On the sad news of the death of magician Paul Daniels, we look at whether the magic tricks in this budget were worthy of his legacy or not...
In the gossipy world of political reporting you could be forgiven for missing the fact that the decisions being made in Westminster really do affect the bottom line of businesses, households and charities across the country. But anyone (including us) who has had to set up a workplace pension or is preparing to pay a dividend will know how important the implications of this stage-managed political theatre can be, especially in the week of the Budget.
Good news for businesses?
Overall the Institute of Fiscal Studies (IFS) suggested that the package of measures within the 2016 budget represented a slight shift from big business in favour of small business. “A good budget for most small businesses” was the verdict from the Federation of Small Business Policy Director Mike Cherry.
The measures announced on business rates were the single biggest tax cut in yesterday’s Budget. The Chancellor permanently raised the threshold for small business rate relief from £6,000 to a maximum of £15,000 and increased higher rate relief from £18,000 to £51,000. From April 2017 some 600,000 small businesses will pay no business rates at all, an annual saving of nearly £6,000, so far so good.
The Institute of Directors Director General Simon Walker also concluded that it was “a budget for SMEs, but the Chancellor must show his workings”. Business leaders and workers alike will be pleased with increases to the income tax personal allowance, fuel duty freeze and new allowances for micro-entrepreneurs to encourage participation in the “sharing economy”.
The IFS were critical however of “the disingenuousness of the Chancellor’s rhetoric on the personal allowance changes,” given that lowest paid workers are not “taken out of tax altogether” since they still have to pay National Insurance premiums from £8,000 upwards. They also argued that the business roadmap generally displayed a “lack of vision,” with tweaks where there should have been wholesale review of the tax treatment for capital gains and SMEs.
For larger firms – those making an annual profit of over £5m – there was less welcome news that they would face the prospect of having the amount of past losses they could carry forward to offset their corporation tax bill capped to 50% of current profits. Carolyn Fairbairn, Director General of the Confederation of British Industry (CBI), said “changes to the tax treatment of losses will make it harder for larger scale-up firms and companies that have been through tough times to play their part in the recovery."
If you have a question about how the budget or other political news might affect your business, or concerns about how these measures might be implemented do get in touch with Atlas Partners for further advice.
A masterclass in media management?
Having been in Government and knowing how “close hold” the contents of the Budget are, I generally try to avoid any speculation about what they might contain. If a leak is legit – it will have been briefed to people with far larger soap boxes than us mere lobbyists – if it's not, the news is not worth the paper that it isn’t written up in.
The timing of this budget does mean there are some ground rules that will have been playing on George Osborne’s mind when he finalised this week’s fiscal policy package however. These are in the realm of ‘pure politics’ rather than econometric specialists – for that you should read the IFS’s excellent detailed analysis of the budget here.
- He needed to avoid a Budget fight with eurosceptic backbench Tory MPs. Verdict – fail. Having given way on pension relief changes and decided not to incite another punch up over fuel duty, the Chancellor's decision to invoke the “independent” OBR forecasts on the subject of Brexit so early in his speech will have annoyed many of his backbench colleagues. Cue today’s comments from Vote Leave, David Davis, Liam Fox and more.
- He needed to find annual cuts of £4bn, after warnings by PwC that the cumulative fiscal damage caused by the slowing economy could hit £50bn over the course of this Parliament. Verdict – success. Great if you are the Chancellor, with Treasury whizz-kids to “shuffle” the numbers for you. Not so great if you are in receipt of disability benefits – or an official in one of the unprotected Government Departments that will have to find a further 3.7% cut in budgets by 2019/20. With strong criticism of the former from Labour, Conservative backbenchers (and comedian Alex Brooker) it is interesting that in today’s media interviews the Chancellor has already used the expression “happy to listen” so don’t consider that a done deal just yet.
- Finally, he wanted to pull a surprise rabbit out of the hat to distract from poor growth and productivity figures and crucially the fact that he is failing to meet his own fiscal responsibility targets. Verdict – mixed. Jamie Oliver dancing on the evening news bulletins was a winner, but stay tuned as more considered analysis into the weekend starts to pose some awkward questions.
From yesterday’s evening news and today’s headlines, you could be forgiven for thinking that Osborne has replaced Jeremy Hunt in the Department of Health with all the talk of sugar and obesity. He is deeply concerned with waning us off our sugar habit – imposing a sugar levy (on companies in theory, on consumers in practice) – which is a surprisingly illiberal move, but a popular one with SNP, Labour and Lib Dem MPs already supporting it. Although the IFS reiterated the value of a deeper look - pointing out some flaws in the detail – and echoing Tim Hartford’s excellent critique in the FT today.
He has not done such a good job of weaning the nation of its deficit habit however. No amount of sugar coating was going to distract the national media from the fact that Osborne is set to miss two of his three self-imposed fiscal rules (on welfare and debt as a share of national income) with the third (a surplus by 2020) looking very vulnerable to further changes in our domestic and global outlook. In particular, commentators have expressed surprise at the 2018/19 forecast jump of £32bn in revenues – no one knows exactly where that is coming from yet – the question is does anyone care enough to find out?
Note also the change in language; it was out with the “long-term economic plan” and in with “a Budget for the next generation”. Announcements were cherry picked from across Whitehall to fit into this narrative. Hence a proposal that pupils be required to study maths up to the age of 18; a doubling of the funding for sports in schools; an increase in the ISA limit; and a lifetime ISA; all designed to catch they eyes of younger voters. There was a clear shift in his rhetoric with the phrase “next generation” occurring no fewer than 18 times, but the question is are they listening? At the last check there were more than 132,000 tweets using the #Budget2016, by comparison there were 417,000 about St Patrick’s Day so, as Paul Daniels might have said “Not a lot”.
Soap Opera reporting
Why do commentators use a special ‘Westminster village’ language and why do they talk about who said what in a fashion that seems more at home in a soap opera than a serious policy discussion? Because politics is the art of getting stuff done, and to get stuff done you need to have enough MPs and Peers on both sides of the House agreeing with you to go ahead. That’s where the ugly business of the trade off comes in and where most normal people switch back to their view of politicians as self-serving split-tongue masters of spin. Trying to sell what is clearly a compromise, as if it was what you wanted all along just makes you look disingenuous. But pragmatic compromises are what makes Government work, slowly shifting to meet the changing demands of our population. There are no easy decisions left in politics – only invidious choices about where we can and cannot afford to spend taxpayers’ money. Make no mistake that putting together a budget is a tough job.
So was it a success? With growth down, borrowing up, and more cuts to come – the Chancellor has scored some positive initial headlines, but as a platform for a future leadership challenge and as a means of embedding the idea that our economic problems are of global not local making, on day two this Budget feels less than convincing. Westminster watchers will continue to follow this story for at least another week before all conversation will revert back to the EU referendum. Which is a whole other blog post waiting to happen…