The first all-Conservative Governmental budget since 1996, announced last week, was inexorably going to cause at least a bit of a stir. The 2015 General Election was a horribly bitter one with the battle lines drawn specifically to take no prisoners; worsened further by the shock that the nation felt following the unprecedented result. The bitter taste in the mouth of many of those on both Left and Right (the Liberal Democrat occupied Centre has been excluded for it seems to no longer exist) has lingered on, meaning adversarial politics now rules supreme. In this current climate finding a balanced assessment of the positive and negative elements contained within the 2015 Summer Budget is proving rather difficult. For this article I will attempt to set aside my blatant political leanings in the hope of highlighting both the key positives and negatives in the name of rational politics; a cause which currently boasts few champions.
Every budget has its headline-grabbing provisions to woo the general public in return for their votes. This one is no different. The overall aim has been to convince the electorate that the Conservative Party is the one most capable of representing the needs and wants of the lower-middle and working classes. This explains almost certainly why George Osborne has decided to place so much emphasis upon his plan to introduce a ‘national living wage’ for over-25’s of £7.20 per hour in 2016, which will rise to £9 by 2020; an enormous leap away from the current minimum wage which stands at £6.50. In terms of morality there is no question that this is a brilliant move by the Chancellor. It looks set to boost the annual income of up to 5 million households by £5000 per year once it has reached its peak in 5 years time, potentially dragging many above the poverty line and providing those who possess little chance to enjoy a greater degree of disposable income. Economically on the other hand, the picture is not quite so clear. Small businesses especially have already begun to protest. Firms with thin profit margins reckon that the alteration could lead to vast job losses due to unsustainability; a prospect made all the more real by the ever-advancing allure of mechanisation to replace workers. But there is a flipside in that the move could encourage firms to employ under-25’s in order to cut costs where they would once have ignored them for older jobseekers, leading to a drop in youth unemployment which currently stands far too high. On balance the positives appear to far outweigh the negative potentialities, especially when considered that economists heavily criticised the last Government for failing to do anywhere near enough to raise wages alongside inflation.
As a compliment to this bold economy-stimulating announcement is the plan to raise tax brackets. For those at the bottom tax will now not be paid until an annual income of £12,500 has been reached, up from the current £11,000 boundary; which means that anyone working 30 hours a week on minimum wage is exempt. The middle classes, who have proportionally been squeezed hardest during the economic dearth, are also given a slight reward. To pay the 40p rate of tax, one must now earn £43,000 rather than the current £42,385. No one likes tax, and it is difficult to argue against its reduction from anything other than a hard Left perspective, so the benefits of this are self-evident.
What has proved to be a more contentious inclusion in the Summer Budget has been the cutting of British corporation tax from 20% to 18% by 2020. The most common and frankly unimaginative and uninformed argument against the move has been that it favours the rich over the poor. Wrong. To cut corporation tax is to guarantee a sharp rise on both domestic investment coupled with industry growth and more importantly, given the world of transnational corporations within which we live; FDI (foreign direct investment). Both will lead to a boom in the job market, countering any negatives arising from the increase in minimum wage. An increase in FDI will allow Britain a boost in national global competitiveness; drawing in firms that would otherwise locate both their production and administration centres elsewhere. This is especially important considered we are in constant competition with our EU neighbours; many of whom are naturally blessed with greater benefits than ourselves for attracting FDI, such as direct road access to other nations and a greater availability of cheap land.
Unfortunately much of the brilliance mentioned above is somewhat blemished by two key components of the Budget that are rather reprehensible. The first of these is the removal of student grants for those with ambition but little in the way of the capital needed to attend university. The ‘Nasty Party’ have attempted to offset this moral corruption somewhat by promising vastly larger loans to replace the grants by the year 2016-17 and that students don’t have to begin repaying debt until they earn at least £21,000 a year. It is much better than nothing. Knowing from experience that the current loans at their basic rate are wholly inadequate to cover accommodation and such; to increase them is of course sensible and desirable. But what of those who are truly desperate? British government and society has since 1945 been proud of its generosity toward those who, for whatever reason, need a slight boost in order to enjoy life as they deserve. The current grant system often saves poorer students from being forced into the zero-sum situation of having to get an intensive job to fund university or not going at all. It just appears to be a move that is driven not by pure economics but rather by an inability to be imaginative when thinking of where to state costs. Students don’t vote Conservative, so they are not then included in the Party’s plans for a more prosperous Britain.
This well-founded resentment of the Government by the young is merely reinforced and legitimated by part of the second concern that has tarnishes an otherwise good budget: changes to the welfare system. The Government has decided to repeal the automatic entitlement of 18-21 year olds to claim housing benefit; replacing it instead with an ‘earn or learn’ obligation. It is true that the young should be encouraged to develop skills and invest their time wisely so as to secure for themselves a better future. But this could be achieved far better with just a smidgeon more ingenuity on behalf of the policy makers. To merely deny young people benefits based on nothing other than their age and circumstance is exclusionist and wrong. Rather than demonising late-teens as lazy and assuming them unwilling to work, the Government should instead reform both the labour and housing markets so as to offer a greater depth of opportunity. For those that have jobs at a young age, home ownership or often even renting is beyond their means due to a lack of cheap government build housing. For the many that aren’t even lucky enough to find a job, paid apprenticeships across a huge range of jobs should be subsidised by the government in order to develop a new generation of widely skilled young workers.
It is not just the youth that are seeing their benefits squeezed. A cap is to be introduced which aims to limit annual household benefits at £23,000 in London and £20,000 elsewhere. In all fairness, to cut benefits is generally not a bad idea. Us Brits have historically spent lucratively on welfare, to the point where it has become a key feature of our proud national ethos (just think of how hard-line we are when considering the NHS). As the Chancellor pointed out last month in a speech to the Commons, the size of the state in terms of welfare has reached unsustainable behemoth standards. Estimates suggest that although the British make up 1% of the world’s population, we indulge ourselves with 7% of global welfare spending. So a cap of £20-23,000 in itself is acceptable. The problem originates here instead from the fact that this cap is frozen, which appears to unappreciate entirely that our economic circumstances could once again change dramatically; for better or worse. Any swift changes to inflation, the prices of utilities or the overall cost of living for example could leave people claiming too little to live on. It also plays into the hands of Right-wingers who seem to have captured the national dialogue with regards to welfare. The public must be reminded that not everyone who claims benefits is an immoral slob or an immigrant-leech, rather the opposite. The Government however would have you think differently with their constant sniping attacks upon claimants. For Conservatives who claim to be a part of the One Nation, Cameron and Osborne’s seeming indifference to the poor would have their hero Benjamin Disraeli turning in his grave.