Budget 2012 – Cuts for the middle, Breaks for the highest earners, and the beginnings of a sizeable change in the UK economy?
Yes, the Budget 2012 contains more cuts to benefits and hand-outs to the richest in society. But wrapped up in the general glum mood is a sign that perhaps there is a plan for the future of the UK economy.
George Osborne’s previous budgets have had a clear aim, a theme if you will, accompanied by an appropriate sound-bite: “a budget for growth”, for example. This budget was not granted the same treatment by Number 10. Neither Downing Street nor the media created a similar scene to the impending announcement of this budget as they had Osborne’s previous two. As potential policies or content were leaked, each were met with an odd response that hardly provoked any strong opinions or debates. The entire procession of the Budget 2012 seemed somewhat muted, somewhat cautious. Somewhat unsure.
For all the reaction to the immediate face-value content of the budget when it was released, it is the collective of some of the other content that grabs my attention. The Budget appears to contain the start of a solid move to finally change the face of the UK economy. George Osborne has appeared to have shifted his focus away from a simple broad message of ‘cut the deficit for growth’, the idea of course being that cuts to the public sector will allow the private sector to grow and get the UK economy moving again, to a more specific take on how he wishes the private sector to grow. Osborne told the address that he wanted Britain to become “Europe’s technology hub” as he unveiled policies including a £100million fund for high-speed broadband hubs to be created in 10 UK cities. He also announced tax breaks for the Video Games industry and for ‘high end TV productions’. This idea is not by any means a new one; in 2009 and 2010 many industry experts were both complaining that the tax set up and bureaucratic ‘red-tape’ on the technology industry were stagnating growth, costing jobs, and leaving Britain behind in the international technology market, both in terms of production and access. Economists for a while, before the cuts became the core argument of the economy, entertained the idea that Britain could escape recession and build a new economy around its high-tech manufacturing industry. The move to free up to taxes paid and regulations restricting the Video Games and high-end TV productions, coupled with a drop of Corporations Tax to 24% really sparks an intent to move the UK into a more high-tech driven economy. Now that it appears that Osborne’s ‘Plan A’ of simply cutting and leaving the private sector to its own devices is not producing notable growth, he appears to have decided to ‘force a hand’ to shape the private sector toward a market he feels not only needs a helping hand, but could provide growth for the wider UK economy. The new moves will undoubtedly create an attractive prospect for budding technology students, graduates, and potential investors. In the words of technology industry expert Sue Crawford, the new measures will “prevent the brain drain and downturn in staff recruitment for the UK’s games industry and help bolster recruitment for the bright young design and technology students that are leaving our universities jobless.” Osborne seems convinced that business can still take the UK economy forward, and seems to be indicating that high-tech business may be key to stimulating the private sector.
However, the high-tech sector in the UK is currently a very small portion of the economy. Probably, indeed more realistically, he is looking toward the sector as a future focus for the UK economy. Osborne, and more recently pressured by Vince Cable, has long been a believer of the need to redevelop the shape of the UK economy away from public service industry and banking sector dominance. The high-tech manufacturing and research sector would appear to be his weapon of choice to diversify the economy.
It is therefore no surprise then that Osborne has coupled this focus with more moves toward his general ‘Plan A’. He has, as previously mentioned, cut Corporations tax for all businesses (although has continued his push on Banks by raising the bank levy to 0.105% to counteract any gain for them), and further to that has made a very smart move by cutting down regulations and bureaucracy for small businesses, those posting turnovers of under £77,000, who are and have been without doubt the worse hit by the economy downturn. However, the economic manoeuvres by the government have been greatly overshadowed by the surprising, insofar as being unannounced and unanticipated, and rather curious slices on benefit cuts. As part of the Conservative Party’s cuts and anti-benefit fraud drive, one could predict that more cuts were probably on the way. However, some of the latest cuts have been curiously placed.
Traditionally a party who enjoy large support from the UK’s so called ‘Grey voters’, voters collecting pensions, the Conservative party leading the coalition government have decided to remove the current extra rate, above working citizens, of personal allowance on income tax that pension collectors enjoy. HM Revenue and Customs calculate that the average pensioner will be £83 worse-off per year. There has also been a cut to the minimum wage of 18-24 year olds, after all the rhetoric and policies recently focusing around helping young people in employment. Upper-middle income families, often floating voters upon whom the major parties rely for support at election time, will be hit hard by cuts to child benefit for those earning more than £50,000 per annum and a lowering of the higher band of income tax down to £41,450. For the middle-class population, this will mostly off-set the positive move to increase the personal allowance of income tax for all to £9,205 per annum.
The policy which has caused most concern, aside from the press hounding of the ‘Granny Tax’ (removal of higher personal allowance for pensioners), has been the move to cut the Additional Tax Rate, tax paid on earnings of £150,000 and above, down to 45% from 50%. This move has been branded “an end of ‘we are all in this together’ and a hand-out to the “typical friends of the Conservative Party”, with Ed Miliband highlighting that “after today, millions will be paying more and millionaires will be paying less”.
The Budget 2012 is not particularly simple; it has no clear message and contains many policies and initiatives that appear to directly counteract each other. There is no real sound-bite and no real direction. Although we can read into a move toward developing the high-tech production and research sector of the UK, there is no over-arching theme from Osborne other than an attempt at refining his initial plans. Upon financial calculation, this Budget will no doubt ultimately sap more money away from the middle-classes and generate more wealth for higher earners and businesses. Osborne may have his reasons for this, citing credit flight and competitiveness as his worries, but the moves simply appear to be a niggling example of the ‘same old Tories’. Still, if it comes to bear in ten or twenty years’ time that the UK becomes the absolute world centre for technology, a fast developing and highly attractive commodity, we may just thank this budget for that.
Written by Patrick English
Edited by Sam Neagus