budget

i don't pretend to understand the budget. i am not even sure the economists know what they are talking about. you only have to look at the forecasts and predictions made by people like the treasury, office of budget responsibility or the, ever-changing, ratings agencies, i was struck by a couple of things. firstly there was the tacit admission that in order for much of the 'britain will work it's way out of recession' depended on the inward flow of investment from sovereign states. there is a certain amount of irony that a capitalist democracy is going to be saved by cash from countries that are neither. still part of this influx of chinese and saudi money is that more companies will no longer be british. secondly there were the assumptions behind the dropping of the top rate of tax from 50p to 45p. this isn't going to happen for a year because they don't want to break their promise that the top rate of tax will stay in place while the public sector deals with a pay freeze. which on the surface of it is fair enough. except that when that pay freeze comes to an end the con/dems have already said that they are seeking to move to local pay deals rather than national settlements - expect many regions not to get a pay rise, or a minimal one when the time comes - meanwhile the rich will be getting their tax cut. seems fair to me. (a digression here - the reasoning behind the move to regional pay deals is that the 'high' wages in the public sector distorts the local job markets when it comes to the private sector. the idea is that with pay freezes and lower pay deals private sector wages can catch up with local public sector pay. because that is what will happen - not a case of there is no need to pay more because there is little choice for employees - they just have to accept the lower amount. one of the reasons for lowering tax on the rich was to have them spend more, in the case of the poor or just well off it is a case of clawing some money back from them as their spending in local shops hardly matters. quite why the tories are always keen on a race to the bottom is something that eludes me). secondly there is the odd message that accompanies the cut in the top rate of tax. there have been a flurry of business people talking about how this top rate affects their ability to invest in their companies, the commentators ask sage questions of them - but never once ask how the top rate of personal tax affects the profits of the company, as corporate tax is at a much lower rate instead. if you want to keep more of your money be honest about it and say so - the top rate of personal tax doesn't stop you investing your company's profit back into the company. the rationale for the 5p cut is to make britain more competitive - to get the best people here and to keep them here. now i personally think that the majority of these people are not irreplaceable and that you could easily find several people to fill each of the jobs at less money, but that is another argument altogether. the economy, because it suits many of the leading players in it, has bought into the idea that some of them are indispensable and that they need to be paid an awful lot. for the sake of argument we'll agree that is the case. they continue the argument by saying that the 50p rate was raising 'next to nothing' (though it is an odd world where next to nothing is £1bn). so how is the new rate going to be better, because if it is lower then it will raise even less money, won't it? not so my dear reader. according to george osborne this new lower rate of tax will raise five times the amount of tax from the rich as the 50p rate did. how? indeed you may well ask. simple (sort of) because their tax is now below the psychological 50p the rich will cease and desist from tax avoidance and tax evasion. they will be happy to pay their new top rate of tax. of course they will and i will shit roses. mr. osborne has pretty much admitted himself that there will be an element of having to fight for this money by saying that he has increased the number of staff at hmrc in order to crack down on avoidance and evasion. my prediction is that they will do a lot of work against benefit fraud and not be quite so harsh on those dodgy deals a well placed tax accountant will wrangle. so no changes there. remember the businessmen i mentioned who were complaining about having to pay the 50p tax, i think i would be livid right now with the prospect that i am going to be paying five times more in tax than i had been. yet everyone seems to say that they will go for this psychological drop and be happy with it. frankly i don't think that businessmen who are conned that easily into giving up five times what they were previously paying are the sort of people we really want to be running our businesses. i reckon the reason they are going to be happy is that they are getting a reduction in their tax and they know they will be able to find the loopholes they need to pay even less tax than they were in the past. because the rich, even when they are telling other people how to spend money (eh bob!) are happy to make sure as little as possible of their money is actually spent. in an odd way you have to admire mr. osborne for his faith in the wealthy to suddenly play by the rules and start paying the full whack now that it has been reduced. it is just a shame the rest of us are so cynical.