The Budget

 

             I spoke in the Commons after the budget and will post that speech tomorrow when text is available.

              The budget confirms the same plan as before – deficit reduction through big increases in tax receipts. It relies on above trend growth for three years. I will comment more tomorrow on the various measures to promote growth when I have seen more the detail. The enterprise taxation measures are welcome, and the moves to less regulation also helpful. The Corporation tax and Carbon tax changes are more complex, as are the fuel and oil tax changes.

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40 Comments

  1. Posted March 23, 2011 at 4:55 pm | Permalink

    Most of what I have heard so far has been at least a step in the right direction. I fear though, that he is not moving fast enough towards a true free market economy in which the state plays only the most intrusive role that is absolutely necessary.

    If he wants to promote growth, he must move faster to slash red tape, and reduce the compexity of the tax and regulation system in the UK. He must also reduce marginal rates of taxation to encourage entrepeneurialism and reduce the top rates of tax so that money mught be brought into the UK and spent/invested here with less penalty. Nobody will ever accept a marginal tax rate of more than 50% – to reduce tax avoidance, reduce and simplify tax rates and collect more tax.

    I understand the many calls for government to ‘do something’ to promote growth. But in reality, the best thing that government can do in most cases is to clear off and stop getting in the way, their help is usually expensive and unnecessary.
    The most frightening words in the English language – ‘I’m from the government and I’m here to help!’

  2. Posted March 23, 2011 at 4:55 pm | Permalink

    Reading summaries of the budget it seems to be an epic fail.

    No imagination, as bland a budget as it’s possible to imagine. Hard to see how Darling would be any different to this if the Lib Dems and Labour had acheived their goal of the ‘anyone but the Tories’ coaltion.

  3. Posted March 23, 2011 at 5:11 pm | Permalink

    Simply far too little to late to send the right message to businesses and investors. The 52% income tax and non domicile tax are damaging the economy pointlessly and reducing actual tax receipts for the sake of appearance.

    Failure to cut expenditure, big increases in taxes and reliance on growth that will probably only come after they start to do the right things. How will growth arise with poor bank lending, increasing taxes, over regulation and a bloated inefficient state pulling it under the water line..

    • Posted March 23, 2011 at 11:04 pm | Permalink

      Why does he persist in throwing away tax revenues, good people and investors by continuing with the 52% tax rate and by increasing the non dom tax. Why a plan just to help certain enterprise zone areas and another just to help new only build property both giving silly distortions to the market.

      Why a carbon tax plan when there is no statistically significant world warming since 1998?

  4. Posted March 23, 2011 at 5:20 pm | Permalink

    John,
    I look forward to seeing your speech – deficit reduction through big increases in tax receipts (read taxation) sums it up nicely. Rather counter-intuitive with the goal of promoting growth I fear…..When we have had three years of anaemic growth (probably just over one per cent, or minus six or seven percent compared to what the inflation rate will be) we”ll see how that looks….

    zorro

  5. Posted March 23, 2011 at 5:36 pm | Permalink

    This struck me as a tinkering budget, albeit mainly in the right direction.
    The core issues of encouraging enterprise, lowering taxation and increasing incentives to work were nudged in the right direction. The right noises were made-when did Blair or Brown ever talk about making things, and getting jobs into the private sector?
    However the problem is that nudging the elephant which is Labour’s legacy doesn’t have much effect. You really need to launch a cannon behind it to get it to move. Otherwise you might just get crushed underfoot.

  6. Posted March 23, 2011 at 6:00 pm | Permalink

    I’m still not seeing any evidence of any cuts – except in the BBC rhetoric.

    • Posted March 23, 2011 at 7:07 pm | Permalink

      I suspect events in the Eurozone may rapidly overtake this budget. Portugal votes tonight on austerity measures. None of the PIGs have tax receipts to pay for their borrowings. If any of the PIGs go down then I think the markets will be looking alot harder at Osbornes progress and I suspect they will conclude the civil service is putting up too strong a resistance to the cuts in the face of low growth. The PIGs are alot like Northern Rock, RBS and Lehmans. Once one goes down nobody will know where they stand.

      • Posted March 23, 2011 at 11:22 pm | Permalink

        You’re worrying about nothing. Insolvency doesn’t matter anymore, we can just print as much money as we need, and so can the ECB!

        I’m suprised we didn’t think of this sooner.

      • Posted March 24, 2011 at 6:22 am | Permalink

        Well said, I have to agree. The Chancellor has breathing room but if I may use a metaphor, it’s like the fuse to the dynamite which is our economic destruction has ceased sparking but continues to glow red. One of the PIIGS failing would surely spell the end for the budget, the insane public spending program along with the last vestiges of our economic independence. And I fear George would be blamed albeit his fault is not taking the action to correct matters, rather than being the fool who created this nightmare.

  7. Posted March 23, 2011 at 6:15 pm | Permalink

    I started off being encouraged but ended up being dismayed .

    One minute George talks about simplifying the tax system then next he is introducing tiny exceptions and allowances which will cost more money to administrate that they concern .

    Same with stimulating business by removing regulations . Is a moratorium on regulation for smaller companies meant to encourage them to stay small ?

    Then there is unilaterally burdening the UK with carbon dioxide taxes . Whatever you think about the argument for man made global warming , spending public money on capturing carbon-dioxide produced by power stations and store it underground is a completely different kettle of fish ; you end up having to burn a third more fuel to get the same amount of net energy .

    As for National Insurance , rather than admitting it was just being abused as general taxation why couldn’t it be used for what it was originally intended ?

    It’s all well and good getting a bit of news about the public sector pensions you are paying for but how about tasking someone with coming up with access to good quality pensions for the other 80% of the population ?

    • Posted March 24, 2011 at 6:29 am | Permalink

      Depending on your age, the pension you receive will be mostly worthless, paid in fiat paper which has lost its purchasing power, (unless we have by then seen an end to fiat currencies altogether and that won’t mean largesse all round by any means).

      Can anyone tell me one difference between NI/old age pension and a ponzi scheme?

      • Posted March 24, 2011 at 9:33 am | Permalink

        Yep , pay as you go NI/Pensions are a ponzi scheme , just like ever increasing house prices and an economy built on debt .

        Just shovel the bills onto the next generation .

        My gripe is that MP’s seem to think that they have fixed pensions by tweaking public sector pensions to put them on a slightly sounder basis so they can remain largely intact for now .

        You don’t have to be clairvoyant to see that over 50% of the workforce are going to retire with no income other than state pension and means tested benefits , little in savings , little in assets but for quite a few debts .

        This problem dwarfs public sector pensions yet I’m not aware of it even being on the Westminster agenda , are you ?

        Sure people should take more responsibility for their own financial future but it is to the detriment of the country that they have to spend so many hours managing their own investments instead of on their children or areas of specialisation .

        It would certainly be more efficient if the quality of financial products made them worthwhile so that I could purchase them and concentrate on finding customers for my database design services instead .

        Even if we are capable of managing our investments the majority aren’t and I think you know who will end up paying for them .

        • Posted March 24, 2011 at 7:00 pm | Permalink

          There is no political benefit in tackling the issue and loads of capital for an opposition to make fake noise about cuts if the issue is addressed. Ergo it is not, so the men with guns (ie the government) continue to extract taxes by force on the promise of jam tomorrow when even the most cursory examination of the figures tell you the promise is a worthless fake. This is a criminal act for anyone else. Why not them?

          You have to admire Baroness Thatcher for tackling the issue in the 1980’s when she allowed SERPS to be contracted out, and be ever more contemptuous of Mr Brown who ended the practice recently. At least I have a few tens of thousands with a private company which actually exists rather than never never promises.

      • Posted March 24, 2011 at 9:38 am | Permalink

        Stuart Fairney: “Can anyone tell me one difference between NI/old age pension and a ponzi scheme?”

        The government will compell you on pain of imprisonment to take part in the first scam, but will prosecute and send you to prisonif you organise a scheme that falls into the second catagory.

      • Posted March 24, 2011 at 8:55 pm | Permalink

        I’m absolutely convinced that by the time I come to retire (mid 30’s now so maybe in 35 years with a bit of luck) I will not receive a penny of state pension, or if I do it will be a derisory amount. I hope to have a private pension at least equal to the (current) state pension and maybe a few quid in my stocks and shares ISA giving a bit of a (taxed, natch) dividend every year.

        No doubt in the name of ‘fairness’ somewhere in the intervening 35 years it will be seen as ‘unfair’ for someone with a private pension/income/savings to be receiving a state pension to give him a comfortable lifestyle whilst the person receiving only the state pension has to pay VAT & other taxes to subsidise the state pension of the undeserving rich person.

        Even spending it all now on assets (like a house) won’t help as that will at some point be seized to pay for my ‘old age care’.

        Cocaine and hookers may be the best investment strategy 😉 At least neither of those are taxed!

  8. Posted March 23, 2011 at 6:21 pm | Permalink

    Well that’s petrol up then..

  9. Posted March 23, 2011 at 7:37 pm | Permalink

    JR: “The budget confirms the same plan as before – deficit reduction through big increases in tax receipts.”

    The problem is as with the last Tory administration, there does not seem to be any cuts. Thus, come the next Labour administration, they will just carry on where they left off, next stop public sector = 55% GDP

    • Posted March 23, 2011 at 11:23 pm | Permalink

      We’re all ‘the government’ (or the big society?) now!

  10. Posted March 23, 2011 at 8:41 pm | Permalink

    Mr Redwood,

    After you have examined more of the detail, can you comment on the Government scheme to help first time buyers?

    “Under the £250m scheme, known as the FirstBuy programme, buyers are required to provide a 5 per cent deposit, with 20 per cent injected by the government and the house builder in the form of a low-interest equity loan. ” – Telegraph
    http://www.telegraph.co.uk/finance/budget/8401874/First-time-buyers-offered-deposits-to-get-on-property-ladder.html

    Is this intended to help first time buyers or help builders and mortgage lenders?

    Where will the 250 million pounds come from?

    Is this mainly to prevent House Prices falling as Banks are concerned that if they have to repossess Homes, the price of those homes will reduce?

    With interest rates likely to increase in the next few months, won’t this encourage people into a market where they will soon experience negative equity?

    Thank you.

    • Posted March 23, 2011 at 10:30 pm | Permalink

      I note that this applies to first time buyers on incomes up to £60k who cannot afford their first homes.

      My we ask why the Govt is propping up an already artificially inflated market where hovels are beyond the reach of high earners ?

    • Posted March 23, 2011 at 11:03 pm | Permalink

      This measure is a futile attempt to try and prop up house prices and ‘get the market going’. It will cost money, not work and will get more people into debt and negative equity. It is disgraceful that this government is doing this….It should be promoting sound economics, reducing inflation, and protecting the value of money.

      The truth is that house prices MUST fall. They are overvalued. There is something desperately wrong in a country where someone on £60k pa cannot afford a reasonable house.

      This country’s economy has been based on house prices to an horrendous effect, and it has grossly distorted economic activity.

      zorro

    • Posted March 23, 2011 at 11:29 pm | Permalink

      What makes you think interest rates will go up? They might a bit, but 1% is hardly a lot is it? It might be like Japan, our demographics look just like Japan’s did in 1992.

      For all this talk that ‘bank not lending’ do you know anyone that actually wants to borrow any money? Oldies are net repayers of debt, not net borrowers.

      They will do anything to stop the money supply falling, even if the government have to borrow and/or print the money, they will do anything to stop the money supply collapsing. They’ll even build high speed trains.

      Because this would drastically reduce house prices and get them ejected from office as millions of peoples’ retirement dreams get shattered.

    • Posted March 23, 2011 at 11:34 pm | Permalink

      Conrad Jones: “Is this mainly to prevent House Prices falling ”

      Of course! Falling real estate prices will assist first time buyers in the most immediate and tangible manner.

      But it would adversely affect those people [no names, no pack-drill] who have used their access to public money to amass their own property portfolios. Naturally it suits this group to keep property prices up.

      Which group is in a position to introduce first time buyer assistance?

      That is a mystery.

      Conrad Jones: “as Banks are concerned that if they have to repossess Homes, the price of those homes will reduce?”

      Don’t forget, after an artificial bubble in the housing market where banks were lending in excess of 100% of the valuation of the property, prices today are perhaps 20% below what they loaned against. Reflecting an immediate loss to the Bank.

      In the USA many banks offered second lien based on the expectation that property prices would go up forever. Those loans, largely unsecured are worth nothing now. What is the betting many banks in the UK did the same?

      This first time buyer assistance is nothing other than another political subsidy to the banks dressed up as something noble.

    • Posted March 24, 2011 at 6:31 am | Permalink

      Yep, it’s the economic genius that gave the USA the community reinvestment act/Fannie & Freddie ~ how did that work out?

  11. Posted March 23, 2011 at 9:43 pm | Permalink

    Sounded good, but . . . . . . . . ?
    Lots I couldn’t understand, but other than petrol & alcohol taxes, two seemed to affect me particularly. State pensions are to be all inclusive, but not for existing pensioners, so that lets me out, and bequests to charity will get some rebate from estate duty, but I didn’t understand how.
    What did concern me was that apparently two things that the Chancellor would have liked to do were “illegal”. This presumably refers to EU law, as if it was UK law, surely parliament could change it.
    So once again this country can’t do something that the government thinks is appropriate and would like to do.

  12. Posted March 23, 2011 at 9:48 pm | Permalink

    A rather timid budget by a rather timid Chancellor. The big issues of our massive debt, long term unemployment and youth unemployment in particular, have hardly been touched. As has the vexed question as to when someone on “Politics” will seriously address the issue that we pay Senior Civil Servants and Town Hall Managers far too much money and pensions. We must cut down the costs of this bloated Civil Service and be brutally transparent about it as well.

  13. Posted March 23, 2011 at 10:33 pm | Permalink

    This is what an economics blogger on my link list had to say about the budget:

    Just need to say; wow do I hate George Osborne. What magnificent ***** he is.

    People always say you’re paranoid, ‘they’ are not out to get you…

    Well Osborne, who I have never been slow to criticise, has his revenge.

    Today’s budget has cost me £10,000 on the nose thank so to the collapse in share prices of our North Sea oil companies. Such companies have been doing really well of late, discovering bigger fields and eeking out a longer future for the UK as an oil producer – all the time with 50%+ of the profit going straight to the Treasury.

    Sadly in recent days our lunatic attack on Libya has pushed up the price of oil, along with the results of our failed Middle East foreign policy. So to help the Government have decided to take a couple of pence off a litre of fuel by taxing our own oil industry (not Gaddafi’s obviously!). It is a real budget gimmick too, petrol is up over 40p since last summer so a couple of pence neither here nor there.

    The huge tax rise has really affected the City view of the smaller North Sea oil companies though.

    And for me, this is the tipping point, they took child benefit away, I welcomed it. They put my taxes up to 65% by taking away my personal allowance. I grumbled but put up with it. They raised VAT, sigh. They allowed inflation to run away and I moaned a little. They even attacked my trading by upping capital gains tax and I was ok, because it was to pay the deficit.

    But this time, this is it, now the Government have taken to smashing directly my portfolio. It is a purely personal attack on one of my last attempts to keep earning. Well I am never supporting the Tories again. Whatever I try to do the Government rob me; once you add in VAT, council tax, petrol and insurance taxes I am paying directly over 2/3rds of income to the Government.

    Singapore or Switzerland?

    • Posted March 24, 2011 at 5:17 pm | Permalink

      Middle class bleating at it’s best. Millions of people are unemployed living in flats with two children getting about £220pw and paying £20 for rent and another £30 for fuel. Make it a one way ticket.

      • Posted March 24, 2011 at 7:01 pm | Permalink

        Bazman

        Sorry to have to make the following points but.

        £20 per week for rent seems rather low?

        Assume they have a subsidy from the taxpayer for the balance, perhaps like Housing Benefit.

        £30 a week for fuel seems rather high for an average house!

        I live in a large house (which I built myself some 30 years ago) and my fuel costs (gas and electricity) do not come to £30 per week !

        So add the housing benefit cost to the £220 per week (all tax free) with probably some other benefits on top (free school meals, Council tax help, etc) and all of a sudden the income is like going to work for the average wage (which is taxed), only you do not have the travelling costs to find.

        Fully aware jobs are scarce, indeed my family have had their fair share of redundancies over the years, but please do not expect the taxpayer to support people to live on benefits as a life style choice forever, its simply not sustainable, neither is it fair.

        • Posted March 25, 2011 at 12:07 pm | Permalink

          I was including fuel for a car, but as the average fuel gas/electricity bill is over £1100 and many flats/houses are all electric on a card system £30 a week is quite probable. The utility companies rip off the poor. You built your own house so presumably chose an efficient heating system and installed good insulation? My bills in are £80 pm due to this. You are right the £20 would be to top up housing benefits. Maybe it should not be a lifestyle choice nobody disagrees with this, but my point is that if there is no work then what should a person do in this situation? You could include healthcare in this. Should we stop that? Why not just stop all benefits including healthcare, housing and school meals after a certain point? If anyone would like to defend this proposal I would like to hear it. I know many people would like to see this, but are ashamed to admit it. See how far ya get..

        • Posted March 26, 2011 at 7:48 am | Permalink

          The problem is that there is so little difference between working and not working. After travel, lunch, clothing for work etc. better not to bother and have more time to shop, do DIY or help a friend for cash as so many illegally do.

          That is the message from the state.

  14. Posted March 23, 2011 at 10:50 pm | Permalink

    Watched your speech and thought everything made complete sense except that idea that politicians and officials know better about banking than bankers or the market. If I may say so, however, on this occasion your heart did not seem quite in it. Perhaps you do not really think that enterprise will create enough extra output and jobs to make the growth and fiscal sums work at a time of unstable prices and interest rates?

    As I heard it, the most novel and interesting feature of the speech was the plan to intervene in the foreign exchange markets by speculating against the pound. (The Chancellor called it building up reserves). I imagine the plan is to sell sterling when interest rates finally rise in order to retain the advantage of devaluation.

    I can see the point but do you approve?

  15. Posted March 24, 2011 at 12:02 am | Permalink

    nothing will change until people somehow force the government, or the markets decide that the government, needs to exit whole areas of public service. we have seen this in JR’s recent reviews of PS staffing. no one is actually reducing headcount. there are no cuts. just cuts in the rate of growth. we have, from a PM whose only real jonb was in PR, the worst of all worlds: a sense in the media that it cannot get any worse ‘cuts cuts cuts’ but in reality no cuts at all. i’d like to stop paying > 50% income tax and 20% VAT thanks. suggetstions pls where we can say either ‘all departments – 25% less money next year (for example) or ‘lets cut the Department for XXXXXX’ so that everyone else can carry on. leadership time or tax revolt.

  16. Posted March 24, 2011 at 12:07 am | Permalink

    hi JR – any sense where UK stands on comparative terms to other countries w/r/t taxes on profits from extraction of oil? are we competitive at our new North Sea rate? is it better to tax extraction at the rate we are at or to increase production given market prices. i cannot help thinkig this tax is bad for jobs & forex though we’re unlikely to see folks in the media supporting the oil industry. seems cynical from the Treasury.

    • Posted March 24, 2011 at 10:39 am | Permalink

      Surely we need to take a long term decision on this one based on estimates of the reserves and the relative difficulty of producing them .

      The current price may be a temporary high but the long term trend is that we are going to have to pay significantly more to import it in the future , perhaps 300% -400% more in 20 years time in real terms .

      Isn’t the current dilema simmilar to the one in the 1980’s when we exported more oil than we should have done at rock bottom prices ?

      I know we are a now a net importer but these are finite resources and we should be making sacrifices for the benefit of future generations .

  17. Posted March 24, 2011 at 12:22 am | Permalink

    Dear oh dear
    Help people to buy homes for the first time in a market that is overvalued still,average price
    nationally £167000 average salary £25000 [plus minus] factor 6.68 times earnings when it should be 4 [£100,000] £25000 deposit less £5000 from buyer on an average house means
    £142000 mortgage on a house that should be £100000 or £42000 negative equity now in the buyers name when the s hits the fan and interest rates go up. 10000 people in negative equity to the tune of £42000 is £420 million Terrific !!!!!.
    (last week a housebuilder was quoted-ed) that it had added 3700 plots last year to it’s land bank at a cost of £203 million or £54865 per plot ,a friend of mine builds one or two new houses at a time on an ongoing basis,latest one was a 3 bed 2 bath end terrace
    on the end of an existing row of terraces near Epsom it cost him £62000 to build plus £65000 for the land.IF (housebuilders could build for similar costs to my friend -ed) for the same size are less which they should be to build then their total cost is + – £114865 ,add a 20% markup due to the recession and you would have a selling price of say £138000 so why is the price more likely to be another
    £40000 at least,the rest of the market Follow these prices .We are in the realms of economic madness while this situation persists and will NEVER get the economy right.
    That is why I am seriously considering returning to Africa,for £10,000 I can buy a mansion in Zimbabwe ,which is going to come right as the only way is UP from where it is right now.I heard somewhere that If banks had to properly value the properties they hold as security for their mortgage lending they would be technically insolvent.

  18. Posted March 24, 2011 at 6:58 am | Permalink

    Mr. Osborne’s inflation forecast from the OBR:

    2011: 4%-5%
    2012: 2.5%
    2013: 2%

    That’s remarkably similar to the Bank’s forecasts, which have proven over the last few years not to be worth the paper that the pretty little fan charts are printed on. Could it simply be that they are using the same forecasting model and pretty much the same assumptions? The revised (downwards) growth forecast and the revised (upwards) inflation forecast have caused the pound to tank yet again – which will lead to more (guess what?).

  19. Posted March 24, 2011 at 8:49 am | Permalink

    I’ve just read that the Channels Island VAT loophole “closure” isn’t really that.
    MPs obviously don’t buy many CDs or DVDs from the Channel Islands.

  20. Posted March 24, 2011 at 8:00 pm | Permalink

    There is not enough time for this slow budget tatic to play out. There is only 4 years to the next Labour government. We have not enough time to build the factories.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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