MIDTERM UNPOPULARITY COMES EARLY

 

BREXIT DANGER.

With death on the streets around the European Union Headquarters building and the Budget shambles at home, it has been a bad week for those of us wanting a remain vote in June’s EU referendum.

The disgusting terrorist atrocities suggest Europe is falling apart under a wave of violence. The events in Brussels come hard upon the migrant crisis where the EU did not cover itself in glory.

People should realise that the economic arguments for staying in the biggest market in the world and the perils of the unknown offered by the Brexiteers, should overwhelm concerns about terrorism and migrants. But after the Chancellor’s bungled budget, will they?

Labour actually edged ahead in one opinion poll and that was even before Iain Duncan Smith resigned. It is a sign that the traditional mid term unpopularity suffered by all governments has come early. People may look at the most senior advocates of remaining in the EU, the Prime Minister and Chancellor, and decide to give them a kicking for the way they are running the UK, rather than think about the dangers of leaving.

HE TURNED UP THE VOLUME AGAIN.

Iain Duncan Smith has been a disruptive force in Tory politics for two decades. In the nineties he helped to force the sitting Prime Minister, John Major, the resign and stand again for his own job over Europe. He then became Tory leader in 2003 but showed no signs of avoiding a third successive defeat and was replaced a couple of years later. In government since 2010 he has been on a single-minded crusade to reform the benefits system, so single minded that he clearly has been a nightmare to deal with. Faced with the Chancellor constantly demanding cuts, it is surprising the resignation didn’t come earlier.

Neither Osborne or Duncan Smith have emerged from the events of the last week with much credit. Universal credit is a good idea but it should have been rolled out to over 5 million people by now. The current figure is 200,000. That is failure.

The other failure is George Osborne’s failure to hit any of the targets that he floats at election time to woo the voters. The cap on welfare, reducing the National Debt and the ever receding promise to get the books in surplus by 2020. Even in the Budget it was going to be achieved with some sleight of hand involving Corporation Tax receipts. Now his only hope is a booming economy will fill in the four billion pound black hole.

The retreat on things like welfare cuts and the tampon tax can apparently be accommodated according to the Chancellor which begs the question why disabled people were put through the ringer in the first place.

The one nation Tory Party theme is holed below the water line. The true face of George Osborne was shown in that nasty jibe about abolishing the Lib Dems. Pride always comes before a fall and whilst the Lib Dems are on a long journey back, Jeremy Corbyn’s handling of the budget crisis (not overdoing the point scoring) may ensure a better set of election results in May than he could have hoped for a few weeks ago.

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A CONFUSING POTENTIAL SWANSONG

 

PICK AND MIX

You’ll look for an ideological thread in the Chancellor’s budget in vain. On the one hand he regards it as acceptable to cut disabled benefits whilst cutting Corporation Tax again. On the other hand the sugar tax is an intervention in the free market that met with the immediate approval of Jeremy Corbyn.

Then there was the missed opportunity to increase petrol duty at a time when the slump in world oil prices meant motorists would hardly have noticed. He didn’t do it apparently so as to appease Tory backbenchers who he wants to vote for him for leader. But earlier in his speech he referred to the Office of Budget Responsibility’s warning that leaving the EU would lead to “disruptive uncertainty.” The OBR are right, Osborne was right to refer to the biggest issue that could disrupt his Budget strategy, but it didn’t go down well with many of those Tory backbenchers.

NORTHERN POWERHOUSE.

It was a complex, somewhat incoherent Budget which nonetheless had some good things in it for small business and the Northern Powerhouse. I thought the Leeds-Manchester rail line had been given the go-head a few times already but, anyway, it was in the Budget along with creating a 4 lane M62 over the Pennines. News that a case will be developed for a Manchester-Sheffield road tunnel is good news too. Greater Manchester once again gets more powers, this time over justice issues. But ominously whilst elected mayoral deals were announced for some rural areas, there was silence on Leeds, Greater Yorkshire and Cumbria. Knowsley is to get the northern Shakespeare Theatre which is brilliant and a reward for the lobbying work of local MP George Howarth. Perhaps he could play Lear in the first production!

SMALL BUSINESS BONANZA.

600,000 small businesses will pay zero rates from next year when the payment threshold is lifted £15000. This is even higher than campaigners were hoping for but there was more good news in George Osborne’s red box. The annual rise in business rates will in future be pegged to the consumer price index rather than the higher retail price index. There are also likely to be more frequent reviews. Due to government delays, businesses are still paying tax based on property values dating back to the financial crisis.

The elected mayors of Greater Manchester and the Liverpool City Region are to be given full powers over spending business rates but there is a downside for them and all local government. Town Halls will soon depend on business rates for their income rather than central grant. If Chancellor’s keep reducing the rates, council services will suffer further.

They will anyway because the Chancellor is looking for another £3.5bn of public spending cuts in 2019 as part of his desperate attempt to leap from a deficit of £20bn in 2019 to a surplus of £10bn in election year.

By then, the theory goes, George Osborne will be Prime Minister. There are just the little problems of Brexit, Boris and the good old British economy in the way.

 

DON’T ROCK THE REFERENDUM BOAT CHANCELLOR!

 

PETROL TAX IS TEMPTING TARGET FOR OSBORNE.

George Osborne is in danger of being caught in an ambush of his own making when he presents his budget next week.

He needs to keep voters sweet ahead of the EU referendum but recently announced that the optimistic note he struck at the time of the autumn statement has now gone flat. There was always a danger that mid term unpopularity might lead people to vote against the government for reasons unrelated to Europe. At the moment the Conservatives hold a healthy lead over Labour, but an unpopular budget with new cuts and tax rises could change that before June.

The Chancellor was too bullish in the autumn and now that the economic headwinds are beginning to blow, he is thrashing around for answers to keep his pledge of a budget surplus by 2020 intact. The suggestion of a major reform of pensions was a spectacular example of this. The idea was floated to remove tax relief on pension contributions rather than taxing withdrawals later in life. This would have been a complete reversal of the current position but would have given Mr Osborne more tax revenue now. The plan met severe criticism, not least because a future Chancellor might be tempted to tax withdrawals as well.

That pledge of a budget balance by 2020 is crucial if George Osborne is going to make a bid for the premiership, but it certainly restricts his room for manoeuvre as uncertainty persists on the international front. With growth forecasts cut and average earnings rising more slowly, tax revenues are not what he expected as recently as November.

Reaching for more cuts in public services is going to prove very difficult. The well reported difficulties faced by councils like Lancashire clearly show there is no low hanging fruit on the public spending tree. Indeed the Chancellor will need a long neck to munch much more. So let’s nickname any more economies in this area, the giraffe cuts!

It is always difficult to predict what Chancellors will do, but I would be surprised if petrol duty remains frozen as it has been since 2011. With the drop in forecourt prices to around a pound a litre, this would be a relatively pain free area to raise tax. He ought to do something about taxing the amount of sugar we consume but there seems to be a reluctance to do so.

With virtually zero interest rates the climate remains favourable for investment and consumer growth remains strong. However the latter familiar development in the UK economy may be storing up trouble in the future. If only the manufacturing figures were as healthy.

Osborne will be entitled to say that his campaign to make multinationals pay their UK taxes is beginning to work. This is an essential development as people grow weary of the austerity agenda.

Wednesday’s budget will be both a temporary distraction from debate on the EU referendum, whilst also potentially affecting its outcome. Osborne has been in post nearly six years now. He will need all his political skills to get through this Budget.

 

WILL BUSINESS RATE REVOLUTION HELP FIRMS?

 

 

BUSINESS RATE REFORM.

Over the next few years businesses across the North could be set to benefit from a major revolution in the way that councils are funded.

By 2020 central funding of local government through the revenue support grant will be replaced entirely by business rates income. At the moment councils keep half the business rates collected in their area. The uniform business rate, set in Whitehall, will be scrapped and the Combined Authorities around Manchester and Liverpool will be able to increase the tax, but only if business agrees.

But in the new regime local councils will be able to reduce business rates too, giving the opportunity to encourage new firms into their area, boost growth and increase their rates income. This is certainly the intention of the Chancellor who is behind this change. However there are a couple of snags. Councils will have to carefully balance the impact of new firms moving in and swelling their coffers, attracted by competitive business rates, and the pressures on their spending on services like adult care.

The other problem is that all this may widen the North South divide. While it will be relatively easy to attract businesses to move into council areas in the south, further north it is a different story. Calculations have been done about the impact of the new regime in the North. These show what proportion of the national share of business rates an area would need to retain to replace the current central grant. Scores below 100% mean an area will cover its lost grant. London scores 52% whereas the North West score is 104% Relating these “self sufficiency” scores to specific councils makes even more dramatic reading. While Westminster is quids in because it can cover its lost grant with just 8% of its business rate, Knowsley scores 241% and would experience a massive shortfall of income. Even within the North there are sharp contrasts with Trafford on 38% whilst Wirral is on 187%.

Safety net mechanisms will be put in place to even out some of the disparities. Next month’s Budget is likely to reveal the details of how it will be done along with the outcome of the government’s review of business rates. It’s expected to confirm that rates will still be linked to property values.

The government’s overall intention is that councils should be incentivised to boost their business rates by competing to attract firms in their area.

FAREWELL SHIRLEY.

I see the former Crosby MP Shirley Williams has retired from the House of Lords. Roy Hattersley did the same recently. They were both politicians of the highest quality in the Labour governments of the sixties and seventies. Shirley Williams should have been our first woman Prime Minister.

It says a lot about them that they think it is time to retire with dignity, although I think they both still had a great deal to contribute to the House of Lords.