Budget 2016: Tax

Much of the Budget was devoted to changes in personal finance and tax. Despite personal finances being much more important financial information, the media coverage of the Budget would imply that we were all wasps, only concerned with sugar. The Chancellor outlined a number of changes to specific taxes that challenge his narrative of being solely concerned with the nations finances and also reveal who the Tories are really on the side of.

The Tories like to claim that they are the part of working people, which is both false and funny given their opponents literally have the word ‘labour’ in the name of their party. In the battle between labour and capital the Tories, the historic party of landowners and the aristocracy, have decided that they support workers. Having said all of this the Chancellor announced that corporation tax would be cut to 17% and that capital gains tax will be cut to 20%.
The justification for these reductions was that it would mean that businesses would be more able to hire people, and therefore there would be more jobs. It seems like a logical approach, especially in the context of small businesses, but corporation tax applies to all businesses and this form of trickle-down economics has been proven by countless studies not to work. The reason that I say that it seems logical is that for businesses that are struggling to make ends meet any reduction in expenses, including taxes, is positive for them. But tax breaks for big businesses do not have the same impact for various reasons.
If we buy into the logic of the Conservatives for a moment, that tax breaks will create jobs because businesses will have higher profits and therefore will be able to recruit more people, we find that there is a significant problem. The accessibility of credit for big businesses has never been in doubt; if TESCO or McDonald’s wanted to expand their operations in the UK, a small cut in corporation tax will give them substantially more money but won’t encourage them to expand. If TESCO or McDonald’s went into a bank and asked for a loan to build another outlet the bank will almost certainly give them that loan as such companies are essentially safe bets. Big businesses don’t need reductions in their tax bills as they have credit open to them.
tesco telegraph
Can you seriously tell me that TESCO would only expand if there was a small cut in corporation tax? (Telegraph)
Another is that many big corporations don’t pay corporation tax because they use tax avoidance schemes. If the government wanted to help small businesses then they could have said that a company would only have to pay corporation tax if it has ‘x’ many employees or has an annual turnover of over ‘y’ thousand pounds. Not only would this mean that the Treasury would have more money to pay down the deficit, that thing the Chancellor says keeps him up at night, but it would win support from voters. A blanket cut in corporation tax benefits the bosses of all businesses, whereas a cut for only small businesses would have had wider public support. A better policy would have been to put up corporation tax to about 25%, which is not a radical left-wing position, and then clamp down on tax avoidance to prevent big businesses stashing their profits in tax havens.
Speaking of tax avoidance, the Chancellor announced that the Treasury would get to grips with the practice and generate an additional £12 billion in revenue. This would seem like a decent idea but there is one aspect of this policy that the Chancellor didn’t mention. Within a day of the Budget being announced the Office for Budget Responsibility (OBR), an independent think-tank that deals with all things financial, has cast doubt on whether Osborne can actually achieve this goal.
The criticism by the OBR came in specific reference to the Chancellor’s attempts to raise £2.5 billion by stopping a tax avoidance scheme popularised by Rangers Football Club. I’m not going to go into specific details about accountancy, because I’m not nearly qualified enough to do so, but this revelation leaves us with an important question: if Osborne can’t get £2.5 billion back in this way, why should we trust that he’ll get the rest of the money? If his plans are equally as flawed as in this case, he won’t get any new revenue into the Exchequer.
Remaining on the subject of business taxes, the annual threshold for small business tax relief rises to a maximum of £15,000 and a higher rate of £51,000. In purely practical terms this is a good thing as it will alleviate some financial pressures on small businesses. Indeed it was estimated by the Treasury that 600,000 small businesses would save money as a result of this policy. There is one problem with this policy: business rates go to local councils, whose budgets are already massively strained.
As a consequence of this policy, many councils are now faced with the reality of reduced amounts of revenue which will inevitably lead to more cuts in council services. Cuts in council services are those that are most felt by the public as even the least politically active citizens will notice a school extension not being built or the bins being taken out once a fortnight instead of weekly. This is another example of Osborne acting politically. This is a move that will result in small businesses saving money, which will win favour with those voters, and when council services are cut back all of the blame will go to councils. For Osborne there is no political downside to such a move, especially as council elections are coming up and cuts made by Tory councils are consistent with their ideology, whereas when done by Labour councils they are seen as hypocritical.
osborne RT
Osborne’s actions are about politics, not economics. (Reuters)
On a personal level the tax-free personal allowance will rise to £11,500 and the 40% rate of income tax will rise to £45,000. I have no immediate problems with the chance to the tax-free personal allowance, but the change in income tax brackets is clearly a give away to wealthier people. If Osborne wanted to help middle-class people then there a number of things that could be done: scrapping tuition fees and expanding maintenance grants would help students and their parents; freezing or reducing energy bills through legislation; and/or bringing down public transport costs (all of which are policies that would help all citizens, not just the middle-classes).
The other dimension is that this change will benefit the wealthiest in our society the most, in what is actually the largest reduction in taxes for the richest since the Thatcher Premiership.To argue that Osborne is more moderate than other Tory chancellors is totally false and these tax priorities demonstrate this. Rather than helping people by raising taxes on big businesses to fund public services, he cut corporation tax and implied that future spending cuts will be a distinct possibility, especially if there is another financial crisis.
The Budget’s approach to taxation is as muddled as ever. By cutting corporation tax and capital gains tax the Chancellor has given a huge boost to the capitalist class which is primarily made up of big corporations that (definitely not coincidentally) donate large amounts to the Tory Party. Changes to income tax do benefit those with a lower income level but this is overshadowed by Osborne’s blowjob to higher earners. I agree that tax avoidance should be clamped down upon but, given that it took a day for criticism of Osborne plans to emerge, I am not confident that he will be able to do that. The Chancellor has tried to give a tax-themed present to everybody in the country, which he may well have done, but the rest of the Budget clearly shows that it is the wealthy that he cares the most about.
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