Coffee House

George Osborne’s taxing dilemma

27 July 2014

11:00 AM

27 July 2014

11:00 AM

Some of what David Smith, author of the essential Economic Outlook column in the Sunday Times, says today will be salve to George Osborne:

‘…the government intended to spend £722bn in the 2013-14 fiscal year. In fact, it spent £714bn. Spending has been lower each year than set out in 2010. Current spending was originally intended to be £679bn in 2013-14. In fact, it was £668bn. Unusually for any government, spending has come in comfortably within budget. There has been no slippage.’

Other parts will not:

Where there has been slippage is in tax receipts, which have been weaker than expected. A small amount of that was due to deliberate policy choices — not raising fuel duty and increasing the personal income tax allowance to £10,000 more quickly — but most of it was not.

The weakness of the recovery until 2013 — due in part to deficit reduction but mainly weak credit, the squeeze on real wages and the eurozone crisis — is what hit tax receipts.

Smith says that the economic recovery will give tax receipts a much needed boost, which will help to close the £95bn deficit.

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These economic factors are politicised by proximity of the election. Smith and others argue that the challenge is to sustain the recovery into the foreseeable future: to place the economy on an even keel and make up lost ground through tax receipts. There are others, though, who call for tax cuts; the Daily Telegraph and the CPS have been making common cause on the 40p rate threshold.

The same dilemma confronted Ken Clarke in 1997: seduce voters with tax cuts, or try to force an error from Labour by holding course. Clarke plumped with the latter option. The autumn statement will be Osborne’s last chance to change course. Labour, of course, may help Osborne’s political challenge by making unforced errors, such as announcing more taxes on gambling and Premier League football. Such proposals send a clear message about a political movement; it’s like the Puritans banning mince pies.

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Show comments
  • Chubby Green

    It’s not just welfare though there were ‘savage cuts’ in the Armed Forces and the police doesn’t sound terribly conservative! Whoever is ‘elected’ is merely controlled by pro-EU civil servants who make the decisions. All Government Ministries are now left-wing something Cameron has done nothing about.

    • HookesLaw

      The govt inherited a Defence budget of £43 billion — in 2015 its slated to be £46 billion. This is not savage cuts.
      There was a massive over committment of the defence budget by labour — a £38 billion black hole.
      A little while back the govt annoiunced a 160 billion equipment programme – fully funded.
      France?

      It additional cuts of 24,000 personnel on top of the 54,000 already cut in the 2008 French White Paper. Defence budget frozen at 31.4 billion euros and reduced to 1.5% of GDP.America?
      The Pentagon are planning nearly a trillion dollars in reductions to projected spending over a decade.
      Germany?
      Armed forces are being cut by 45,000. (plus civilian positions reduced by 21,000)
      etc etc…

      The MoD is planning to cut 25,000 civilian jobs by 2020, so its the tail taking its share BTW.
      Your other comments about civil service are rubbish.

    • Conway

      If it were my choice, I’d scrap VAT (part of it goes to Brussels) and implement a goods tax that stayed entirely in GB.

      • CortUK

        You’d have to leave the EU to scrap VAT. And if you do that, a percentage of the tax no longer leaves these shores – so, er, there’d be no need to scrap it.

  • anyfool

    If Osborne had been a bit more circumspect when making his predictions of when the budget deficit would be eliminated, he would not have given Balls the chance to say his policies were failing.
    He has done well with having the constraints of the Lib Dems and Cameron preventing real meaningful cuts, but his puerile politicking about how quick growth would work was more about poking Balls in the eye, than reasoned thinking.

    • HookesLaw

      Why bring Cameron into this? Its an agreed policy. You just cannot keep your prejudice quiet.
      What we have is an authorative summary of the govts programme and its positive. more needs to be done and thats why we need to keep Miliband out.

      • anyfool

        Well lets see, the last time I checked Cameron was the PM, the man who should be keeping his crew doing what he appointed them to do, which was put the country right.
        He is an actual drag on the people who are doing a good job, Gove being but one example, he sacked him because he has a Blair fixation about being seen to be a smooth operator who is all things to all men, when in fact he has took Blair`s real mantle as a slimy snake oil salesman.
        Osborne is disliked for what he has done by so called progressives, that is a badge of honour, Cameron is just despised by people who should be his natural supporters, not just because he went around prostituting Tory principles for transient popular appeal, the main problem is he lacks judgement, he proposed pimping the Armed Forces of this country to the Saudi and Qatari governments in Syria, then he lets Miliband deceive him during the Syria debates, so enamoured was he of these Middle Eastern savages that he was prepared to put troops on the same side as the most depraved Islamist nutters in the world.
        Oh, and by the way, what was the result of his battles in Libya, how has that turned out.

        • HookesLaw

          And Cameron and Osborne are doing a good job the article points that out. And it points out more needs to be done which is why we do not need a labour govt.

          You are living in the past. Osborne with Cameron’s support has handled a difficult economic situation as well as can be expected, probably better, and all you kipper nutjobs are in denial.

          You are a right wing extremist and not interewsted in rational discussion of the real world.

  • Smithersjones2013

    Unusually for any government, spending has come in comfortably within budget. There has been no slippage.’

    If it was that easy then it suggests there is plenty more that can be cut without significant pain. In fact if it was that easy it sounds as if the coalition has been soft on the public sector. Soft on spending soft on the causes of spending! Slash away George……….

    • Alexsandr

      not snip. hack.
      start by closing DFiD
      close a lot of the agencies like environment and highways and save the expensive executive salaries. they can come part of departments. And be accountable to ministers,

      • Smithersjones2013

        I had already altered it to ‘slash’ . Good enough?

        • Alexsandr

          yup!

    • HookesLaw

      The govt are proposing more cuts, most of which will fall on welfare. we can imagine what labour will make of that and that’s why the govt need support – and votes.
      The point is the govt have to sustain the economy and not pull the rug out from under it. The economy is growing now and bettr able to support and survive more cuts. Osborne was faced with difficult choices and has not done too badly. Both he and the govt know there is more to do. This is precisely why the govt should be supported.

      • Colonel Mustard

        But it is bad strategy to target welfare for cuts when there is cost of dubious benefit such as the subsidising of fake charities, NGOs and quangos that mostly oppose the government anyway.

        One other thing they could do is to stop the practice of committing to future spending increases for “causes” which increases the burden on UK families. This needs a very stringent cost benefit analysis for a start:-

        http://www.ukan.org.uk/aid-quantity/uk-aid-breakdown/

        • Alexsandr

          i don’t understand why government gives to charities. If I want to give to a charity I will do so. I don’t need the government to make that decision for me. same for local government.

      • Alexsandr

        the govt does not sustain the economy. thats a false browism. if the govt took less and spent less the economy would grow. its the govt thats the brake.

        • HookesLaw

          You you are spouting a false kipperism.
          Ripping jobs and spending out too quickly would hit the economy. Its not as if the spending would be ploughed back as tax cuts since there is a massive deficit to remove.
          Osborne has followed a good path and has in fact cut spending faster than programmed.
          Its tough for nutjobs having to face the truth – a shame the speccy have quoted the figures so you cannot pretend they do not exist. But the nutjob pretence that the govt are not cutting spending is exposed for the lies it is (as I was saying only last week) and its clear they have a sensible policy.

          Don’t worry we do not expect you to admit to being wrong any more than we expect you to admit the greatest danger this country faces is a Miliband govt. Well, any Labour govt really.

          • Alexsandr

            snot a kipperism, its how true conservatives think. You are close to the line that everything belongs to the government and we are given income according to our needs. Thinking the govt can solve everything is socialism. Thinking they f*ck up everything is reality.

            • southerner

              “Thinking the govt can solve everything is socialism.”
              Hook is a Camerloon so is a socialist by definition.

              • CortUK

                I’d rather that brand of socialism than Miliband’s, thanks.

      • Alexsandr

        the govt does not sustain the economy. thats a false browism. if the govt took less and spent less the economy would grow. its the govt thats the brake.

    • CortUK

      I’d rather he start by ending universal benefits for pensioners, limiting increases in the state pension to match inflation, and scrapping BTL tax reliefs, universal child benefit and working tax credits. I could go on, but I’ve got to go to work in seven hours to pay for all these things.

  • dado_trunking

    In a hard asset mansions bubble: tax the mansions, not the income!

    • Alexsandr

      no. we should not tax wealth. wealth is accumulated income that has already been taxed, and is no indication of ability to pay.
      the clever will hide their assets. maybe gold and diamonds hidden under the patio.

      • dado_trunking

        You misunderstand the principle workings of an asset bubble – the Duke of Waldmeister’s asset portfolio gained a cool trillion quid this year alone. Where and when was that ‘already taxed’?
        Tax the living daylight out the geezer, I am telling you. If you won’t then the next lot will.

        • Alexsandr

          OK his assets have gained wealth. but that does not mean he has had income from them. So how would he pay pax? He would have to sell some of his assets.
          But he will be taxed eventually as i think he has most of his wealth in property. So his capital gains will be subject to CTT or death duties when appropriate.
          as it is his property business will be employing people to manage the estate and to keep the properties in good repair. Think of all the VAT and employers NI he is paying
          this envy isnt healthy. I would get counselling.

          • Conway

            Plus he’s using some of that income to help injured servicemen – a job the government should be doing if it really cared about the military covenant.

            • CortUK

              The government is doing it. You don’t seem to understand the very basic fact that the government has no money of its own. It’s all our money. So there is absolutely no difference whatsoever between the government spending tax pounds on this activity or spending money taken from corporate fines or whatever.

          • dado_trunking

            Look mate, you don’t get it – I don’t want anyone’s money and don’t need anyone’s money, m’kay?

            Property taxes are miniscule in Britain, that is why money is parked here. As Britain remains the Greece of Northern Europe, mansion taxes in form or another will be introduced, it is just a matter of time. That’s got nothing to do with me, it’s not about me. It’s about the state of a nation in decline and perhaps slowing that down.

      • CortUK

        While I agree that wealth taxes are pernicious and counter-productive, it is very easy to do it without “double taxation”. You can tax the returns or growth without touching the stake or original asset. Just like savings – your savings are never taxed once (let alone twice); the interest on your savings is. It’s called income.

  • HookesLaw

    The article you quote shoots Osborne’s critics in the foot.
    The govt have been cutting spending and cutting it more than programmed.

    The article illustrates what a good balancing act Osborne has been treading and what a disaster for our country it will be to hand it over to Miliband and Balls.
    It also points out the significant change since the 2010 Budget…
    ‘the OBR changed its view on the economy’s productive potential, so more of the deficit was deemed to be structural – and thus requiring tax hikes or spending cuts – and less of it cyclical, in other words disappearing with the recovery.
    ie the productive potential of the economy following Labour’s recession was less than realised.

    The article (which I made a point of reading before visiting CoffeeHouse) points out -‘Borrowing this year in line with the official forecast’ – something which the hysterical critics should take note of.
    And the report also points out…
    ‘The weakness of the recovery until 2013, due in part to deficit reduction but mainly weak credit, the squeeze on real wages and the eurozone crisis – hit tax receipts. As long as growth persists, and the International Monetary Fund last week revised its forecast for Britain up to 3.2% this year and 2.7% next, and with figures on Friday showing GDP back above pre-crisis levels, tax receipts will continue their comeback, reducing the deficit more quickly.’

    So for the nutjob critics always eager to ignore reality in order to feed their own prejudice
    1 – government spending is under control
    2 – the deficit is on target for significant reduction
    3 – all talk of liblabcon is just pathetic ignorant prejudice.

    • southerner

      “The article you quote shoots Osborne’s critics in the foot.”

      So what? That doesn’t make it right. Ossy ducked every decision and failed every test he set himself.

      • HookesLaw

        No he did not. You are a classic example of ignoring the truth when it comes up and slaps you across the face.

        • southerner

          Really? Which of the tests Osborne set himself at the start of this Parliament did he meet?

        • southerner

          Simple question to answer. I thought you couldn’t. Quel surpris.

          • HookesLaw

            You are the one refusing to respond. Its clear Osborne has not ducked targets. As the article says the structural deficit was revealled bigger, the economy smaller and the Eurozone crisis unexpected. But spending has come in under projections.

            • southerner

              I asked you which of Osborne’s OWN tests he met. So what’s your answer? Don’t duck it by talking about something else. Which tests that he set himself did he meet?

              • HookesLaw

                Osborne is meeting his tests. Life must be tough for you. You are talking like a propagandising labourite.
                The reality is the economy inherited was smaller than realised after the recession. the structural deficit bigger and the eurocrisis exploded. Osborne handles that well. Read the link.

                • southerner

                  “Osborne is meeting his tests.” Do you even know what they were? HIs “number one benchmark” as he described it was retaining our AAA rating. How’s that gone?
                  And as he has failed that, how is he meeting it? And all the others he set himself. Or are you lying again?

                • southerner

                  Yup lying. Thought so. It’s what you socialists do.

        • ButcombeMan

          Hookie

          You sling around expressions like “nutjobs”. I gave a reasonable number of points above for you to comment on but you did not

          Osborne is sadly in the grip of the Treasury schoolkids, hence his pasty budget. Have you forgotten that already? It is absolutely plain that he actually has very little understanding of a sound tax policy himself.

          Osborne could have done much better.

          • HookesLaw

            I’m struggling to find your comment – it does not seem to be anywhere above. But I have already repeated my argument eleswhere.

          • Andy

            Lets be a bit fair here. Osborne inherited a God awful mess from the Fascists. The budget deficit was over 4% before the economy turned when it should have been in surplus. Tax revenues have collapsed and while there has been some progress on cutting spending this has not been deep enough to balance the books. The solution is actually more fundamental. We need radical tax reform, not only reducing the rates but also the complexity of the system which frankly no one now properly understands. And secondly we need a radical reform of what the State actually does and how it spends our money.

            • CortUK

              An acquaintance of mine who has experience of these things tells me that in 1997 the tax code was a single book one could hold in one hand. By 2005 it took five people to hold it up, each using two hands. I have no reason to doubt him.

  • KestrelSprite

    One of the reason for tax receipts being below expectations is that some rates have been set too high. Capital Gains Tax is a good example – receipts have fallen since the rate was raised to 28 per cent. Several tax rates have passed their Laffer curve peak but politicians and even Treasury officials don’t seem to understand this

    • HookesLaw

      CGT was increased but for anyone paying the
      lowest rate of income tax, the rate of CGT was held at 18%.
      The increase was the consequence of being in coalition. The best way to get even more sound economic managment is to vote Tory.

      • Alexsandr

        we need less taxes and lower government spending. Thats what I thought I was voting for when i voted tory in 2010. Haven’t delivered for me, so tory is not an option next year. would you vote for a government that gave you a marginal tax rate of about 63%?

        (There are other reasons why I am less than happy with the government that I have posted here many times before)

        • Colonel Mustard

          Lower government spending without cuts can only be achieved by reducing not just the size of the state but the extent of its mandate over our lives. And that means ending government funding to “charities” that lobby with political aims.

          http://www.iea.org.uk/publications/research/the-sock-doctrine-what-can-be-done-about-state-funded-political-activism

          • anyfool

            You are quite right, all government charity including overseas aid should be axed.
            When they gave 500 million to fund food banks, it was futile gesture politics that wasted half a billion on something of very debatable need, while giving the Labour party and whining parasites who run charities a gigantic stick to beat them with.
            The Lib Dems did not force Cameron hand on this, it was his own weakness and lack of a clear idea on what to do.

            • HookesLaw

              Interesting. When did the govt give half a billion to food banks?
              The govt refused to let EU money be targetted at foodbanks.

            • CortUK

              Can you link to evidence that the government gave 500 million to food banks. I’ve not heard that before.

          • Holly

            It also helps immensely if you stop adding to the adult population on the scale we do.

          • Makroon

            David Smith is one of the very few economic commentators worth following. It is an improvement that the Spectator has lessened it’s reliance on a certain bank chief economist, but a shame that Blackburn is a bit selective with his quotes, especially on Smith’s final conclusions.
            If I were marking Blackburn for comprehension, I would give him 7/10.
            Worth reading the whole article.

        • HookesLaw

          Stop being childish.
          First – there is a massive deficit that has to be repaid – that fact alone limits the scope for lower taxes.
          Second – VAT was a part of the coalition agreement. It is on discretionary spending and income tax allowances have risen to compensate in some extent. NI increases were cancelled. Corporation tax has gone down.
          Third – its clear the structural deficit was bigger than thought and thus the capacity for the economy to recover was also more limited.
          Fourth – its also quite clear spending has gone down and quicker than programmed.

          What a shame – you are less happy with the govt.
          Maybe the govt could have done something different and then upset some one else instead.
          Maybe you would be totally delirious then to have Miliband in charge. Just how ‘less happy’ do you want to be?

          • Alexsandr

            i want them to take proper care of our money they are spending instead is p1ssing it without a care. I havent seen any real effort to cut the size of the state or spending.

          • Colonel Mustard

            “…there is a massive deficit that has to be repaid – that fact alone limits the scope for lower taxes.”

            All the more reason for not maintaining a size of state you cannot afford. The essential contradiction in the “austerity” policy has been the imposition of ill-conceived cuts that feed the propaganda of the left together with voluntary largesse and the bestowing of huge amounts of borrowed public money on any “good cause” that arises, including foreign ones.

            • HookesLaw

              The size of the state is being cut, but not at a rate that will cut the economy’s throat.

              Nutjobs are floundering all over the place here.

              • Colonel Mustard

                When will you socialists realise that the state is not the economy? The state produces nothing. It just takes money off people to give to officials to meddle in what the people do, most of which impedes rather than helps the economy.

                And with the EU we now have a whole lot more parasites taxing and regulating us.

                • HookesLaw

                  When will you learn about economics. Read the link. The govt is not taking money off people it is running a massive deficit. If it cut its spending too quickly all it would mean is the deficit went down (possibly) but the jobs would disappear and the economy would shrink – and the tax base to fund and reduce the deficit would shrink.
                  No one says these choices are easy (except nutjobs of course)
                  What the govt have done is set wise targets and in fact beat them. During that time the economy has recovered. It is now in a better place to withstand more govt cuts.

                  Labour (the real socialists) of course peddled the notion that the best thing was to ‘increase’ (!) spending. Absurd and its why we should not vote to let them in again.

      • Smithersjones2013

        Hiding behind that Libdem human shield again. How convenient…..

        • Ooh!MePurse!

          Yes because it is a coalition government.

        • HookesLaw

          It was 24% at the election. The decisions were made in 2010 as part of the coalition agreement.
          Stop ignoring the facts.

      • Holly

        Who is standing as the Tory PM hopeful at the next GE?

    • ButcombeMan

      Yes 20% VAT is too high and is causing many small traders to opt out of VAT altogether. It creates a larger black economy and it is not just VAT that is lost. Once out of the VAT net, income tax & NI, is easier to avoid.

      Stamp Duty is also in dire need of reform, lowering at the bottom end, increasing at the very top end (instead of a “mansion tax’?) and above all what it needs is “smoothing”. No cliff edges which distort behaviour and house prices.

      The kids in the Treasury have failed to understand that increased housing transactions (to a substantial extent frustrated by current Stamp Duty) would bring much increased domestic trading activity, jobs (and VAT), in all the trades affected, the things people spend on when they move. From Surveyors, to Estate Agents, Conveyancers, House removers,, carpets, builders, kitchens, curtains and so on.

      Some people really need to move house for work, for downsizing or upsizing reasons.

      Stamp Duty as it is, frustrates those economic transactions.

      Of course the Treasury schoolkids are nervous about loss of Tax, they need not be, the increased economic activity, not all of which sucks in imports, would be a very good thing for the wider economy and jobs.

    • CortUK

      Far more to do with the fact that wages are still falling in real terms.

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