Tough but fair?: The Emergency Budget

Sarah Mills

George Osborne announced his “tough but fair” Emergency Budget yesterday, aiming to tackle Britain’s record debt.  The coalitions first budget included an increase in VAT, personal income tax allowance and capital gains tax as well as freezes to child benefit for the next three years, new maximum limits on housing benefits and a two-year pay freeze on public sector pay.  A more detailed analysis of the budget and figures can be read here at the BBC’s website, but reaction to the announcement has been mixed and in some cases highly critical.  Acting Labour leader Harriet Harman described the budget as “a Tory budget that will throw people out of work, that will hold back economic growth and will harm vital public services”.  This budget has once again opened up debates about the growing economic and social inequalities in British society.

In The Geographical Journal, Danny Dorling examines the rising wealth gap in Britain.  In particular, he focuses on the relationships between inequality trends and changes in government.  Dorling maintains that “inequalities are now at unsustainable extremes” and muses at the prospective changes for a new government.  Written in April 2010, before the results of the general election the following month, he reflected that “it could be time for a change again? Which way will we go?”  Now the outcome of that election is known, and the policies of the new coalition government are emerging, geographers are well placed to contribute to the debates about how the budget will affect people’s lives and the growing wealth gap.

Go to ‘The Budget: June 2010’ mini site on BBC Online.

  Read Dorling, Danny.  (2010) ‘All connected? Geographies of race, death, wealth, votes and births’ in The Geographical Journal. [Early View], accepted for publication in April 2010

3 thoughts on “Tough but fair?: The Emergency Budget

  1. 4-1nuffsaid

    There are many areas where one can be easily critical of the ’emergency’ budget, but one must also mention the positives.

    The biggest point of discussion seems to be over VAT. The current 17.5% rate stands as the fourth lowest in the EU (behind Cyprus 15%, Luxembourg 15% and Spain 16%). Given that the UK stands as one of the three economic ‘engines’ of the EU with Germany (19%) and France (19.6%) its only fair, in my view, to compare our figure with them. As the figures show our existing level is well below that of Germany and France and far lower than many other EU nations (the majority (17) of EU nations have a VAT rate of 20% or above). Given these figures, I have to conclude that its perfectly reasonable to increase the VAT rate in the UK. Before the budget I was expecting the raise to be around 19%, but if your going to go that far you may as well round it up.

    The implications of such a raise are naturally a different question. Many on the Labour side have criticised it as being a ‘regressive tax’ since it hits the poorest most. Can’t say I fully agree with that sentiment since the top rate of VAT only applies to ‘luxury items’ like TVs etc; so someone who can’t really afford to buy one in the first place, should not be buying one anyway, if that makes sense. Also in real terms the increase only puts £10 on a £500 TV anyway so its not really significant.

    Secondly there exists the long standing split over family and child tax credits. Labour on the one hand feel that credits should exist to all people equally, since having a split system runs the risk of creating an unfair society. On the other hand Tories and Lib Dems have consistently argued that the state should not be giving families earning £50k the same help and credits as a family earning £17k. I personally agree with the coalition on this one; I see no reason why rich families deserve the same amount of help as the poorest. If anything I would say that the budget cut off of £40k is two high.

    Thirdly the “tough but fair” claim needs to be examined. Treasury’s own figures show that the budget causes more harm to people earning under £14k/y than people earning anything between £14k/y and £38k/s, so in that respect its not fair at all as it clearly hurts the poorest in society more than the average. Additional the Treasuries figures only cover earners up to £50k/y so excludes all high earners (in effect the people who run the Tory party, bankers, managing directors etc) so I don’t think we are getting the full story here. Especially when you consider that many independent commentators think that the super-rich, the banking sectors and people with multi-million inherited personal fortunes (e.g. George Osborne (£30M) and Dave Cameron (£17M)) have effectively got off very easily.

    Finally the budget contained a line which has been overlooked by the media. Mr Osborne mentioned his plans to sell-off the students loan company. Nothing too scary in its self, but he followed it up by words to the effect of ‘we are looking at ways of forcing early repayment’. Such words can only strike fear into the mind of any student/former student still lumbered with Blair’s debts.

    So in conclusion this budget does contain some good measures and some which are overdue; but to call it fair and balanced has as much value as a certain American cable news channel which carries the same slogan.

    P.S. Jaffa cakes should made to be covered by VAT has little else defines a luxury item more than a chocolate coated cake!

    Reply

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