November 26, 2008

Not a Great Dictator, an Incompetent Dictator

Brown's two fingers to democracyIt was a remarkable budget, planning for ballooning government debt even on its own optimistic assumptions, but the not-very-great Dictator in our so called democracy didn't want to schedule a debate in parliament and it was left to the Opposition to squeeze a meagre three hours from the Speaker.

It was also remarkable because no one thinks its main measure, a temporary cut in VAT, will do any good. Commentators have queued up to point out that it's trivial against the price rises we've been seeing. While falling commodity prices will doubtless bring some reductions, the plummeting value of the pound is sure to make imported goods dearer. Retailers condemn the VAT change because it will give them a headache of extra work at their busiest time of year for no gain that they can see, and they will have to absorb the cost of making the changes.

Businesses will now be able to reclaim less VAT on their fuel purchases and will have to absorb the extra petrol duty that replaced the VAT. Small businesses on flat rate VAT will pay more net tax, as Tony Sharp explains.

Vince Cable has hammered at his central point that the government isn't doing enough hard work on the important parts of the economy that are seizing up, while Frank Field would have preferred to see income tax cut and worries whether the government will be able to fund its huge borrowing requirement in the money markets.

Of course only a Great Dictator with a cloth ear could have opted for the VAT cut, while a rise in tax allowances was out of the question because it would have removed people from the web which the Great Spider wishes to weave around everyone.

Frank Field concludes that the budget "raised some fundamental questions about the Government’s competence in running a crisis economy". He continues that "its lack of action on the 10p [tax rate abolition] raises the most fundamental questions about its moral purpose".
In Gordon Brown’s last budget the cut of 2p in the standard rate of tax was paid for largely by abolishing the 10p starting rate of tax. Millions of low paid taxpayers were made worse off.

The £2.7bn compensation package announced in May did not restore the relative position of the low paid. The tax concessions apply to all taxpayers including all those standard rate payers who had benefited by the 2p standard rate reduction.

Yesterday’s budget merely extended relief to all taxpayers. In no way did it restore the relative tax burden of low paid workers to the vast majority of workers paying at the standard rate.

The Government therefore faces the charge that it either doesn’t understand what it has done to the 10p group of taxpayers. Or that it doesn’t care. Either way it is a pretty bloody outlook.
Worse than a bungle, an incompetent mess.

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