Vir Cantium

I'm right, you know …

The Emergency Budget: A Triumph of Expectations Management

Well, the big headline – the 20% VAT rate was expected. Proportionately it is a lower increase than Labour’s return of VAT to 17.5% at the start of this year, introduced when the economy was arguably weaker than it’s likely to be next January. Not that I’m happy that we are increasing taxes – even marginally less unfair taxes such as VAT – but we all know who is really responsible, and it shouldn’t have been a great surprise for students of the nuances of political language – “we have no plans to…” means little in the unpredictable political climate of 2010.

All in all, the scare stories that were inexplicably circulating before the budget did make the actual thing seem a lot a expected. Capital Gains Tax will only go up to 28%, not the 50% that a return to a pre-2008 arrangement would have meant. Child benefit remains, albeit frozen. More interestingly, it remains universal; and, one could argue, why not, given that those on higher incomes have paid more tax and thus may feel entitled to get something back from the system.

Then the increase in the personal allowance will be worth around £200 to many people.

The bank levy will not be a transaction based Robin Hood Tax, and combined with the reduction in the main corporation tax rate may not trigger the flight that some feared – though time will tell. Expect other governments to now react in a similar direction, including the xenophobic White House (they may be itching to re-fight the American Revolution, but that won’t stop them welcoming, at least privately, the moves on this side of the pond).

There’s still more to digest, but that is largely a function of the quantity of significant measures in the speech, rather than the time-bombs that Labour used to hide away to explode during the committee stages. Something new that we will have to get used to, is the reaction of the Lib Dem coalition partners. Hysterical Hattie, in response to Osborne, may have a point when she highlighted how many Lib Dem MPs would have campaigned against the very measures contained in today’s budget.


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