MONDAY VIEW: Chancellor has learned lessons of leaky Budget

UPDATED:

21:27 GMT, 22 April 2012

A few days away
in Washington’s
sultry Spring
sunshine might
have seemed
like a useful break from
the post-Budget
trauma for the
Chancellor.

Instead, Osborne found
himself on the ropes over
Britain’s latest 10billion contribution
to the IMF’s
euro bail-out fund.

As it happens Osborne did
himself no immediate favours
on this front.
In fact the trigger for releasing
the contribution from
Britain’s foreign exchange
reserves could be a year or
more away.

Alex Brummer: George Osborne learned the hardest way that in Britain's highly complex economy, tax simplification and reform are a great slogan

One of the conditions
attached by the Treasury to
the loan, part of the IMF’s
new $430billion fighting fund, is
that it cannot be released
until Parliaments around the
world have ratified the
change in IMF shareholdings,
which will grant more
power to the new wealth-creating
nations.

That means the cash will
not be released until 2013 at
the earliest when the largest
shareholder – the US with
16 per cent of the votes of the IMF
– has its presidential and
congressional elections out
of the way.

The bigger domestic puzzle
about Osborne as Chancellor
is how did someone who
prides himself on his sharp
political antenna get his
budget projection so wrong.

The biggest mistake, the
Chancellor believes, was the
leakage of the most powerful
measures.
These were the tax break
for millions of Britons taken
out of income tax all together,
the supply side cut in the top
tax from 50 per cent to 45 per cent and
the speeded up reductions in
corporation tax.

This, in the view of those
close to Osborne, was largely
the result of Coalition
politics.

The Chancellor is thought
to have been surprised and
dismayed by the headlines
and loss of control of the
process in what was, without
doubt, the most generally
leaked UK budget of modern
times.

Under this analysis the
headlines were captured by
the inconsequential ‘granny
tax’, part of a long-standing
promise to clean up complex
tax bands, the pasty tax and
finally and most damagingly
the changed arrangements
on tax relief for charities.

The idea that somehow the
Chancellor had not road
tested these taxes – and just
accepted what HMRC had in
its bottom draw – is rejected
by the Osborne camp.

Instead they point out that
if a neutral budget was to be
delivered, most notably the
upper-rate tax cut, then
there had to be some pain for
the rich, of which the charitable
givers tax was an
important element.

The view is that the charity
tax row is largely contrived
despite the fact that the
strongest critics, including
former hedge fund boss
Stanley Fink (Tory Party
Treasurer), have been among
the most vocal.

It is thought at the Treasury
that only a dozen of the
very biggest donors, people
earning in the tens of millions,
will be seriously
affected.
If that is the case, however,
it must have been a big political
misjudgement to have
propagated a policy so poorly
that it has become a focus
for so much of the Budget
criticism.

The Chancellor presumably
thinks that once the fuss
dies away, the bravest political
decision in the budget –
the cut in the top rate of
income tax – will be seen by
Tories around the country
to be an act of bravery which
places Osborne in the pantheon
of tax cutters along
with Lords Howe and
Lawson.

Treasury research shows
that 45 per cent is the inflexion
point at which the Exchequer
collects the most income
– beyond that it is in avoidance,
disincentive territory.

To square the books, in
what was a fiscally neutral
budget, the Chancellor also
managed to find around
2billion or so of spending cuts,
which amid the furore over
tax foul-ups was largely
lost.

Whichever
way it is
looked at, the
March 2012
Budget will be remembered
as a nadir for Osborne, who
has prided himself on being a
person with a deft political
touch.

He has learned the hardest
way that in Britain’s highly
complex economy, tax simplification
and reform are a
great slogan.

It is far easier to deliver
such reforms when you are a
smaller economy emerging
from Communism like Estonia
or Poland.

But those goals are
immensely hard to achieve in
a vibrant Western democracy
with a suitably questioning
media.

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MONDAY VIEW: Chancellor has learned lessons of leaky Budget