April 1st is probably a good day to write about just how irrational political debate can become. The last fortnight has seen some really meaty political events for politicians, the press and the public to get their teeth stuck into. But instead of the big reforms in the Budget and another major party funding scandal being seriously discussed we’ve had pasties, pensioners and petrol. Thank God for the shock Bradford West result, highlighting the uselessness of Eds M and B.
The Budget paved the way to raise two million people on low earnings out of the income tax net. It set out an income tax cut of £546 for basic rate tax payers in 2013, compared to where they were in 2010. This was the major Lib Dem achievement in the Budget. Reforms to the taxation of the wealthy reduced the top rate of income tax to the same level as most other major economies but also put in place more effective taxes on wealth.
Those were the most significant and far reaching changes in the Budget. But Labour and the media have instead focussed on the VAT rate for pasties and the tax threshold for pensioners.
The “pasty tax” furore shows two things. We knew already that our VAT laws are pretty hard for anyone to understand, even former tax consultants like me. It’s easy for anyone to sow confusion. But our VAT laws are also a muddle, with piecemeal changes over forty years leading to lots of anomalies and inconsistencies. So you would have thought a reform that means the likes of Tesco will have to charge 20% VAT on its pies and pasties sold over the counter, bringing them into line with high street bakeries who already have to charge full VAT on freshly baked produce, would be welcomed. Perhaps with better explanation by the Treasury, it would have been. Instead of taxing big supermarkets the government look as though they are hitting a popular snack. Perhaps we should slap VAT on caviar and lobster, where ever it is sold.
The “granny tax” row is even more daft. In the weeks before the Budget a curious alliance of some Labour politicians and right wing media commentators were using that term to bash Lib Dem proposals for a mansion tax. After the Budget the phrase moved seamlessly to something totally different. A minority of pensioners currently benefit from a £10,500 income tax free allowance. This is significantly more generous than the tax allowance received by people of working age, currently £7,475. The Coalition is raising that allowance towards the goal of £10,000. This is likely to be reached in 2014. From next year the pensioners allowance will be frozen until the allowance received by the rest of the population catches up, probably in 2015. Given that the state pension is guaranteed to rise by at least 2.5% then all pensioners will still be better off. Bus passes, winter fuel payments, free TV licences, prescriptions and eye tests and no council tax for many, all remain in place. The current grey generation will be barely touched by the austerity measures necessary to bring our government finances into balance.
As for petrol, this was the budget dog that failed to bark. The Chancellor had held down petrol tax rises for the last two years. He wisely decided not to try it again. Personally I believe that politicians have to stop trying to fool the public into believing that their government can stem the rise in transport and energy costs. In my lifetime carbon fuel costs are only going in one direction. Up. Much better would be to ration car use by scrapping petrol duty and replacing it with road pricing. A journey into central Bristol at 8.30am will be expensive. A jaunt to the Mendips on a sunny Sunday afternoon will be much cheaper. But instead of a rational discussion on petrol taxes we’ve had an outbreak of mass hysteria at the pumps.
What all this shows is that debate about tax and the economy is rarely grounded in reality. It also shows that when posh ministers try to use populist language about petrol they can cause chaos. And when party leaders pretend to enjoy chomping pies and pasties they just look like chumps.
I’m off now for my Sunday lunch. A shepherd’s pie bought in a shop to shove in my oven, served with fresh vegetables. All of it free of VAT…