am calling for is the use of the Veil of Ignorance in decision-making. Would you make these decisions if you were on one side of the veil with everything left to chance on the other?

About Alex Mitchell

Political observer and current affairs addict. I observe - I analyse - I debate