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Budget 2012: Inequality set to rise
It was hard not to laugh when I read claims that this was a 'Robin Hood' Budget. Yesterday the government unveiled yet more spending plans set to hit the poorest hardest.
Impact on Households
The Treasury’s own distributional analysis shows that the tax, tax credit and benefit changes imposed by the Coalition government since coming to power are regressive, i.e. the poorest three quintiles are most negatively affected. This is true even though the HM Treasury has chosen not to include the impact of the cut in the 50p income tax rate – a truly staggering omission.
Stamp duty increase on properties over £2 million
Don’t be fooled into thinking this is a mansion tax - this is a one off payment for the super-rich who are buying up ‘super-prime’ property in London. Previously the rate was 5 per cent; at 7 per cent they will be paying an extra £40k on properties of £2 million. The fact is that most buyers of super-prime property are foreign nationals, they will not be paying the top rate of tax. While I would agree that such a tax is needed to deter foreign buyers from pushing up house prices (and hiding their money from their own tax collectors), these are not the same people that will win from a reduction in the top rate of tax on earnings. So this policy effectively taxes foreign billionaires to provide a tax break for the top 1 per cent of earners in the UK. This is far from a Mansion Tax or a much-needed wealth tax.
The 50p tax rate ‘damages our economy and raises next to nothing’
The HMRC report that the Chancellor referred to shows that many of the richest 1 per cent have dodged the 50p tax rate. Instead of ensuring they pay the tax, the Chancellor chose to reward their behaviour and cut the top rate of tax to 45p. Oh, and the £1 billion raised through the tax is not nothing, it’s actually the same amount as Osborne plans to cut in Disability Living Allowances (DLA).
Personal income allowance
As per my previous blog, this will not affect the poorest third of working-age adults who are out of work or are already covered by the allowance.
What he didn’t say
Osborne did not mention the freeze in the minimum wage for under 21s or that public sector wages will be driven down outside London and South East. There was also a hint today that Osborne plans more cuts to welfare. This is worrying given that this portfolio has already taken a big hit. In short, the gap between the rich and poor is set to get wider.