Critique of measures in Pre-Budget Report
by Dr. Ros Altmann
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Sadly the Pre Budget Report is not what we needed. It is just rearranging the deckchairs as the economy continues to sink. Cutting VAT is not going to help much and will cost the Exchequer £12 billion while also costing retailers significant sums in changing their prices, catalogues, invoicing etc. If only some more radical measures had been introduced, rather than continuation of the policy mindset that has led us into this mess.
Sadly, the Government has not understood why we are in this crisis. The problems stem from obsession with short-term growth and profits, which led to far too much irresponsible spending, lending and borrowing and we will not solve them by yet more short-term attempts to shore up spending using borrowed money.
We need a radical reappraisal of how we run our affairs. Why not take the opportunity to focus on the ageing demographics, needs of pensioners, bloated public spending and obsession with credit and debt?
The budget suggests the Government’s attitude is ‘we have to do something’ but it has not thought through properly what it actually needs to do for the medium term.
Hope you well (and hope I’m wrong!)
Rearranging Deckchairs on The Titanic – These Budget Measures Will Not Work
Budget measures will not work – they are just rearranging deckchairs on the Titanic as our economy sinks. Fine words and more public borrowing may help us feel better, but they won’t solve the problems we face. Borrowing more and cutting VAT are not what we need. Focussing on some of the major unfairness of our society would be much wiser policy – such as radical improvements for pensioners and bringing back the 10p tax rate, while freezing public sector hiring and identifying areas to cut public spending waste.
Increasing VAT is not what we need. There are already downward pressures on prices and fears of deflation will mount, Government should not add to this pressure. Cutting VAT will reduce tax revenue and make public finances worse and will also increase costs for retailers who have to adjust prices and catalogues for the new VAT rate. In any case, a 2.5% cut in prices won’t get spending going when people are expecting sales that slash prices by 30%, 40% or more. France and Germany have already decided VAT cuts are not sensible and I agree with that. We saw with stamp duty cuts that such measures have little or no effect, because they are so tiny relative to price declines happening in the market anyway.
Pensioners still not getting a fair deal. Increasing pension credit and giving pensioners an extra £60 (£1 a week!) is welcome, but not going to help much if at all. We know that take-up of pension credit is far too low, so increasing credits will still leave millions of pensioners in poverty.
No realistic measures to tackle public sector over-spending. The state is spending beyond its means, but Government is only paying lip-service to addressing this. While continually forecasting cutting public sector employment and costs, the opposite has occurred in recent years.
Alternative policies to help alleviate the crisis:
Bring back the 10p tax band immediately. Rather than adding to complexity by trying to ‘compensate’ the losers, just undo the measure! A fair country will tax its lowest earners by the lowest amount and a 10p tax band would help all workers straight away.
Pay the pension credit level to all pensioners over age 75. This group is most likely to spend, particularly on domestic goods, does not have big debts to pay back and is in desperate need of extra funding just to have a decent lifestyle. We could roll the winter fuel allowance and other ‘freebie’ gimmicks into the payment. This will get rid of the problems of low take-up, be fair to women, end poverty among the elderly, end the requirement to buy an annuity by age 75 and finally treat pensioners fairly. The money can be taxed back from those with very high incomes.
Freeze public sector hiring while assessment is made of where cuts can be made and what level of employment in the public sector is affordable going forward, including the costs of pension commitments in a transparent manner, rather than hiding these costs away as at present.
Dr. Ros Altmann