Think-tanks dismiss Tory “progressive” budget


2:40 pm - June 22nd 2010

by Newswire    


      Share on Tumblr

Raising VAT to 20 per cent is not an unavoidable measure to address the deficit, says the think tank Demos, responding to the June Budget.

Analysis from Demos shows that a progressive approach to balancing national finances could and should come from focusing on tax rises.

Kitty Ussher, chief economist at Demos said:

Putting up VAT was entirely avoidable. Demos analysis shows how tax on unearned wealth and carbon could have been raised instead. This VAT rise, combined with benefit cuts, will hit the poorest hardest and could cause a double dip recession.

Raising VAT to 20 per cent is a regressive taxation, hitting the poorest hardest. The hike also harms growth, taxing consumption when the economy demands that household spending increases.

The Government should have gone further with Capital Gains Tax rises; it would have been preferable to tax gains on the unearned wealth primary residences should be the key mechanism for taxing unearned wealth.

Green taxes
Demos welcomes taxing air travel on a per-plane, rather than per-passenger basis as a step towards the greener economy the UK will require for future growth. But the Chancellor should have gone further and put a price on carbon to encourage behaviour change.

Public Sector Pay
Demos welcomes the commitment to ensure that the public sector pay ratio between top and bottom earners is limited to 20:1. Research from the Progressive Conservatism Project at Demos called for public sector pay ratios and argues the differential should be closed further.

Sonia Sodha, head of the Public Finance Programme at Demos said:

Raising tax free personal allowance shows a progressive philosophy that has failed to spill into other areas of economic policy. We were warned to be prepared for the worst, but the worst is yet to come. The Autumn Spending Review’s 25 per cent cuts across most departments will – like today – hit the poorest hardest by squeezing even the most vital services.

—-

ippr also questioned the budget’s “progressive” credentials.

ippr questions Osbourne’s claims that this was a progressive budget

Carey Oppenheim, Co-Director of the Institute for Public Policy Research said:

The Chancellor made welcome noises about how “progressive” this budget was – but whether it is progressive or not will only become clear after an assessment of the spending plans which will be published in October. In our view it needed to be much more progressive than it was to offset the impact of deep cuts in public services that are round the corner.

Ippr set a threshold of fairness to judge this budget. There were some welcome announcements, such as the bankers levy, the increases in Capital Gains Tax (though he should have gone further), the incentives for businesses to grow in hard-hit areas and the rises in child tax credit to protect the poorest. But in other measures the Chancellor risks doing too much, too soon to reduce borrowing – increasing the chances of the tentative economic recovery being snuffed out.

ippr also has concerns about some of the specific measures announced in the budget:

* The Office of Budget Responsibility set up by George Osborne showed that the existing plans for deficit reduction were credible and would satisfy the markets. In his statement the Chancellor provided no evidence of why deficit reduction needed to be accelerated.

* This was a budget too narrowly focussed on deficit reduction with an assumption that such a reduction will set the private sector free to generate economic growth.

* We are concerned that the 77 per cent/23 per cent ratio of spending cuts to tax increases will disproporationately hit lower income families who rely most on public services.

* As ippr has consistently argued, a staged 3p increase in the basic and top rates of income tax (which would raised £15 billion) is a much more progressive way of raising much needed tax revenue than the hike in VAT to 20% – which will hit poorer households disproportionately.

* We welcome a number of the other tax changes – such as the rise in the tax threshold for poorer households, the bankers levy and the incentives for business to grow jobs in hard hit areas. The increase in capital gains tax is welcome, but in the interests of transparency and fairness it would have made more sense to align it with higher rates of income tax and put it up to 40% and 50% for better off people. The Chancellor made much of making his changes simple and consistent, but the 28% rate for CGT is a political fudge, designed to balance competing views within the Coalition parties.

* While the Chancellor tried to balance his benefit cuts with measures to protect the very poorest, there is a real danger that cuts on the scale announced will hurt the vulnerable badly if the projected economic recovery does not deliver jobs for those now so reliant on benefits.

* We welcome the Green Investment Bank, but otherwise there was an almost complete absence of tax measures or new investment to build a low carbon economy.

From a press release

    Share on Tumblr   submit to reddit  


About the author

· Other posts by


Story Filed Under: News

Sorry, the comment form is closed at this time.


Reader comments


“Lib Dem leaning Demos”?

Demos, whose Chief Economist is former Labour MP Kitty Ussher, and whose head of Public Finance Programme is former Labour candidate Sonia Sodha?

Nice try.

Mr Eugenides beat me to it.

Former head Richard Reeves joined Nick Clegg’s team.

It’s current acting director used to be a Libdem special advisor.

4. Luis Enrique

it’s a shame the bank levy isn’t linked to leverage or something, to try and change the price of risk. (roughly speaking).

Sunny beat me to it. And anyone who paid attention during the election would know that Demos was definitely siding with the LibDems.

I think we can say Demos was siding with the Liberal Democrats. But I doubt that Kitty Ussher is actually pro-Liberal Democrat, for some reason…

In actual fact though, the quote provided seems to be much more Labour-leaning, especially the bit about shrinking the state when the economy is fragile (suggesting someone else has forgotten that the state takes money from the economy in the first place…).

Just remember, the point of think tanks is they think, not follow a party line slavishly, so criticism of particular policies of even their favoured party is kind of expected. And Demos might lean towards the Liberal Democrats, but this is our interpretation – it is not stated anywhere on their website.

If Demos think that imposing Capital Gains Tax on the sale of primary residences is an electorally practical policy, I have some fine swampland to sell them.

Try as I might I just can’t take Kitty Ussher seriously. [Declaration of interest: I lived for a short time in her (now former) Burnley consituency.]

Wacthman

To be fair, “cutting spending endangers growth” was a Lib Dem position too. Demos was largely a Lib Dem supporter up to the election. It may of course not be by the next election as it is a progressive body, and Lib Dems are likely to become less and less progressive over five years.

I say this because of the nudge principle. If you get some one to agree to a small step in favour of something, like putting a “smoking kills” sticker on their car bumper, they will gradually move into line with a stronger stance and agree to back a ban on smoking in public places after a while. (The traditional example is the move from sticker to poster to huge great billboard in their garden).

Lib Dems have started down that path, backing a lot of socially regressive actions alongside the Tories as a price worth paying. Gradually that becomes easier and stronger commitments to those regressive positions grow from there. (Labour did this with Nuclear energy, moving from anti, to not entirely against, to considering it as a low carbon option, to fully backing it – over about 8 years)

I expect that in five years time there will in practice be one progressive party against two regressive ones. As such I imagine Demos will be Labour by then.

What is/are Demos and why is its/their opinion important?

Are they the outfit that employed M Bunting, then realised she was mad and sacked her after six weeks?

The macro-economic effect of the budget has to be filed under ‘wait and see’ but the politics are clear already: this Budget and the PR surrounding it? Clever – very clever indeed. The left has to think more carefully how to respond. Can I make the following suggestion? Ignoring anything that Demos have to say about anything would be a good basis on which to start.

Clever PR? Try this for starters:

“Pensioners came out as one of its biggest losers in George Osborne’s emergency Budget.”
http://www.telegraph.co.uk/finance/personalfinance/how-budget-affect-me/7847875/Budget-2010-Pensioners-are-the-

biggest-losers.html

Demos: the wing-nuts wing nuts.

A think tank that has gone from being formed by Eurocommunist Marxist ‘progressives’, to ‘Tony Blair’s favourite think-tank’, to promoting ‘progressive Conservatism’ (a tautological statement if there ever was one), to supporting the Lib-Dems.

A think-tank that has brought you: a) the introduction of “time-limited marriages” and b) a “week of celebration of physical activity” each July, in Manchester. Not to mention a “return of the stocks” for offenders.

Demos: “totally wonkers”, as Nick Cohen wrote when he was still on the left and before he went clincally insane.

http://www.guardian.co.uk/politics/1997/mar/09/thinktanks.comment

Clever PR?

Yeah. If it isn’t obvious already, it soon will be.

I thought it quite a clever political calculation to dump on pensioners.

After all, a percentage won’t live to vote at the most likely date of the next election in five years time and another percentage will become too senile or demented before then to notice. That leaves folks like me who can be dismissed as subversive malcontents who haven’t got a good word to say about any politicians.

Clever stuff.

See, you’re getting it already.

I hate George Osborne. In fact, I hate ALL MP`s. Why the HELL we put up with these people is beyond me. The CONservatives, Liberal DUMBacrats and LIEbour are all brainless idiots. And if I had my way, they`d all be hanged.

“And if I had my way, they`d all be hanged.”

That’s probably why they abolished capital punishment.

The BBC has a useful chart showing the estimated impact of the budget by income deciles. This shows the poorest decile is hit the hardest of all part from the top, most affluent decile.

BBC How will the budget affect you?
http://news.bbc.co.uk/1/hi/business/10376512.stm

Another thinktank – the Runnymede Trust – has outlined how the budget will impact on ethnic minorities: http://tinyurl.com/y9ddcmn


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    Libdem leaning think-tank Demos: VAT raise not “unavoidable” http://bit.ly/ceRmxO

  2. Ben Cooper

    RT @libcon: Libdem leaning think-tank Demos: VAT raise not “unavoidable” http://bit.ly/ceRmxO

  3. Dick Smith

    RT @libcon: Libdem leaning think-tank Demos: VAT raise not “unavoidable” http://bit.ly/ceRmxO

  4. Rachael

    RT @libcon: Libdem leaning think-tank Demos: VAT raise not “unavoidable” http://bit.ly/ceRmxO

  5. AndyG

    RT @libcon: Libdem leaning think-tank Demos: VAT raise not “unavoidable” http://bit.ly/ceRmxO

  6. Andrew Burgess

    RT @libcon: Libdem leaning think-tank Demos: VAT raise not “unavoidable” http://bit.ly/ceRmxO

  7. earwicga

    RT @libcon: Both ippr and Demos think-tanks rubbish the budget's "progressive" claim: http://bit.ly/ceRmxO

  8. B Latif

    RT @libcon: Both #ippr and #Demos #thinktanks rubbish the #budget's "#progressive" claim: http://bit.ly/ceRmxO

  9. One Society campaign

    RT @libcon: Both ippr and Demos think-tanks rubbish the budget's "progressive" claim: http://bit.ly/ceRmxO

  10. Ross Haffenden

    RT @libcon: Both ippr and Demos think-tanks rubbish the budget's "progressive" claim: http://bit.ly/ceRmxO

  11. Liberal Conspiracy

    Both ippr and Demos think-tanks rubbish the budget's "progressive" claim: http://bit.ly/ceRmxO

  12. Samuel West

    RT @libcon: Both ippr and Demos think-tanks rubbish the budget's "progressive" claim: http://bit.ly/ceRmxO

  13. Therese

    RT @libcon: Both ippr and Demos think-tanks rubbish the budget's "progressive" claim: http://bit.ly/ceRmxO

  14. Bad Conscience

    [...] sources have predictably responded by claiming that this is not a progressive budget at all. The New Statesman here has a fairly standard example. [...]

  15. Liverpool Green Pty

    Nothing 'progressive' about the budget. http://bit.ly/ceYcwT

  16. What ye reap, so shall ye sow « Bad Conscience

    [...] sources have predictably responded by claiming that this is not a progressive budget at all. The New Statesman here has a fairly standard example. [...]

  17. The budget illustrates why it’s time to ditch ‘progressive’ | Liberal Conspiracy

    [...] sources have predictably responded by claiming this is not progressive at all. The New Statesman here has a fairly standard example [...]





Sorry, the comment form is closed at this time.