The Staggers

The New Statesman’s rolling politics blog

Osborne’s tax cuts will be swallowed up by his tax rises

The £600 rise in the personal allowance will be swallowed up by higher VAT.

By George Eaton Published 23 March 2011 12:56

George Osborne's plan to announce a £600 increase in the personal income-tax allowance from next April has garnered him a series of glowing pre-Budget headlines this morning.

The Daily Mail declares that the tax cut will benefit millions to the tune of £320. In reality, as Will Straw points out, it's worth only £120. The misleading £320 figure comes from including the previously announced £1,000 rise in the tax threshold to £7,465 (worth £200 to basic-rate taxpayers).

What's more, the entire tax cut will be swallowed up by the VAT rise, rampant inflation of 4.4 per cent and higher National Insurance. A report for the Centre for Retail Research, for instance, found that the Chancellor's decision to raise VAT to a record high of 20 per cent would cost each household £425 a year on average.

It's also far from clear how Osborne intends to fund this £2.34bn tax cut without slowing his deficit reduction programme. We're told that, unlike the £1,000 rise in the personal allowance announced last June, this won't be paid for by pushing more taxpayers into the 40p ban.

Osborne has already decided to use £500m to reverse the planned 1p increase in fuel duty. And with the OBR certain to downgrade its growth forecasts (from 2.1 per cent to 1.8 per cent in 2011), he'll have even less room for manoeuvre.

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Tags: George Osborne

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8 comments

Thu, 2011-03-24 08:10 — Luddite (not verified)

Osborne’s tax cuts will be swallowed up by his tax rises. So how do we pay-back New Labour's debt? 'sorry' our debt, at least Osborne didn't increase the taxes of the hard working poor, unlike Gordon Brown! and unlike Gordon Brown Osborne is trying to help the wealth creators not tax them to death.

Thu, 2011-03-24 09:24 — swatantra nandanwar

Corp Tax rate down; lets hope these 'wealth creators' show a bit of corporate social responsibility and put the money back into their communities, that are the source of their wealth affluence and lifestyle.
All Chancellors are engaged in an exercise in creative accounting whenever they present their Budgets,
otherwise known as a 'slieght of hand'

Wed, 2011-03-23 13:08 — Grepppo (not verified)

As ever, the Daily Mash puts it much more succinctly

http://www.thedailymash.co.uk/politics/politics-headlines/osborne-hands-...

Wed, 2011-03-23 13:32 — swatantra nandanwar

That sounds about right.
You don't think you'd get something fior nothing, do you? The cost odf delivering more services is ever increasing. There is no such thing as 'smaller govt'.

Wed, 2011-03-23 14:09 — Hugh Markey (not verified)

Is this a budget for Bankers? We thought George had already given them most of the money.
One concern. National Insurance! We understand that the LibDems have fought so hard for this Lloyd George innovation that any change would provoke the junior coalition party to self-destruct.
Yes, REALLY!

Gullible

Wed, 2011-03-23 16:19 — Sam (not verified)

If George Eaton thinks that reporting that we're being taxed more when we have a budget deficit is good journalism then I may cry.

Would be good to see an analysis of the micro-economic policies to promote regional growth or something.

Wed, 2011-03-23 17:41 — Catriona

The point of Mr. Osborne's 'generous' increase in the personal allowance by £600 is to divert public away from his doubled reduction in Corporation Tax.

His December hike in the VAT rate, and his January increase in the duty on fuel will more than recoup the money lost to him by this concession to us mere proles.
And, as his chums' speculation on Oil drives its price ever-higher in the wake of the unrest in the Middle East (and the civil war in Libya in which Mr. Cameron has now embroiled us), the raised VAT on fuel will claw back YET MORE money from the mere proles, who cannot avoid buying fuel. Or products which use fuel in their creation or transportation. i.e. EVERYTHING.

And meanwhile, his Corporate chums in the City get to pay even less tax on their increased profits (when they DO deign to pay any at all), and NOTHING is done to get any money back from the 'Masters of the Universe' who destroyed the global economy and who we taxpayers had to bail out to the tune of hundreds of billions of £.

Wed, 2011-03-23 17:55 — Sam (not verified)

Osborne has raised the bank levy to get back some of the money from the lowering of the corporation tax.

Lowering corporation tax is important as 99% of businesses in this country are SMEs who don't make excessive profits that they can eat in to, so this should help them invest in growing their businesses.

I'm interested to see how his attempt to tax land wealth will work. A land value tax is the only way to tax inactive wealth without possibly damaging the economy, although he's obviously not going that far.