A guaranteed way of keeping someone on your side is to print a bigger number at the bottom of their monthly pay slip – a fact recognised by employers and politicians alike. George Osborne is expected to lift the personal allowance again during Wednesday’s Budget (a commendable continuation of the Liberal Democrats’ longstanding policy) and signal a meaningful rise in the threshold at which the 40p rate kicks in.
These tax cuts are guaranteed vote-winners, but the problem for Osborne is that he cannot afford to hand them out to Peter without identifying a nearby Paul with deep pockets. The last Budget (or Autumn Statement, as it is known) foolishly relied on a more generous economic forecast in order to scrap the proposed changes to tax credits without finding significant spending cuts to take their place.
The chancellor has since rowed back on that optimistic rhetoric, and is now making near-daily warnings about the perilous state of the global economy. While cuts to income tax are inevitably popular, the problem for Osborne is that he’s earning himself a reputation similar to that of one of his predecessors at Number 11. Weaved into every Budget are a series of measures that can only be described as stealth taxes.
The Association of British Insurers has said that any increase to insurance premium tax will hit households (ie. voters), potentially to the tune of £100 each per annum. Bigger-than-usual tax hikes on cigarettes could also be on the cards, while fuel duty may be lifted.
This newspaper has previously argued that taxes on businesses are essentially a sneaky way to indirectly tax individuals without them noticing. Levies on firms inevitably hit workers, customers, or shareholders – or some combination of the three. Despite reductions to the rate of corporation tax, recent Budgets have piled higher fiscal burdens on companies, including new taxes such as the so-called Apprenticeship Levy.
Osborne is correct to say that the government should defend itself from external economic shocks by fixing its finances. But rather than dreaming up another round of business-bashing taxes, the chancellor should focus the Treasury’s energies on achieving a hefty (and hitherto elusive) reduction in the cost of the state.