Child Benefit lunacy

Ah, those clever Tories, eh? They certainly know how to run a country. When the came up with the idea to ‘remove’ Child Benefit from higher rate taxpayers, the question was how? It soon became clear that what was actually going to happen was that they wanted to reduce the tax threshold for higher rate taxpayers who were parents in receipt of CB to recoup the money.

This led to further simple questions about how it would work, such as how you can tell without having full details of who was living with who, what happened if both parents were higher rate taxpayers, how people who were on the borderline would be dealt with if it takes a while to get tax returns in…

Seems that one way to deal with these pesky questions is to write a letter to every higher-rate taxpayer to ask them if they or their partner receives Child Benefit. Apparently if you don’t ‘fess up, you can be fined, but having to write to 4 million people suggests that they don’t actually know who to go after. Something tells me this policy is dissolving into farce already.

It would have been far simpler to either increase tax for all higher-rate payers (to avoid changing the 40% rate, simply reduce the threshold a bit), or to change CB by including it into the Tax Credits system. But no, the Tories had to make a headline announcement during Conference, and so a stupid idea was born.

I knew Osborne was an idiot, but…

Yesterday I saw the news about the Child Benefit changes and thought of an instant reaction. However, I decided to leave it a bit and think about it before posting.

In the meantime, of course, the middle classes are in outcry (strangely it’s overshadowed the £500 pw maximum for all benefits), and the Mail and Telegraph have followed their readers in outrage.

So the Tories have added insult to injury and restated their intention to have transferable allowances for married couples, with the implicit idea that it would be extended to balance out the Child Benefit changes. Which is itself also a clumsy idea and isn’t immediately clearly fair.

Basically, single parents on over £44,000 will lose out the most. Married childless couples where one earns loads and the other doesn’t work at all will gain the most. In between will be all sorts of situations where whether you gain or lose will depend less on household income and more on how close you are to the ‘traditional family’ ideal.

The oddest thing is that Child Benefit will still be being paid to the same people as before. All that will happen is that people above and around the threshold for the 40% Income Tax band will have their PAYE code altered in all sorts of ways to claw the money back. And as we saw last month, HMRC doesn’t have any problems with the PAYE system.

Oh. Well, apart from all the problems they have with the PAYE system resulting in loads of over- and under- payments going back years.

I thought that the removal of the 10% band by Gordon Brown in his 2007 budget was cack-handed, but this is ridiculous.

Council Tax cowardice

Today’s announcement from the Government was that they would ‘delay’ a Council Tax revaluation for England until after the next election. Of course, it turns out that they weren’t actually doing anything that Labour hadn’t promised to do – the manifesto for the 2010 election stated explicitly that no revaluation would happen in this Parliament if Labour won.

But Pickles is not averse to talking total arse for political gain, and the Tories would have wanted to do something after recent polls saw them slipping and Labour coming level, before the leader is chosen and the Conference starts. “New Politics” seems to be the same old spin, huh?

There were scare stories a few years ago that a revaluation would happen,

Taxwhores Alliance

Seems that the Taxpayers Alliance (who spend their time backing the Tories nobly standing up for the poor benighted rich) have themselves been trying to exploit the tax system for their benefit.

Seeing as one of their directors isn’t even a UK resident and hasn’t paid taxes to this country in years, and now it seems that they are pretending to be a charity to get extra cash, I hope that the media soon stop printing their usually incorrect press releases as if they are facts.

They don’t speak for me, anyway. I pay taxes, and I want them spent more effectively for sure, but I also want to see better public services and a decent move towards redistribution, not just tax breaks for the wealthy and cuts for the sake of them.

Osborne caught out

Oh dear!

Yet more problems with the Tory would-be Chancellor of the Exchequer. He’s been caught out overstating the benefits of an increase in the pension age (and of course, this follows days of questions as to what he actually meant by it and how it would affect women).

What is more damning, however, is the view of David Blanchflower. He used to sit on the Bank Of England’s Monetary Policy Committee (which sets the base interest rate for the UK), and was one of the few people to predict the path of the downturn:

We are in the midst of the worst recession most people alive have ever experienced, or will probably ever experience. It is already worse than the 1980s and it isn’t over yet. The only comparison is to the 1930s (my parents, now in their 80s, can remember how bad it was). The monetary and fiscal authorities have so far managed to prevent a recession turning into a depression – but it still could, especially if David Cameron and George Osborne have their way…

…The simple lesson when you are deep in recession is that a serious policy error is to reverse stimulus too early, which then sends the economy crashing into a depression. This is what happened in the United States in the 30s. Monetary and fiscal policy were tightened before recovery was firmly established, which drove the country back into a deep recession at the end of 1937…

…Lesson one in a deep recession is you don’t cut public spending until you are into the boom phase. Keynes taught us that. The consequence of cutting too soon is to drive the economy into a depression. That means rapidly rising unemployment, social disorder, rising poverty, falling living standards and even soup kitchens. The Tory economic proposals have the potential to push the British economy into a death spiral of decline that would be almost impossible to reverse for a generation.

The depressing thing is that the Tories will benefit from the recession, then likely make it worse, and then spend the next 4-5 years claiming that it’s all down to the previous government. Just like in 1979, when the economy was starting to recover, and the Tories came in and almost doubled VAT – killing off growth in retail sales driven activity, the party that believes in Capitalism doesn’t have the first idea of how it actually works.

Update: 17:45 on 10 October 2009 - seems that in recognition of their achievements, the Tories have won the ironic Nobel Prize for Economics

It’s all about the honesty…

Apparently the Tories, and primarily Shadow Chancellor George Osborne, are being given credit for their ‘honesty’ in telling us what they intend to cut when if they assume power after the formality of a General Election.

But what is Osborne’s record on honesty recently?

On MPs expenses (remember that burning issue over the summer?), Osborne is pretty much in the spotlight – or rather he should be. Eighteen months ago the Wilmslow Express, local to his Tatton constituency, noted his rather high claims. In May this year he was rebuked for using his expenses-funded website for overly-political purposes (Daily Telegraph), and of course he’s been accused of ‘flipping’ for personal gain (Evening Standard) and over-claiming on his £450,000 mortgage on a house worth a little less.

The Parliamentary Commissioner’s report on the expenses claims affair is due out soon. Perhaps then we’ll get a clearer idea of exactly how ‘honest’ Osborne is when it comes to taxpayers’ money.

Spare us the cutter

The major parties are competing in earnest to see who can cut most from public spending. The Lib Dems have performed a massive volte-face and where a few years ago they positioned themselves as to the left of New Labour on some things, they now have a leadership who promise ‘savage cuts’. The Tories are trying very hard to conceal their glee at the prospect of being able to slash budgets, particularly where their favourite bugbears are concerned – benefits, social care, etc. Labour are also talking about savings that can be made.

Now, of course, there is always a good case for trimming fat in public services. Large organisations tend to ossify over time, leading to waste. Poor management (the British disease, and which afflicts the private sector too) needs to be challenged. Providers should be kept on their toes.

However, the media and a lot of politicians seem to assume that cuts (and drastic ones at that) are necessary. The right wing are selling the line that the country is ‘bankrupt’, or almost there, and that the sooner the knife is wielded, the better.

I disagree. What’s more quite a few others, who are more expert in economics than I am, disagree. Duncan Weldon, for example, points out in a recent post on George Osborne’s speech that demanding lower spending across the board appeared to make the 1930s depression far worse and last far longer.

The figure most often used is that we are facing a budget deficit of £175bn. Sure, that’s a lot of money for the government to be spending over its income. But this deficit is made up of four factors:

1) Because there’s a recession, tax intake is lower.

2) Because there’s a recession, spending on things like benefits is higher

3) In order to stabilise the economy, and with the hope of stimulating growth, the government has spent billions on on-off measures and cut some taxes temporarily.

4) There is an underlying deficit

(1) – (3) will all end soon. With a return to growth, tax revenues will increase. As that growth beds in, the stimulus spending can be reined back. When that growth starts to create new jobs, spending pressures will decrease.

What’s more, a large part of the extra spending was to buy bits of failing banks. The shares were priced very low when bought (because bank stocks were understandably pretty undesirable in late 2008, especially those of banks liable to go under), but of course a recovery – and particularly even a moderate one for banking – will see the value of those shares rise. Not only will loans be repaid, but the Government could end up making a pretty good profit.

Additionally, the problem with cutting public spending while the private sector has not fully recovered is that the two ‘sides’ are not unrelated. Public spending largely means people in jobs, who end up with some money to spend. They will use that money to buy stuff, from the private sector largely. Cut job, or freeze wages, and discretionary spending goes down. Not a problem if the private sector is healthy and has solid growth. Potentially disastrous if the private sector is at the bottom of a recessionary curve and any growth is weak.

Keynes is still relevant today. You borrow to spend in a recession, to limit and mitigate the effects. You don’t start trying to pay that back until you are in growth. The fact that during the last period of growth we did not draw down much of the debt (although it was about the same as a proportion of GDP in 2007 as it was in 1997) does not alter the principle – growth is the best way to curb public debt, but cuts in spending can negatively affect growth.

Punishment

The Tories today came up with a really lovely way to help with reducing the deficit. Not pump prime spending to encourage a recovery, thus leading to a growth led increase in government revenue that will rapidly erode the annual deficit and go some way to reducing the effect on long term debt.

No, raising the retirement age by a year, well ahead of current schedules, so that we all have to work an extra year (well, anyone under 59 will).

Basically, the recession was caused by the last generation of idiotic bankers, egged on by capitalist politicians and pundits – all of whom will be able to retire on a nice bunce ta very much. But the Tories want everyone to share the pain.

Oh, yeah, and hows about shunting thousands of people from incapacity benefit at the same time?

What’s more, I did hear the Tory ‘incentive’ plan to encourage jobs. To give new companies a two year tax break on National Insurance for up to ten employees. Sounds like a good idea, but I see a few flaws. Firstly, what about existing companies? Won’t they be up against subsidised opposition? Seems pretty unfair to me. Secondly, what’s to stop this idea for a tax wheeze: If you already have a small business, close it down and restart it. Bob’s your uncle, a tax break. You don’t need to have ‘created’ any jobs – you could even lay people off and still qualify.

Anyone get the impression that Osborne is just an ingenue?

Do the Tories care?

A little history first. In the 1990-1, we had a recession in the UK. It was pretty bad, and it was the first one to seriously affect white-collar workers and middle management rather than just the manual trades.

The John Major government, through the genius of Norman Lamont had the job of seeing us through this period, and it was from these two giants that the following phrases came:

“If it isn’t hurting, it isn’t working”

“Unemployment is a price worth paying” (for low inflation)

As a result of their careful stewardship, the 1990s recession took us years to recover from. You can see how compassionate they were about the effects of their policies.

So to today, and have the Conservatives changed? It appears not. While the government is taking action to reduce the threat of recession and to help those affected (rescuing banks, extending lines of credit so that they can lend, reducing VAT, increasing income tax allowances and tax credits, restricting repossessions, assisting small businesses with their tax bills, investing in public services etc etc etc…), all the Conservatives can do is to oppose.

Take our local Tory councillor-blogger Duncan Crow. He’s quick to tell us that everything is the fault of Gordon Brown, but a little reticent to actually come up with any concrete proposals. It’s easy to sit around pronouncing doom and gloom, and using the benefit of hindsight, but surely our ‘natural rulers’ have some actual ideas for how to best deal with the current economic situation.

What is it that the Tories would actually be doing now, if they were in power? Doing nothing didn’t work very well last time, but I seen very little, other than to say whatever the government does is either bad or would have no effect.

For example, when the government announces a cut in VAT by 2.5%, the Tories tell us that it’s insignificant. Yet when they think that VAT may have been going up by 1% it would have been a disaster. Surely it would have less of an effect, being a smaller change, but I don’t suppose such logic comes into play when you are on a mission to oppose the government at all costs

It’s the Economy, Stupid

Is George Osborne an idiot? Or does he just think that the voters are all fools?

Over the last few weeks, the Tories have been demanding tax cuts, saying that they are the best way to release cash into the hands of people and spur consumer spending and company investment to help take us out of recession.

Then at the weekend, Osborne was saying that we can’t cut taxes because it would cause a run on the pound (which is is bit odd, because the currency rate is not directly related to the government’s finances, it’s to do with the value of the overall economy and predicted returns compared to other nations, and is more likely to be related to the interest rate).

It sounds to me like opposition for the sake of it. You can’t credibly go around contradicting yourself in the space of a few days and expect people to think that you have a clue about how to run the economy. Of course, if your plan is to attack the government for political gain at a time of national uncertainty, it might just work – as long as people don’t have those inconvenient memory things.