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ResPonses to the Budget

The Best of the Rest: Commentaries on the Chancellor's Budget Announcement

On 21 March George Osborne delivered his third budget. The responses to the budget have been mixed, with business leaders praising the introduction of a ‘patent box’ and the cuts to corporate tax, the banks condemning the increase in the bank levy and the opposition calling it the ‘millionaire’s budget’. The ResPublica team have collated a round-up of the key reactions to the Chancellor statement.

In his response to the budget in the House of Commons Ed Miliband, Leader of the Opposition, suggested that the measures announced in the Budget were a blatant contradiction to the ‘we are all in this together’ rhetoric embraced by the Coalition Government: “Tax credits cut, Child Benefit taken away, and fuel duty up. And what has he chosen to make a priority today? For Britain’s millionaires, a massive income tax cut…The fairness test for this Budget was whether the Chancellor used every penny he could to help middle income families that are squeezed. He has failed that test… Wrong choices. Wrong priorities. Wrong values. Out of touch. Same old Tories.” This sentiment was echoed by Ed Balls, the Shadow Chancellor, who questioned whether the cut in the top rate of income tax from 50p to 45p is likely to increase the amount of tax taken and enhance enterprise, as the Chancellor put forward. He suggested that by reducing the top rate, the Government “are gambling that if you give £10,000 to the richest people who currently pay tax, they will somehow be able to recoup £2.9 billion from people who currently aren’t paying tax…because of avoiding tax. The problem is there is no certainty they will get that money. Is it really right when families are under pressure with their fuel bills, losing their tax credits, losing their child benefits to gamble…that making the rich richer will somehow pull in all this extra revenue? There is no evidence for this at all”.

Assessing the budget from the fiscal point of view, Paul Johnson, Director of the Institute for Fiscal Studies, summed up his reaction to the budget at an IFS event by suggesting that “[p]erhaps one worry for the Chancellor…is that in his attempt to achieve a fiscally neutral package he has created some risks…We do not know…that the cut in the 50p rate will cost only £100 million. We do not know that the proposed caps on tax reliefs will bring in the £300 million or so the Chancellor is banking on. Nor do we know that the stamp duty changes will raise the nearly £300 million that he has pencilled in.”

In contrast to these sceptical responses, the business sector welcomed the budget with a lot of enthusiasm. John Cridland, the Confederation of British Industry director-general, spoke to the Guardian about his positive overall view of the budget: “Family budgets have been under great pressure, and by putting more money in the pockets of ordinary people, the Chancellor has provided a much-needed confidence boost. An extra 1% off corporation tax this year could make a big difference to investment intentions. Plans to reduce the top rate of tax to 45p by April 2013 will show our top and aspiring talent that this government wants them to create wealth here.”

Sir Andrew Witty, GSK's chief executive, suggested that the "patent box" established in the budget, signifying that entitled profits from worldwide sales of products protected by a granted UK or European patent will only be taxed at 10% from April 2013, in comparison to the standard 24%, made Britain a more appealing prospect for investments. This combined with falling corporation tax had encouraged GSK to create 1000 new jobs. Paul Mumford, senior investment manager at Cavendish Asset Management, was equally optimistic, telling the Guardian that the budget suggested the UK’s economic outlook was not too austere with the “economy on the right track.”

Although, in general terms, the budget was well received by the business sector, some specific sectors voiced criticism.  Tom Aston, KPMG, was unimpressed by the rise in Bank Levy, declaring “…banks are being hit with another increase in the bank levy. At a time where the more international focused banks are already outperforming UK focused ones, today's increase may prompt banks to again reassess the attractiveness of operating in the UK.” Defending the interests of the SME sector, Chief Executive of daily deals for businesses site Huddlebuy.co.uk, Saurav Chopra, was unmoved by the corporation tax cuts stating that they “do nothing to help the millions of smaller companies that are struggling to survive…The chancellor claims to unashamedly back business. He should be ashamed of himself for not doing more to help businesses with soaring fuel costs.”

Lucian Cook, director of Savills Research, had mixed feelings about the changes to the use of corporate vehicles to evade stamp duty: “We'll…need to look at whether transfer from corporate to personal ownership triggers a stamp duty charge at 7%. Whilst for domestic here is clearly a risk that this is seen as retrospective in nature and overtly aggressive. That could impact on London's attractiveness to overseas buyers.”

The budget met with emphatic criticism from the Unions and provoked some apprehension from the third sector organisations. TUC general secretary, Brendan Barber, hit out at the dearth of measures to assist ‘hard-pressed families’: “[We] needed a Budget that looked to the future and made jobs – particularly for young people – the national priority. Instead we have got a Budget for the rich by the rich. One minute the chancellor said he found tax avoidance morally repugnant, the next he rewarded it by cutting income tax for the richest one per cent.”

Responding to the budget, Dr Hilary Emery, chief executive of National Children's Bureau welcomed the Government's changes to the Child Benefit system but said that this would be little relief for families“on the sharp end of the changes to Working Tax Credit.” He went on to claim that the rise in the personal allowance  “falls woefully short of making up for the cuts to tax credits that low income families can claim for child care costs.”

Anna Bird, Deputy Chief Executive of the Fawcett Society, was equally disappointed by the provisions made for women in the budget:“This budget was an opportunity to introduce measures that would tackle female unemployment and provide a boost to women’s incomes and opportunities.  But…the policies unveiled today will continue turning back time on women’s equality.”

Michelle Mitchell, Charity Director General of Age UK, supported the changes to pensions and the proposed review into increasing the state pension age saying “we recognise that as life expectancy increases it is reasonable to consider increases to State Pension age and longer working lives. However average life expectancy must not be the only factor that is considered as [the] huge disparities in healthy life expectancy across the country means that the poorest socio-economic groups will…sacrifice proportionately more of their retirement.”

She went on to outline her concerns regarding the changes to tax allowance adding that “someone with an income as low as £10,500 who reaches 65 from April 2013 could be £259 a year worse than under the current system with very little time to adjust their financial retirement plans.”

ResPublica presented an alternative list of budget objectives in Seven Guiding Principles for a Better Budget. For more information about our research within this area, please contact patricia.kaszynska@respublica.org.uk.


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Detailed Summary

Date Published
26 March 2012

Issue(s)
New Economies, Innovative Markets

About The Authors

Kirsty Allan

Kirsty is a former Research Assistant at ResPublica, working within the Models and Partnership workstream. She gradu...