The contents of the 2012 budget have been some of the worst-kept secrets in politics. What can be seen from the budget announcements, however, is that they mainly consist of measures that are bad for ordinary working people.
The one piece of good news is that the personal allowance (the tax-free chunk of people’s income) will go up by £1100. This will save people earning between around £10,000 and £40,000 just £220 a year, or about £4.23 a week.
This sum will not make up for what most workers in the public and private sector have lost due to pay freezes or below-inflation pay rises. It has also recently been announced that pay freezes will hit some of the most vulnerable new entrants to the workforce – with the minimum wage being frozen for the under-21s. Additionally, this increase in the personal allowance will not help those who are too poor to pay income tax.
The Chancellor seems to have made it his political priority to reduce the top rate of tax – on earnings above £150,000 – from 50% to 45%. This is a tax giveaway to the most affluent 1 per cent of the population. For all the rhetoric about how this will boost entrepreneurship, it will actually mainly benefit a handful of senior staff, consultants and managers in large companies and organisations – many of whom have been raking in big bonuses over the past few years, even if their companies have been doing badly. Genuine entrepreneurs who are starting up a new small business will not be earning anything like £150,000 a year and so will not benefit from this measure.
By contrast, while cutting tax for the richest 1%, the government has brought in measures that have harmed the poorest. They have made cuts in aspects of social security and chipped away at the entitlement to tax credits for low-income working parents who are working part-time.
The Chancellor has also made it a priority to reduce corporation tax. Corporation tax is a vital part of any tax system, since it is a way that companies pay the government for the fact that it provides public services, law & order, education, training and infrastructure that benefit both companies and their employees. The claim that reducing corporation tax will boost investment is not likely to be correct. What would boost investment would be capital allowances to enable companies to get money off their tax bill for new premises, equipment, plant and machinery that they actually purchase – rather than a blanket tax cut that benefits all companies, including those that behave recklessly and don’t invest.
The Budget is bad news and it is likely to increase inequality in society further – creating a situation where the richest continue to get more and more while the rest of us have to make do with less.