Osborne’s ludicrous sugar tax didn’t sweeten a bland Budget

 
Mark Littlewood
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The rational response to Osborne's Budget would be to drink less 7 Up and more Strongbow (Source: Getty)

George Osborne is edging towards his fiscal targets in a tortoise-like fashion. Depending on your perspective, this is either a methodical, steady approach to stabilising our public finances or – alternatively – it is just painfully, agonisingly and infuriatingly slow to watch.

Yesterday’s Budget underscored something we already know – the chancellor may be a very smart tactician, but he is not much of a strategist.

Reassuringly, despite downgraded growth forecasts and the accompanying drop in tax revenues, Osborne remains bullish about hitting his target of a budget surplus by the end of the decade. It’s much less clear exactly how he’s going to get there. He thinks he can find around £3.5bn in additional efficiency savings and a whopping £12bn by further clamping down on tax avoidance and evasion.

If he’s right and if he doesn’t need to revise economic growth downwards by a single notch in the next couple of years, he may just about manage it. But his margin for error is now virtually zero. Having had to concede yesterday that he has already failed to see debt fall as a proportion of GDP, were he also to fail to achieve a surplus in 2020, it would give the strong impression that Osborne’s rules are little more than generic aspirations.

That said, there were a few steps in this Budget that should be welcomed. The basic income tax threshold will be edged up to £11,500 next year and the chancellor is finally addressing the fiscal drag that has hit so many middle earners with a 40p tax rate. Pushing that higher threshold up to £45,000 with the stated aim of getting it to £50,000 is to be commended.

A range of other initiatives to help enterprise look attractive on the surface, but you don’t need to look very hard at the details to find the devil. Osborne has already succeeded in driving down corporation tax, thereby making the UK an increasingly attractive place to do business – slashing the rate from 28 per cent to 20 per cent is a substantial and successful reduction. But one wonders whether the chancellor has now reached the end of the road. He proclaims that he wants to reduce the headline rate to 17 per cent, but he is intending to make it harder to offset previous losses against current profits. Just because the rate is to be reduced, we should not conclude that the total tax burden is likely to fall.

His changes in the thresholds for business rate relief are intended to be a boon to small businesses. Hairdressers in Leeds and newsagents in Nuneaton along with around 600,000 enterprises will now pay no business rates at all, the chancellor proudly told us. But the fatal flaw in this plan is that property owners may just react by increasing rents. It’s true that the hairdresser and the newsagent may no longer pay business rates, but this will be of zero consolation if the total cost of using a commercial property remains the same. The business rate changes may well benefit landowners, rather than small family enterprises – hardly the demographic Osborne was seeking to assist.

The chancellor has been prone to keeping back a “rabbit in the hat”, in order to have something new and surprising to announce despite having trailed much of the content of the Budget to the press. Sadly, the trick is nearly always something very stupid indeed. Last time it was an extraordinary hike in the minimum wage. Yesterday, it was making the mammoth error of embracing a sugar tax.

This will have no impact whatsoever on obesity rates. Wherever such taxes have been tried, they have been miserable failures and have hit the poor the hardest. Those on tight budgets are most likely to react by simply switching to cheaper, possibly more sugary, brands. In other words, this could well be a lose-lose situation.

There were some minor concessions elsewhere. Fuel duty remains frozen. There was also no hike in whisky, beer and cider duty. A rational person might well conclude that the chancellor wants them to consume considerably less 7 Up and much more Strongbow. That’s certainly the incentive effect of Osborne’s announcements.

This was a rather small, essentially unimaginative Budget.

Although it is good news that Osborne remains committed to balancing the books, his path to doing so will continue to be slow and meandering. He also tends to litter his own path with a series of rather daft and counter-productive distractions. All in all, not a totally terrible Budget – but he could do much, much better.

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