Politicking Osborne falls into a granny trap

AS always with George Osborne, yesterday’s Budget was first and foremost about politics. Having spent years on the wrong side of Gordon Brown’s famous dividing lines, the current chancellor has become pretty adept at drawing his own.

First, there was the business-friendly cut in the headline rate of corporation tax. Labour, you see, has a huge problem when it comes to business, and this measure only serves to underline its image as the party of the public sector.

Next came the cut in the 50p rate, which had turned into a political nightmare for Osborne. Even though the public supported its retention, they always knew the Tories didn’t believe in it. Labour attacked the chancellor for wanting to get rid of it; Tory backbenchers openly agitated for its removal.

In one fell swoop, Osborne has defused the situation by scrapping the tax band and replacing it with a new top rate of 45p. Labour might dismiss it as a “tax cut for millionaires”, but there is no way they will pledge to reintroduce a 50p rate should they win the next election. After all, Labour has always maintained that they introduced it only as a temporary measure. Tory backbenchers will find a new axe to grind.

That doesn’t mean Osborne is ideologically committed to lower rates of income tax for high earners. Aides yesterday hinted that the 45p top rate of tax is here to stay. They have stopped using the “temporary” tag and now say that the 45p rate, like all tax bands, is “constantly under review”. Nigel Lawson it ain’t.

This kind of politicking can only get you so far, however. While it provided Osborne with the biggest eye-catching announcements, it was also the cause of his worst misstep: a so-called “granny tax” that will extract £3bn from pensioners over the next five years by freezing their personal tax allowances.

It was the Budget’s single biggest revenue raising measure by some margin, and yet it barely garnered a mention in the chancellor’s statement. Indeed he tried to dress it up as a good thing for pensioners, promising to “simplify the tax system for pensioners by doing away with the complexity of age related allowances.”

The terrified look on the faces of the chancellor’s aides at yesterday’s press briefing said it all. They were unprepared for the furore over the “granny tax”. The chancellor quoted the National Audit Office as saying that many pensioners don’t even understand their tax-free allowances. After this morning’s headlines, that can no longer be the case.

Wrong-footing the opposition with tax cuts, neutralising back bench dissent, and burying a £3bn stealth tax on pensioners in the small-print: a Budget that Gordon Brown would have been proud of.