Summer Budget 2015: the good, bad and ugly
By Stuart McIntyre - Posted on 8 July 2015MSc in Global Energy Management, presents his views on the Summer Budget 2015.
Budgets are all about carrots and sticks. Today the Chancellor used his carrots, and more than a few sticks, in setting out his vision for the UK economy for the coming five years. Be in no doubt though, overall this is a tax raising and not a tax cutting budget. The numbers are still being crunched, but here are a few things to note; the good, the bad, the ugly and the implausibly stupid.
The good
Significant increases in the national minimum wage, rebranded as a national living wage, and an increase in the threshold above which one begins to pay income tax to £11,000, should make the lowest earners better off and help boost consumer spending.
Increases in the minimum wage will increase the wage bills of businesses, which in turn is expected to impact on employment; bluntly this may make some people too expensive for firms to keep employing them. The Office of Budget Responsibility (OBR), estimate (with some degree of uncertainty) that this hike in the minimum wage will lead to a loss of 60,000 jobs, however the hope is that, as with the introduction of the national minimum wage itself in 1999, overall employment growth will dwarf these job losses. This will be aided to some extent by reductions in employers’ National Insurance contribution for small firms, and of course reductions in corporation tax.
The bad
The budget implements a number of promises made in the Conservative Party manifesto, the most obvious of these is the increase in the inheritance tax threshold to £1m from 2017. Politically necessary for the Chancellor, perhaps, but it is difficult to see a more hard-headed economic rationale for this change.
The ugly
Working age benefits being frozen will no doubt become something of a focus for critics of this budget. It is likely that, once all the numbers are crunched, the so-called ‘squeezed-middle’ will have been found to have had their belts tightened a little further as a result of this budget. In addition, the non-working poor, and younger people, are likely to find life tougher after the announcements made today.
The implausibly stupid
The commitment to introduce a tax lock to stop increases in the main rates of income tax, national insurance and VAT for the next five years is, at its best, pure theatre. There is nothing, ever, to stop the Chancellor next year, or the year after, repealing such a ‘lock’ and increasing these taxes; enshrining this promise in legislation doesn’t make the ‘pledge’ any more real. A similar suggestion was made about legislating for a fiscal surplus in ‘normal’ times, whatever they are, but any legislative effort in this area is, at best, tokenistic.
Scotland
In the hours and days to come the numbers will be crunched and the consequential impact on the Scottish Government budget will become clearer. There are some good and welcome announcements for Scotland in this budget, for example, increases in the PAYE earnings threshold will help the working poor. Continued support for the North Sea oil and gas industry is to be welcomed - even if nothing particularly new was forthcoming for the sector in the budget speech. Other changes will be less welcome, for instance reducing support for renewables electricity generation by ending its exemption from the Climate Change Levy.
Most notably for Scotland, the Chancellor in his speech asked the Scottish Government when they would use the new powers they were receiving? In a sense that is a less interesting question - what would be more useful to know is not when will they use these new policy levers - in many cases they have no option but to use them - but how will they use these new powers?
Overall
There are a number of carrots in this budget but there are some strong sticks as well. In many ways the core of this announcement is not particularly surprising for a post-election budget: this is a tax raising not a tax cutting budget. The battle ground for the next few weeks will likely be over changes to working tax credits and the impact of this budget on the non-working poor and the young.
What outcome of the budget do you believe will have the biggest implications for Scotland? Share your comments below.
About Stuart McIntyre
Stuart is a lecturer in Economics and Course Co-Director of the MSc in Global Energy Management. His research interests include: Environmental and Energy Economics, Regional Economics, Spatial Econometrics, Political Economy,and the Economics of Crime.
