A curate’s egg of a Budget?

David Cowan 6.02am

On Wednesday, George Osborne grew in stature as a Tory Chancellor. The Budget was the most definitive account of the Government’s plan for growth. Yet it was mainly framed as a tax reform budget, and it is by this standard it should be judged.

In which case, it was also something of a curate’s egg. In places it was bold and radical, while in others it did not go nearly far enough.

Mr Osborne articulated a clear, long-term vision for tax reform. He began by claiming Adam Smith as his guide, embracing the principle that taxes ought to be “simple, predictable, support work, and they should be fair”.

The establishment of the Office for Tax Simplification (OTS) demonstrated Mr Osborne’s commitment to sustained reform of a tax code that must be “fit for the modern world”. (This already comprises measures such as merging the rates of income tax and National Insurance.)

There is the Personal Tax Statement, first proposed by Ben Gummer MP, which will appear for the first time in 2014. It will tell taxpayers exactly how much they are paying in tax and exactly where that money is being spent. This is particularly important at a time when people do not know how much of their hard-earned cash is consumed by the costs of servicing our £7.9 trillion debt.

At the heart of this Budget is the start of a serious shift in taxation from income to wealth.

The 50p top rate of income tax will be reduced to 45p in April 2013, but Mr Osborne has already reassured Conservative MPs that the new top rate will not be permanent. Following the announcement on Wednesday, Ed Miliband immediately rolled out the tired old rhetoric of faux class warfare. The fact is that the top rate was not raising any meaningful revenue - a mere third of what was promised - and as page 91 of the Red Book proves, it will actually be the millionaires paying more after this Budget.

The group of taxpayers that Mr Osborne ought to be most concerned about are the taxpayers still stuck in the 40p higher rate, between £41,450 and £150,000, especially since he has just shifted 300,000 new taxpayers into that category.

This situation is not helped by the changes to Child Benefit. What the economist Andrew Lilico has persuasively argued is a tax rebate, not a welfare benefit, has effectively been taken away from the important ‘squeezed middle’ at a time when living costs are still rising painfully.

Then there is the so-called ‘Granny Tax’, which was ‘unearthed’ by linguistically creative journalists hours after the Budget. Despite the Brown-esque manner in which it was delivered, the policy remains a sensible one. Mr Osborne has said that the age-related allowances will be frozen from April 2013 onwards. The impact has been exaggerated, as Sara hinted at yesterday, and it will be alleviated by the planned increases in the personal allowance.

This leads on to the Liberal Democrats’ key victory: the acceleration towards a £10,000 income tax personal allowance. As a result of this Budget, no-one will pay income tax on their first £9,205 as of April 2013. Everyone working for the minimum wage will see their income tax bill halved.

This has not stopped Conservative MPs from claiming some credit for the policy, as Nick Boles did during the pre-Budget PMQs, and as Robert Halfon’s fascinating Right Angle campaign web site has done of late.

However, what really matters is how these tax changes are funded. Mr Osborne, under pressure from the Lib Dems and even Tories such as Boris Johnson, unleashed a new set of measures to target wealth, largely through tinkering with Stamp Duty.

A new 7 per cent rate will be levied on £2 million properties and a new 15 per cent charge will be used to crack down on the use of corporate envelopes to avoid tax when purchasing properties.

Capital Gains Tax (CGT) will also be extended to residential properties being held by overseas envelopes. This will be accompanied by a new range of anti-tax avoidance and evasion measures.

Altogether, it means that the richest will pay up to five times more than they would have done with the 50p income tax rate.

This is the correct direction of travel for direct taxation. Wealth should be taxed in a manner that is fair and which encourages wealth creation. Yet it still remains the case that the best way to do this is a Land Value Tax (LVT), within the context of simplified property taxes.

The main rate of corporation tax was reduced by 2 points, which will eventually mean corporation tax of 22 per cent in April 2014 - well below the level of comparable countries like the United States but not as low as Ireland’s 12.5 per cent. Mr Osborne wants the rate to come down to 20 per cent by 2015.

But the method taken to fund the reductions in corporation tax was misguided. The bank levy is one of Mr Osborne’s more harmful gimmicks and has yet again been increased (to 0.105 per cent) at a time when our financial services industry needs to be made more competitive, not less.

Mr Osborne has also taken a leaf out of Sir Geoffrey Howe’s book by increasing indirect taxes on consumption (e.g. 5 per cent hike on tobacco duty) to fund deficit reduction and ever-increasing public expenditure. Albeit to his credit, he has managed to keep fuel and vehicle excise duties lower than they would have been under a Labour government.

George Osborne’s vision is of a tax code that is more transparent, where direct taxation moves away from income towards wealth, in which a more competitive business tax regime can boost growth, and where taxes on consumption help to maintain ‘fiscal stability’. Regrettably, political gimmicks like the bank levy and other tax raids continue to infect Mr Osborne’s agenda.

Earlier this week, I asked whether George Osborne could join Neville Chamberlain and Sir Geoffrey Howe among the pantheon of great Tory Chancellors. Wednesday’s Budget brought him closer to the mark, but not quite the whole hog. His fiscal plans have been blown off course since last November and we are yet to experience the full dangers of the largest experiment in quantitative easing ever embarked upon.

Follow David on Twitter @david_cowan

MPs and peers launch new all-party group for apprentices

Nik Darlington 11.47am

I have just been to the inaugural meeting of the APPG for Apprentices, which is to be chaired by the Lib Dem MP for Burnley, Gordon Birtwhistle.

The straight-talking 68-year-old Birtwhistle is an appropriate choice to lead the new all-party group, having begun his working life as an apprentice engineer in the 1950s.

What surprises me is why MPs have waited until now to set up such a group. Apprentices have been strong on the parliamentary radar, with the Government investing much time, effort and resources in expanding apprenticeship opportunities and numerous MPs now employing their own apprentices.

A jokey verbal joust even broke out between two of the group’s newly appointed vice-chairmen about who had been the first MP to employ an apprentice. Guy Opperman (C, Hexham) pronounced it to have been him, though this was contested by Catherine McKinnell (Lab, Newcastle-upon-Tyne North), the shadow solicitor-general. Proof that competition in the public sector is a healthy thing?

Whoever of the two is right, the number of MPs employing apprentices in Parliament and in their constituencies is large and growing, thanks in no small part to the efforts of the Parliamentary Academy, an organisation set up not so long ago by Conservative MP Rob Halfon and the journalist Martin Bright.

The Government has been offering incentive payments to businesses to encourage the taking on of apprentices. The policy has created hundreds of thousands of apprenticeship places already and it is hoped further tens of thousands will be created over the next year. As evidence of the effect the policy is having, the number of people starting apprenticeships increased by more than 60 per cent in 2010-11, to a total of 457,200.

Much has been done but with youth unemployment such a concern, clearly more needs to be done. As Mr Birtwhistle said today, still too often youngsters see apprenticeships as something you do if you fail to get into university. On the contrary, he said robustly, “universities should be what you go to if you fail to get an apprenticeship!”

Information, advice and guidance about the apprenticeship route needs to be better and more widely available, something mentioned today by Stella English, a former winner of the BBC’s The Apprentice.

So an all-party group for apprentices is long overdue, and it is not quite off the ground yet, but it is a very encouraging step in the right direction and Egremont wishes it all the very best.

Iran might be many things, but it is not the Soviet Union

Aaron Ellis 9.30am

Some of the worst decisions in history have been influenced by bad historical analogies. In an essay on the part played by such analogies in American foreign policy, Robert Dallek dubbed their malign influence “the tyranny of metaphor”.

“For all their pretensions to shaping history, U.S. presidents are more often its prisoners.”

The tyranny of metaphor is especially strong in this perennial debate over the Iran Problem. Those who want to attack the country often justify their position by comparing its regime to the Nazis.

One commentator noted recently:

“No other historical episode gets mentioned as often by pundits and policy makers in arguing that some menace or supposed menace needs to be confronted firmly. What is drawn from the Nazi analogy is an adage that a threat must be stopped forcefully now to avoid a bigger and costlier fight later.”

The comparison is ridiculous for any number of reasons, but it serves an important purpose: it is an easy-to-grasp analogy that helps coax those unsure about the use of force.

Yesterday in the House of Commons, in an urgent question to William Hague (video), Robert Halfon boldly described Iran as “the new Soviet Union of the Middle East”. Though his subsequent description of Iranian behaviour did not explain the comparison, there are two ways one can interpret it.

A generous interpretation would be that Mr Halfon believes the regime in Tehran is so crooked, contradictory, and such an aberration of Persian history that its eventual collapse is inevitable. It was this prophetic insight about Communism that led to George F Kennan devising the idea of containment, which won the Cold War. If we just applied continuous but restrained pressure, the Soviet regime would either yield to the West or be overthrown by the Russians and other subjected populations themselves. Going to war with the Soviet Union would not only be disastrous, but also unnecessary.

The more likely interpretation is that Mr Halfon genuinely believes that Iran poses the same degree of threat as the Soviet Union did, which is as absurd as thinking it poses the same threat as Nazi Germany.

Both Israel and the United States dwarf Iran militarily, whereas the Soviet Union’s conventional forces dwarfed those of the West years before the Russians successfully tested an atomic bomb in 1949.

Iran has only one friend in the Middle East - Syria - and it is unlikely that friendship will continue if the Assad regime falls. Until the final years of the Cold War, Moscow had almost all of Eastern Europe under its thumb and, until the 1960s, the important support of Mao’s China.

If Iran is like the Soviet Union in any way, it is the Soviet Union of 1991, a basket case. The influential commentator Fareed Zakaria wrote earlier this month:

“The real story on the ground is that Iran is weak and getting weaker. Sanctions have pushed the economy into a nose-dive. The political system is fractured and fragmenting.”

I wrote yesterday that the only way we can come to an informed decision about Iran is by raising the standard of the debate. Nik also wrote that a debate of such direct import must take place in the House of Commons before any substantive military move. Thankfully, Parliament was granted a preliminary murmur later yesterday afternoon.

Those who claim to have a solution to the problems posed by Tehran and its nuclear programme should furnish us with a coherent strategy, as well as explaining how to offset the trade-offs and indirect consequences of their preferred policies.

And yesterday highlighted another problem, which perhaps we shall never escape: the use and abuse of history.

Follow Aaron on Twitter @AaronHEllis

Uninsured drivers: the other invidious tax hitting the pockets of Britain’s motorists

Craig Barrett  6.00am

The Conservative MP for Harlow, Robert Halfon, has done a sterling job raising the issue of high fuel costs, which he sets out here for Total Politics.
Above all, fuel duty is a tax on the poor. But there is an additional invidious tax levied on all drivers: car insurance.
 
We all have to pay it but if you insure your car in compliance with the law you are effectively taxed to pay for those disreputable individuals who think this sort of responsibility beneath them.
When these criminals come a-cropper, the insurer pays out but recovers their losses from the law abiding majority by whacking up their premiums.
 
It is estimated that there are 1.4million uninsured vehicles on the road, at a cost to honest motorists of some £500 million in additional premiums, to say nothing of the 160 deaths and 23,000 injuries caused by uninsured drivers.
A person who is careless enough not to bother with insurance is likely to have a similarly slapdash attitude towards their behaviour on the road. Uninsured motorists are more likely not to have bothered with an MOT test or routine maintenance, three times more likely to be convicted of driving without due care and attention, and ten times more likely to have a drink driving conviction. Scary stuff.
Since June this year enforcement has been tightened. The Continuous Insurance Enforcement system will compare the DVLA’s database of registered keepers with the Motor Insurance Database and contact drivers who seem to be lacking insurance.
The monitoring technology works. Last year, when my car was broken into, a well-known firm of motor glaziers was instantly able to access my insurance details to confirm that I only had to pay the excess. Moreover, pricing tyres online yesterday was made easier by simply typing in my registration number to a form rather than having to recall the tyre size.
 
The theory is that all those who are uninsured will receive an initial fine of £100 (following a letter), escalating to further fines of up to £1,000 and destruction of the vehicle.
It would be interesting to know the CIE’s success rate after the first five months. There are some serious obstacles it has to get past.
Some 40 per cent of uninsured vehicles impounded are never reclaimed, basically because it is cheaper and easier to get hold of another vehicle than pay for a MOT and/or insurance.
With any luck, the new vehicle may even come with an MOT and road tax, such is the state of the used car market that a cheap runaround can be very affordable.
CIE will also rely on vehicles actually appearing on the DVLA register as being on the road, rather than having completed a Statutory Off Road Notification.
 
Some years ago I was speaking to a friend in the police and I was horrified to discover that he had stopped a driver in Southwark, asked for his insurance details and was told “God is my insurance”. Sadly, he wasn’t quick enough to respond by asking for the claims helpline number.
Uninsured drivers appear to be a particularly problematic in urban areas. On 19th October, the new Metropolitan Police Commissioner, Bernard Hogan-Howe, put 1,000 officers on the street to seize over 200 cars using number-plate recognition technology at roadblocks. Hogan-Howe used a similar mass sweep technique when operating in Liverpool.
As well as the impressive visual effect of a massive police presence, various weapons were seized and £10,000 worth of crack cocaine was found. Call me a traditionalist but this kind of ground-up policing appeals to me, although it is not really the job of the police to deal with what is essentially a basic administrative function.
 
Given that we all have to have a road tax disc, why don’t we have something similar for insurance? This is how it works in France and many other countries. Better still, how about some form of smart card without which fuel cannot be purchased but can be remotely deactivated if insurance is not in place? Crushing cars is a cure but prevention would be preferable.
 
In the meantime, as we discuss taxes on fuel, let us not forget that there is a tax on honest drivers through the iniquity of people who seek to cheat the system in this oh-so-simple way.
Ideas for how to improve our insurance system gratefully received…and anyone who wants some free publicity for tyre sales, it’s 4 x 205/60V15, British brands preferred, naturally…
Follow Craig on Twitter @mrsteeduk

Conservative MP launches Parliament’s first apprenticeship academy

Nik Darlington 6.00am

A Conservative MP and the former editor of the New Statesman have launched the first ever apprenticeship academy in Parliament.

The Parliamentary Academy is the result of months of preparation by chairman Robert Halfon, MP for Harlow, and chief executive Martin Bright, whose New Deal of the Mind is driving development with the support of partners the National Skills Academy and North Hertfordshire College.

The 10-month scheme is being piloted this year with an apprentice working in the policy team at Conservative party central office and with MPs from across the House of Commons. As well as their parliamentary duties, these apprentices will study towards rigorous and well assessed qualifications, with the involvement of training partners and the MPs themselves.

Mike Crockart, the Lib Dem MP for Edinburgh West, Andrea Leadsom, Conservative MP for South Northamptonshire, and John Woodock, Labour/Co-op MP for Barrow & Furness, are all taking on new apprentices.

Another MP has also taken on an apprentice independently. The Conservative MP Robin Walker has recently hired an apprentice to work in his constituency office in Worcester.

Paul Abbott, the academy’s Parliamentary Officer, said:

Politics is like journalism, there just aren’t enough paying jobs for people when they’re starting out. This is a disaster for social mobility, and it is almost impossible to get into politics now, if you haven’t been to university.

The Parliamentary Academy hopes to change all that. It’s a real credit to Martin Bright and Robert Halfon that they have made this happen, a real apprenticeship scheme, paying a decent wage, with a job in Parliament.

The response from MPs has been encouraging and we already have a pilot scheme up and running. Next year, we want it to be even bigger and better.

Follow the Parliamentary Academy on Twitter @ThePAcademy

To these young people, there really is no such thing as society

Nik Darlington 11.12am

Londoners have passed a night of relative peace and quiet, as opportunistic rioting and looting spread to other English cities.

As shock fades, the recriminations begin. Conservative MPs accuse the previous Labour government of fostering welfare dependency, failing to improve education and forcing fiscal austerity upon the nation. Labour MPs allege that coalition government spending cuts have created a context of weaker policing, youth unemployment and destroyed opportunities.

Both sides are wrong to blame each other without admitting to their own part. The deficit reduction objectives of Conservative and Liberal Democrat politicians are correct but indubitably they are creating difficult and perilous readjustments. This should be acknowledged. Labour politicians should face up to the fact of the economic mire they bequeathed, and the fact that youth unemployment stood at 2.5 million when they left office. Furthermore, a youth in Manchester interviewed on this morning’s Today programme said, “I’ll keep doing it until I get caught - the prisons are full so what are they going to do, give me an Asbo?” The Labour government filled our prisons to record numbers and introduced the utterly ineffectual Asbo.

As Robert Halfon writes this morning on ConservativeHome, “the causes go deep.” Deeper than the last government, and the government before that, and so on. Every government makes mistakes.

Blaming these riots on policies announced in the past 12 months is ignorant and intellectually lazy. Last night, the deputy leader of the Labour party, Harriet Harman, said the Government was not on the side of young people and alluded to tuition fees, the EMA and youth unemployment as causes for the discontent (see Newsnight clip below).

Showing the brazen obstinacy that has become her hallmark, Ms Harman ignored the fact that a re-elected Labour Government, which first introduced tuition fees (breaking a manifesto pledge) and commissioned the Browne Report, would have had to increase tuition fees. She ignored the fact that her government had plans to reform the inefficient EMA. New Statesmen blogger Dan Hodges tweets that if Labour continues to focus on it, the party will be out of power for a generation.

But most significantly, Ms Harman made the curious assumption that the young people rioting and looting in the streets of London and other cities have anything more than the remotest of ambitions for staying on at school or going to university.

Herein lies the root cause of the recent violence. It is found in the anger of an economic and social underclass in Britain’s cities; a collective rage borne out of disillusionment and exclusion. No single party, no single politician, no single government can be blamed for this miserable phenomenon. To ignore this demonstrates a collective dereliction of responsibility not dissimilar to that shown by the perpetrators of the past few days.

These are communities bereft of identity, responsibility and hope. A politician once said that there is no such thing as society; another more recently said that there is such a thing, it just isn’t the same thing as the state. But what the indiscriminate vandalism and cruelty demonstrates is that society is irrelevant to you, if you don’t even know of any such thing as community.