The Morning after the Night Before

So, the ramifications are beginning to show, and some of my comments from yesterday are already coming to pass.

David Gauke, the exchequer secretary to the Treasury, has been summoned to the House of Commons to explain how the Budget was leaked beforehand to journalists. At least it was a chance for Ministerial policy to be re-iterated – all major announcements should be made to the House of Commons initially. (See the BBC reporting of the story here).

The issues on adjustments to pensions are causing much debate – ranging from those who think the changes are minor to sheer outrage. The idea is that we have a personal allowance that we’re allowed to earn where we don’t pay income tax, however pensioners are allowed slightly more income before paying tax. That’s all about to change, so that soon everyone will be on the same personal allowance.

At the moment, the difference between the personal allowance for under-65’s and for over 65’s is about £2,400. At 20% this means over-65’s save £480 a year compared to younger people.

There’s two ways of looking at this. One is that it’s an outrage expecting older people on usually reduced incomes to pay £480 more tax every year – especially when many are finding it hard to pay bills as it is. The other is that, it doesn’t affect existing pensioners, and it’s a reduction of benefit to future benefits. Plus by the time this policy comes into effect, we’ll all be closer to the Lib Dem target of everyone having a£10,000 personal allowance anyways, so the difference is negligable. Those on state pension don’t earn anywhere near this tax limit.

Overall there’s reason to be disappointed; personally I think this was snuck through and badly explained in Treasury jargon, not terms the average Joe could understand. Badly explained policies are almost as bad as bad policies, even if the aim of levelling everyone’s personal allowance is reasonable. Note I say “Reasonable”. This is undoubtedly a tax-raising exercise, albeit a small one, plus it may save a bob or two in PA calculations for HMRC. Still, I can understand the principle behind this move; in political terms, it’s preferable to reduce a benefit from people who may not be aware they’re entitled to it in the first place than to put a new tax on something.

Like hot food. That appears to be a new outrage. “VAT move could ‘hit cost of bacon rolls'” screams the BBC News. again this is supposed to be correcting “VAT abnormalities” such as some sports drinks being VAT-able and others not, and hot food takeaways being VAT-able while hot food from supermarkets wasn’t.

Still, looking at the Budget Report (pdf), the whole thing comes back to being a balanced, almost neutral budget. There is much to be frustrated about – whether it be about the leaks, the pensions or the bacon sarnies, it could have been so much worse. While not diminishing for one minute the agonising decisions some will have to take, especially those losing out on child credit or those seeking to retire soon, the fact the changes to the budget are within £2bn (which isn’t much in government terms) shows that this Budget was neither a tax raising exercising nor a give-away.

Which is all we can expect in these times, surely.

Update 3.25pm: Also, check out this blog on how the Budget is compiled, fascinating reading!

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