At the heart of today's Budget was the cut in the top rate of income tax to 45% from 2013. The arguments are set to run for days about how much this will cost; a lot depends on your opinion of what today's Budget Report calls a "behavioural response [that] has been larger than expected." Slashing tax for the richest will reduce their taxes by £3 million, but the government expects that this will be nearly balanced by a £2.9 million reduction in tax avoidance.
Most progressives will have been astounded that a Chancellor who told us in his statement that "I regard tax evasion and - indeed - aggressive tax avoidance - as morally repugnant", then went on to reward it with his most controversial policy.
In the same speech, he also made some mystifying remarks about 'simplifying' the taxation of pensions. Translated, what this means is that the extra personal allowance for older people is going to be abolished for people who reach their 65th birthday after April 2013; for existing pensioners it will be frozen. Each year, pensioners will have to pay a higher proportion of their pensions in tax. As Conor Ryan has pointed out, new pensioners will lose £259 a year, a shade under £5 a week.
Obviously, Nick Clegg bases his claim that this is a 'Robin Hood Budget' on this measure. It's true that this increase benefits low paid workers as well as the rich; but it doesn't benefit the very poorest, who have no (or next to no) earnings. And it doesn't benefit people earning less than the current personal allowance (£8,105).
Even though there's going to be measures to partially offset the gains to the richest, work by the Resolution Foundation and the Institute for Fiscal Studies shows very clearly that people with above average incomes will gain substantially more than those with below average incomes. The Resolution Foundation's example of a £500 increase showed that, of the estimated £2.6 billion cost, £1.9 billion would go to those with above average incomes, £0.6 billion to the bottom half.
The cost of the increase the Chancellor decided on will actually be £3.3 billion - but there are many better things this money could have been spent on. Remember that next month one of the worst changes from previous Budgets and the Spending Review will come into effect. Low paid working families with children who rely on tax credits will have to work for 24 hours a week instead of 16 - 212,000 couples will lose up to £3,870 a year if they cannot increase their hours. Cancelling that change would have only cost £500 million and it would have been much more strongly targeted on working people with the lowest incomes.
Or we could have reversed the planned £1 billion of cuts to Disability Living Allowance or the freeze in Child Benefit... or half a dozen other cuts that will increase poverty much more than the personal allowance will reduce it.
This was not a Robin Hood Budget - but the Sheriff of Nottingham would have been proud of it!
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