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George Osborne

The bleak state of the public finances

Nov 29th, 2011
by Mike Denham.
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Getting debt under control is proving harder than anyone envisaged

- David Cameron last week

At the time of the March Budget, the Office for Budget Responsibility forecast that borrowing would overshoot the Coalition’s original 2010 forecasts by a cumulative £46 billion. The overshoot was entirely attributable to a spending overrun:

Since then growth prospects have deteriorated, largely reflecting the turmoil in the Euro area. So how much worse are things now?

According to the latest monthly public finance data (covering April to October) borrowing this year seems to be only slightly higher than the increased March forecast. However, tax revenues are coming in below expectations – Corporation Tax receipts have been especially weak. And some elements of spending – including debt interest and social security – are running higher than expected.

Against that, there is now evidence of retrenchment in other areas of government spending. Public sector employment fell by 4 per cent over the last year (to Q2), although average earnings are still increasing (up 2 per cent in the year to September).

The overall fiscal picture remains one of slippage. Borrowing is already forecast to be higher than originally planned, and the setback to European growth prospects means that the OBR’s new forecasts will be worse again. On unchanged policies, eliminating the current deficit by mid-decade now looks unlikely.

Yet despite that, the bond markets have continued to support the government, with funding costs down to a 60 year low. It is an impressive pay-off for maintaining fiscal credibility.

However, the gilt market is on very thin ice. Inflation is now more than twice the yield on 10 year gilts – 5 per cent inflation vs. 2.3 per cent yield – implying that the market is taking a huge amount on trust.

The lesson of history is that such trust can be very fragile. The UK may be viewed as a haven of fiscal stability compared to the Euro area, but negative real yields are unlikely to be sustainable for long.

The forecasts built into the March 2011 budget allowed for higher average gilt yields than those currently in place – rising up to 5.1 per cent by 2015-16. So right now, the public finances should be turning out better. But as we’ve seen, they’re not.

And given the inflation background, yields could easily go higher than allowed for in March. According to the OBR, for every one percentage point increase in yields above their baseline assumptions, debt interest payments would be £6 billion a year higher by 2015-16, with further cumulative increases beyond that.

And of course, the official debt is only one component of the real national debt. To get a complete picture we also need to take account of the government’s off-balance sheet debts. These include its unfunded pension liabilities and PFI contracts. Servicing of those liabilities means that the true cost of debt servicing (debt interest plus public sector pensions plus state pensions plus PFI) over the next few years will be around treble the official debt interest forecast:

This highlights an important longer term issue – the cost of our aging population. Because of the rising cost of pensions and healthcare for the elderly, we will need to continue our programme of fiscal consolidation far beyond 2015-16. According to recent calculations by the IMF, between 2010 and 2030, the UK needs to tighten fiscal policy by 13 per cent of GDP – the fifth biggest tightening of any advanced country. Against that, the current budget projections only allow for a tightening of around 8 per cent.

In these difficult circumstances, the Chancellor must use the Autumn Statement to underline his fiscal resolution. There is certainly a case for growth promoting tax cuts, but any such moves must be backed by a tougher stance on public spending.

In particular, we continue to believe that that the government should commit to a third fiscal rule, limiting the growth of public spending over the medium term. Such a rule could allow the Chancellor scope to cut some taxes in the short-term while reassuring the markets that the overall budget remains on a sustainable path.

West Country MPs against rise in petrol duty

Nov 17th, 2011
by Tim Newark.
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West Country MPs are up in arms over any proposed rise in petrol duty. Speaking out in the House of Commons debate this week, Bridgwater & West Somerset MP Ian Liddell-Grainger said he would rebel against the government if they put up petrol prices by 3p in January. The debate came only days after we revealed the excessive motoring taxes that motorists are facing across the UK.

‘It is a no-brainer, there is no way the Chancellor can put it up – it is hard enough in rural areas without another 3p on a litre,’ the Somerset MP told the Western Daily Press. ‘As it is, petrol prices are too high and we need to find a way to get them down.’

‘We have a large number of haulage firms who are very concerned about the price of diesel,’ said Stroud MP Neil Carmichael in the Commons debate. ‘They are in turn passing it on to small and medium-sized firms and it is causing difficulties for them.’

Claire Perry MP drew attention to the lack of competition among filling stations in her Devizes constituency. Other MPs in the South-West demanding action against fuel taxes are Robert Buckland (North Swindon), Justin Tomlinson (South Swindon), James Gray (North Wiltshire), John Glen (Salisbury), and Tessa Munt (Wells).

It’s up to the Treasury now if they listen to the growing chorus of voices calling for a scrapping of the rise in fuel duty.

Tim Newark, Bath & South-West TaxPayers’ Alliance

Treasury ‘call for evidence’ on merging National Insurance Contributions and Income Tax

Sep 14th, 2011
by Rory Meakin.
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In his Budget 2011 speech the Chancellor signalled his intention to look into the operation of Income Tax and National Insurance Contributions. HMRC and the Treasury launched a “Call for Evidence” which expires this Monday, 19th September. The consultation includes 14 questions which have been copied below. The first three are of general interest and are aimed at everyone, and the others are more technical, aimed at HR professionals and employers.

If you want to respond so policy-makers in Government know your thoughts about the complexity and burdens of running separate systems of taxing income, please email incometaxnics.simplification@hmtreasury.gsi.gov.uk with your comments. We have reproduced the questions below and, for the general interest questions, provided brief suggestions.

General interest questions:

1. The Government believes that integrating the operation of income tax and NICs may have the potential to remove distortions, reduce burdens on business and improve fairness. Do you have any comments on these objectives?
You might want to mention transparency, and suggest that this objective, along with the others listed, could be much more effectively achieved by considering employers’ National Insurance Contributions (NICs) as well as employees’ contributions.

2. Of the differences between income tax and NICs listed in Table 1.A (or any others that you consider important) which do you see as the most significant in terms of their impact on: a economic distortions; b burdens on employers; c fairness?
Again, employers’ NICs impact upon these criteria so you may want to mention them here, too.

3. What do you think are the most important steps that could be taken to reduce the effects on: a economic distortions; b burdens on employers; c fairness?
Would some degree of tinkering with the existing, complicated system be best or should the Government be bolder and abolish NICs altogether and adjust Income Tax accordingly?

Employers and Payroll Professionals:
4. Under the current system, how much staff time and/or other resource is required to carry out income tax and NICs processes? Please give a score on a scale from 1 to 5 where 1 is only a small amount of time/resource and 5 is a great deal of time/resource for each of the following:
a) Familiarisation: understanding HMRC’s requirements, legislation and guidance.
b) Retrieval of information: obtaining the information required to run a PAYE payroll.
c) Record keeping: maintaining the records needed for income and NICs purposes e.g. keeping copies of returns/letters where necessary.
d) Calculation: calculating and checking income tax and NICs due (including in-year and end of year processes).
e) Provision of information to HMRC: reporting of information to HMRC e.g. P45s for new employees.
f) Provision of information to employees: reporting and providing information to employees e.g. year end P60s.
g) Payment of liabilities: paying income tax and NICs to HMRC.
5. Which aspects of the current income tax and NICs process work well for your business?
6. Do you carry out income tax and NICs obligations together? Are there any elements you carry out separately?
7. What effect do differences between income tax and NICs have on wider payroll processes such as expenses and benefits, statutory payments and student loans deductions?
8. Which of the differences between income tax and NICs are dealt with largely automatically by payroll software and which require significant manual working? Where manual working is required how straight forward is this?
9. Are there particular issues that occur in the calculation of income tax and NICs?
10. How often is it necessary to correct income tax or NICs calculations and which are the most time consuming to correct?
11. Do you have any comments about difficulties in designing or using software resulting from the differences identified in Table 1.A (or any others that you consider important)?
12. What do you see as the main differences between income tax and NICs in relation to employees you have who work internationally?
13. Which of the differences outlined in question 12 are dealt with largely automatically by payroll software and which require significant manual working? Where manual working is required how straightforward is this?
14 Do you have any views on how the introduction of Real Time Information (RTI) may affect the cost and benefits of income tax and NICs integration?

Sunday Times says scrap 50p tax and raise the personal allowance

Sep 13th, 2011
by Rory Meakin.
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The Sunday Times has called (£) for the 50p top rate of Income Tax to be abolished. The lead editorial means the paper joins the ever-growing consensus that the rate is a political gimmick doing lasting economic damage and has to go as part of a package of measures to help get the economy back on track:

A simple cut in the 50p rate would look politically crass. But in a package that included higher tax allowances for the lower paid, a boost to spending on infrastructure and a bonfire of red tape, it would be effective and right. Nobody benefits from a tax that brings in no money and everyone suffers from the results of an uncompetitive economy.


The Sunday Times is right to acknowledge that it is unrealistic to expect the 50p rate to be abolished as a lone budgetary measure. Few would argue that when the Government do finally scrap the rate they should not also take other action to reduce the tax burden for those who do not earn over £150,000 per year.

The link to raising the personal allowance is an attractive proposition. In an interview with the New Statesman, Liberal Democrat Chief Secretary to the Treasury Danny Alexander said the ‘priority’ for tax cuts should be people on low and middle incomes. He said we should be:

trying to get to a situation where people in a full-time job on the minimum wage are paying no income tax at all.

Mr Alexander is right. The minimum wage is a flawed policy, but if it is there to indicate the bare minimum level of income someone needs to live off, it can’t be acceptable for the Government to take money from people earning below that amount. The implication from the Chief Secretary’s wording implies that he thinks the allowance should be raised to about £12,500, higher than the Coalition’s stated aim of £10,000 and the current level of £7,475.

The two proposals should be combined and announced in the Chancellor’s Autumn Statement. Removing the poorest from taxation altogether will go a long way to improve the lives of people who are currently in a welfare trap, boost economic activity and reduce welfare bills by restoring the incentives to work. Meanwhile, abolishing the 50p rate will help retain and attract the entrepreneurs, companies and investment which will create prosperity and jobs the economy desperately needs to haul itself out of its current stagnation.

Rapidly raising the personal allowance will be expensive and Britain’s huge budget deficit means it must be matched pound-for-pound by spending cuts to remain credible: there is simply no room for manoeuvre on this. Britain’s rapidly rising contributions to the EU, foreign aid and ‘ringfenced’ healthcare spending are all areas the Government should look at in order to reform the tax system. We can’t afford not to.

FOI reveals Department for Work and Pensions still expanding its bureaucrat headcount

Sep 2nd, 2011
by Rory Meakin.
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Far from the rhetoric of “savage cuts” hyperbole being bandied about by commentators and politicians, in the real world staff numbers in the Department for Work and Pensions rocketed last year.

A Freedom of Information request by the TaxPayers’ Alliance has revealed that staff numbers rose from 96,066 in 2009-10 to 108,856 last year. The figures speak for themselves, and the contrast with the hot air about cuts could scarcely be more stark: 12,790 more staff, a 13.3 per cent increase in the headcount. George Osborne should mull over these figures the next time he wonders why the UK’s growth rate is so disappointing and then read the point Daniel Hannan MEP made yesterday in his Telegraph blog.

Here’s the thing: the relative prosperity of the South East comes, not despite the fact that it is getting less public subsidy than the other regions, but because of it. Government subventions can become like narcotics, debilitating their recipients, encouraging them to arrange their affairs around the next fix. In parts of the country where the state controls most of the economy, school leavers who might otherwise have become entrepreneurs instead join the public sector. A vicious circle is established.

The Government should start to cut overall spending now. Britain’s faltering economy needs less regulation and lower taxes. But with the deficit at such an unsustainable level, the Chancellor has no room to cut taxes without matching spending cuts. It’s time for the Government to find its reverse gear and bring back down swelling departmental staff numbers.

The EU approaches a crossroads

Aug 18th, 2011
by Jonathan Isaby.
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As Angela Merkel and Nicolas Sarkozy this week put forward another set of proposals aimed at trying to rescue the Eurozone from its crisis, the European Union and its peoples are getting ever nearer to a crossroads where fundamental decisions will have to be taken about its future.

The German Chancellor and French President have resurrected the idea of an EU-wide financial transactions tax – which would massively hit the UK due to the sheer volume of such transactions done in the City of London.

Matthew Sinclair set out the case against the so-called Tobin tax (named after the economist who initially proposed it) just last year.

Treasury sources are indicating they would oppose such a plan (see today’s Times £) on the basis that unless it applied globally, the transactions would end up being done elsewhere and we would lose out big time.

It goes without saying that it is absolutely essential that we hold David Cameron, George Osborne et al to vetoing any such tax.

What George Osborne had suggested earlier this month (in this Telegraph article) but which was rejected by Merkozy (as City AM’s Allister Heath has called the Franco-German duo) was for the Eurozone to issue euro bonds allowing for its strongest economies to underwrite the debts of its weakest members.

Such a measure would require a new EU Treaty – unanimously agreed by all 27 member states, of course. And if such a Treaty were agreed, then it would be the first time that the Coalition Government’s EU referendum lock would be tested – the recently passed measure that states that any further transfer of powers to the EU should be subject to a vote of the British people.

Whatever ends up being proposed in the coming weeks and months, the fact that the consent of the people of most European countries has not been sought as the juggernaut of EU integration has ploughed on regardless makes the status quo unsustainable for very much longer.

The current discussions about moving towards “true economic  governance” for the Eurozone within the European Union certainly seem an obvious juncture for all EU member states to assess their role in the club going forwards.

Moreover, here in the UK a consultation with the British public over Britain’s relationship with the EU through a referendum is long overdue.

And I can only see the clamour for such a vote growing as our continental cousins continue to propose measures that would clobber Britain whilst the Brussels bureaucrats ignore calls for austerity and insist that they need bigger and bigger budgets.

National Insurance holiday scheme still a flop, says Balls. Time to cut it, Osborne

Aug 1st, 2011
by Rory Meakin.
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The Government’s National Insurance holiday scheme is a “total flop”, according to Shadow Chancellor of the Exchequer Ed Balls. The scheme, which exempts small firms (those with 10 or fewer staff) from having to pay National Insurance for a 12 month period, has attracted just 5,000 registrations out of a total of 400,000 expected to benefit from the scheme.

“George Osborne hailed this flagship policy last year saying it could create 800,000 private sector jobs. But it’s turned out to be a total flop with just 1 per cent of the 400,000 businesses George Osborne said would benefit taking advantage”.

This should come as no surprise. The scheme only applies for 12 months and doesn’t apply in the areas most likely to generate new business; London, the South East and Eastern regions of England. As I wrote back in February, the Chancellor should learn from the mistakes of his predecessors and abandon the doomed-to-failure micro-managing from his Whitehall citadel.

Scheme "a total flop" says Balls

Back in February, the Treasury said it was “too early to tell” if the scheme was working. Now they say they are taking steps to “improve” the scheme and encourage more participation. It’s not too early to tell, now. The scheme has failed. But as the Treasury are in the mood for taking steps to improve the scheme, here’s a suggestion: reverse the rise you implemented in April.

National Insurance is among the worst forms of taxation in the current tax code. Outmoded, complex and arcane, National Insurance is a tax on jobs that mimics and duplicates Income Tax but manages to be even more damaging. Instead of fiddling about with pointless schemes such as this payment holiday, George Osborne should cut the rate for all businesses. Better still, he should abolish it altogether.

We have to cap the national debt

Jul 15th, 2011
by David Cowan.
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On July 12th Sajid Javid MP proposed a ten minute rule bill to cap the UK’s national debt. Ironically, he is seeking to enshrine in law what Gordon Brown originally established as his two fiscal rules. First was the ‘Golden Rule’ that the government should only borrow to invest in capital investment, such as infrastructure. Second was the ‘Sustainable Development Rule’ which dictated that the national debt should not exceed 40% GDP and the budget deficit 3% GDP. Though these fiscal rules are sound in principle they were not adhered to in practice. One of the key problems was the lack of accountability; the Chancellor decided whether or not they applied and ultimately tore them up after the financial crisis. This is the problem Sajid Javid MP hopes to remedy.

Sajid Javid MP proposes capping the national debt

Politicians are by nature short termist. They think about the electoral cycle rather than the boom and bust cycle. Gordon Brown was not the exception. He spent billions of taxpayers’ money and then left it to the next government to foot the bill for his excess. At first it might seem George Osborne is reversing this situation as public spending will fall from 47.7% GDP in 2009-10 to 39.9% GDP in 2015-16, borrowing will fall from £156.4bn to £29bn, and the budget deficit will fall from 11.1% GDP to 1.5% GDP. This would make it easy for a 3% budget deficit target to be introduced and new borrowing rules to be drawn up.

However, upon closer inspection we can see that fiscal prudence isn’t being pursued in every area. In cash terms public spending will actually increase from £669.7 billion in 2009-10 to £763.8 billion in 2015-16. When inflation is taken into account the cut to public expenditure being made by George Osborne is only 3.4%, less than Barack Obama is cutting in one year. Furthermore, the budget deficit will not be eliminated by 2015. It is the ‘structural budget deficit’ which is being eliminated. In practical terms this means the national debt will only stop growing in 2015 after increasing to £1.4 trillion. Fiscal responsibility cannot stop in 2015.

Sajid Javid MP’s ‘National Debt Cap Bill’ lays a clear path beyond 2015 with the suggested 40% GDP target for the national debt by 2025. However, the official Treasury figures do not reflect the true nature of the UK’s national debt, as this TPA report and video (below) demonstrate, as they do not include ‘hidden liabilities’ such as state funded pensions, nationalised banks, Network Rail, or PFI contracts which put the real national debt at £7.9 trillion (560% GDP). That’s £300,000 for every UK household. The official figures only make up 10% of the real debt. If Sajid Javid MP’s bill does not include these hidden liabilities within the Treasury’s national debt figures then we will fail to get to grips with the situation.

One of George Osborne’s most significant innovations has been to establish the Office for Budget Responsibility to maintain honest and transparent forecasting. If the fiscal targets set out are to be maintained then the OBR has to publish hidden liabilities on the government’s balance sheet. The existing targets also need to be supplemented by an expenditure target, as we recommended in our book How to Cut Public Spending.

Of course merely passing a law capping the national debt will not actually reduce the debt in itself, just as the Bank of England’s inflation target and monthly letter to the Chancellor haven’t kept down inflation. That law can always be changed if it is felt to be necessary. It does however help to keep the state of the nation’s finances in the public debate and force politicians to think more long term when making fiscal decisions instead of pursuing short term electioneering.

Osborne needs to do more to safeguard taxpayers from another bank bailout

Jun 15th, 2011
by Matthew Sinclair.
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The reforms set to be announced by George Osborne in his Mansion House speech tonight, aiming to ring-fence retail banking, are an incomplete response to the financial crisis, and if the Government aren’t careful they could be actively unhelpful.  While the details are very complex, there are some simple issues that taxpayers should be aware of in judging if reforms are going to make it more or less likely that bankers come begging to them for a handout again.

Talking to ITV News about changes to financial regulation

As I told ITV news this lunchtime, separating out retail and investment banking can be actively dangerous.  To understand why, imagine you separated them completely into relatively safe retail banks and relatively risky investment banks.  The retail banks would still be able to take risks.  Banking is an inherently risky activity as you often lend for the long term and borrow for the short term.  Research has even found that banks with investment banking divisions can be more reliable as they are more diversified.  Northern Rock didn’t have an investment banking arm, after all.  Alex Tabarrok, one of the authors at the Marginal Revolution blog, sets out why that could be the case here:

Proponents of the Glass-Steagall Act argued that separating commercial and investment banking would increase the safety and reduce bank and customer conflicts of interest.  Neither of these arguments bares close scrutiny here.  At the most basic level, it is clear that many securities (stocks and bonds) are less risky than are loans.  Security investments are also liquid and publicly observable.  Liquidity lets banks quickly rebalance their portfolios to avoid runs, and public observability improves the efficiency of bank monitoring by depositors and bond holders.  Even if all securities were riskier than all loans, forbidding banks to invest in securities could increase bank risk because of the benefits of diversification (see Macey 1991).

If a bank is told that it is a safe, retail bank which the Government can’t possibly allow to fail then that will encourage them to take risks.  We will be offering the retail banks a very explicit heads you win, tails we lose, bet.

It isn’t clear yet how much risky activity will be contained within the retail part of the banks, as we don’t know the Government’s definition of retail and investment banking.  But Robert Peston has written about one definition, and the extent to which major risks are still contained within that notional retail banking sector:

A recent suggestion by HSBC – which would base the break-up on a new accounting standard differentiating a bank’s trading activities from traditional banking (in the jargon, those assets valued on an accrual basis would be in the ring-fenced retail bank, and those marked to market would be outside) – would see some 60% or 70% of a bank inside the ring-fence.

Now some bankers argue that HSBC’s proposal would tend to keep taxpayers far too exposed to potential bank losses – since, in practice during the recent crash and recession, losses for banks on HSBC’s definition of retail banking have been massively greater than investment banking losses (by a multiple). For example, HBOS’s insanely loss-making loans to property businesses would have been inside the ring fence, on HSBC’s definition.

It could be that we do need to carve out a safe space for retail depositors.  It is far from clear that the Government is doing that though and half measures could be the worst possible outcome.

There are two missing ingredients so far.  The first is ensuring that bondholders bear the risk when they lend to banks.  The decision to give them a free pass, as we did in the bank bailout, creates huge moral hazard.  If someone lends money to a company, and it goes bust, they should lose it.  Otherwise there is no incentive for lenders to insist that executives at the banks are careful about the risks they take on, and be careful about only lending money to sound institutions.  Andrew Lilico has led the charge on this arguing that bondholders should be bailed in, rather than banks being bailed out, and he wrote about that for ConservativeHome.

The other thing they need to do is look at global regulations that are increasing the systemic risk to the financial system.  As that regulation becomes more and more homogenous, the result is a kind of monoculture which is far more vulnerable to disease.  When something goes wrong everyone has the same vulnerabilities and tries to respond in the same way, becoming a huge danger to the world economy.  There is a lot more on this in a short research paper we released with the Legatum Institute.

For all these shortcomings, there was some very good news at the speech.  The Government is going to auction Northern Rock as soon as possible.  We need to get our money back, and we need to get the Government out of the business of investing in banks.

False Economy economical with the economics

Apr 4th, 2011
by Matthew Sinclair.
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Duncan Weldon presents himself as an economist but he seems more and more like a bit of a hack.  Last week he wrote an article for the False Economy website with an analysis that he must know is dodgy.  Here is his central argument:

“Here we can clearly see the impact of Osborne’s changes over the next three years: public debt down by £43bn BUT private household debt up by £245bn – five times as much.”

What he’s looked at is the change in the Office for Budget Responsibility (OBR) forecasts from before the Emergency Budget in June 2010 to after Budget 2011.  He then looks at how those numbers have changed.  But that means he isn’t looking at the estimated effects of the Government’s policies but just at changes in the economic forecasts.  His analysis essentially assumes that the entire world has been held constant but for George Osborne’s decisions since last Spring.

There are good and bad reasons why a fiscal adjustment might increase personal debt.  It might mean that people think future fiscal policy is more reliable, and they can therefore borrow more securely to buy things they need or want.  To that extent, the fiscal adjustment is helping the economy recover.  But for some people, for example a public sector worker losing their job, the adjustment will be tough and they will need to borrow to cover reductions in their income.  It slightly beggars belief that the latter could be greater than the scale of the reduction in public sector borrowing though.  Is Duncan Weldon seriously suggesting that people will borrow five times as much as has been taken away, to cover their losses from spending cuts?

The colossal elephant in the room that he doesn’t mention is high inflation and extremely loose monetary policy.  Anyone who has tried to save money in the last few years will have felt like a bit of a mug.  Inflation will take a huge bite out of your income every year.  At the same time, it reduces the value of private debts in much the same way that it reduces the value of the public sector debt.  So borrowers do well out of inflation.  People aren’t stupid and respond to that kind of incentive.  As a result, higher inflation tends to mean less saving and more borrowing.

The OBR are now expecting much higher inflation.  RPI is expected to show inflation of 5.2 per cent in 2011-12 according to Budget 2011 (Table C.2) instead of 2.5 per cent in the Pre-Budget forecast in June 2010 (Table 4.2).  That will have a huge effect on expected personal debt.

Is that inflation the result of George Osborne’s decisions?  Partly, yes.  Tax hikes like the rise in VAT increase inflation.  But here are Mervyn King’s comments at the launch of the latest Bank of England Inflation Report identifying the main culprits:

“Inflation is likely to remain high over the next year, and higher than the Committee expected three months ago. That mainly reflects further sharp increases in commodity and import prices in the past three months – gas and oil prices have risen by over 15% and food prices by about 20%.”

Revisions to the inflation forecasts are the main reason, as Mike Denham set out in our briefing document after the Budget, why the public finance projections have been revised for Budget 2011 as well.  Here is a video of his speech:

If Duncan Weldon is worried about rising personal debt then he needs to advocate a tighter monetary policy.  Many members of the Shadow Monetary Policy Committee think that is appropriate, but it is certainly not what the unions opposed to spending cuts are advocating.  The fiscal adjustment might result in more personal debt, but his shoddy analysis gives us little clue of the extent.

In response to that article, Sunny Hundal wrote that he would be attending the Rally Against Debt to promote a “left alternative” of greater public sector deficit spending to avoid the personal debt that Duncan Weldon claims the fiscal adjustment is responsible for.  Hopefully others there will be able to correct him on his comrade’s dodgy article.  There is no reason why fiscal responsibility should necessarily be the preserve of the centre right, the left should be horrified that taxes will increasingly be going to pay our creditors and not for services, but some on the left need to face up to reality first.

Update:

When I wrote this post I thought you just couldn’t tell how much of the increase in the household debt forecast was down to inflation and how much down to fiscal policy.  We’ve been having a bit of a debate on Twitter and, in the course of looking into this issue a bit, I’ve found that you can get a decent idea and my case is stronger than I thought.  Look at this document, linked by Duncan Weldon.  It sets out the OBR forecast from shortly before and shortly after Budget 2010 (the one at which all this Government’s major fiscal announcements were made).

It shows that the increase in household debt resulting from the Government’s changes to fiscal policy is £17 billion.  That’s wildly different from the £245 billion increase in debt False Economy were claiming.

There may have been some policy changes that have increased the household debt forecast since then a bit, but overall fiscal policy hasn’t changed much.  What has changed is the inflation forecast and a correction for an error in the original OBR figures.  In other words, fiscal policy isn’t responsible for a big increase in personal debt as claimed.  False Economy should retract that article.

TaxPayers’ Alliance reaction to Budget 2011

Mar 23rd, 2011
by The TaxPayers' Alliance.
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Some welcome tax cuts but beware hidden nasties

The TaxPayers’ Alliance today said Chancellor George Osborne has offered tax cuts in his second Budget but could have done more to ease the burden on businesses and families.

Matthew Sinclair, Director, The TaxPayers’ Alliance, said:

“Taxpayers will appreciate a cut in Fuel Duty that will be a welcome relief from crippling motoring taxes. Increasing the personal allowance will take lots more people out of tax and thankfully middle class families aren’t going to pay the price by being dragged into the higher rate as they were with earlier increases. The freeze in Air Passenger Duty is a good start, though it comes ahead of a major EU tax hike on flights. Unfortunately the rhetoric about simplifying taxes wasn’t matched in the reality of the Chancellor’s policies and there were too many fiddly little changes that will create new loopholes and make tax harder to understand. In order to pay for it all, we got a major tax hike that will increase electricity prices, a new tax on the North Sea that will increase our dependence on foreign oil and a pledge to tackle avoidance. The Government need to do more to ease the burden on ordinary families and businesses by cutting back on those budgets that are rapidly rising and scrapping wasteful projects.”

Anthony J. Evans, Commissioner, 2020 Tax Commission, said:

“This was a mixed bag of a Budget. There are some welcome measures to allow businesses to get on and to relieve the burden on low-earners, but the entire tax system remains far too complicated. Simplifying taxation is the main way the Chancellor can help families and businesses, and tackle avoidance all in one go. Abolishing reliefs and reducing the tax code by 100 pages is a small but welcome step in the right direction but there is still a long, long way to go. Hard working taxpayers and businesses trying to lead the recovery have the right to understand their tax obligations and this Budget hasn’t fully delivered on that.”

To view the full press release, please click here

Some welcome tax cuts but beware hidden nasties

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