IN ALAN J Pakula’s Watergate classic All The President’s Men, the informant Deep Throat meets Robert Redford’s Bob Woodward in darkened car parks in the dead of night. A man of infuriatingly few words, his constant refrain is, “Follow the money”.
So it is with Budgets. George Osborne’s sixth contained 41 new measures that will together cost billions over the next five years. That’s real money to you and me. But to a government that will spend £3.8 trillion in that time, it is the proverbial small change of Budget legend. Raising the points at which people pay income tax is the largest single item. It will cost £5.7bn.
After them, savers, first-time buyers and drivers are the biggest winners. Removing tax on the first £1,000 of interest income and giving people freedom to move money in and out of their Isas will cost over £3bn.
Treading the path beloved of UK governments, this year’s shot in the arm for the housing market makes saving for a deposit to buy your first house tax-free. That is reckoned to cost £2.2bn, but the Office for Budget Responsibility (OBR), which reviews the government’s plans, says there is “very high” uncertainty about this estimate. Fuel duty was due to increase in September and the Chancellor cancelled that rise, as he has done in recent Budgets. This time, it will cost £1.1bn.
The biggest new spending commitment is £1.6bn for mental health care in England. That is a victory for, among many others, one of Britain’s leading economists. Lord Richard Layard of the London School of Economics and his colleagues have argued that mental ill-health causes more suffering than physical illness, poverty or unemployment. What’s more, spending to help people to recover will lead to substantial savings in other budgets.
Who loses? Banks’ shareholders will pay £5.3bn, partly through an increased Bank Levy and the remainder in higher corporation tax payments. The amount people can save over their lives towards a pension and offset against income tax will fall to £1 million, raising £1.9bn. Clamping down on evasion is the Holy Grail of finance ministers and the government expects new measures to generate over £2.5bn.
For Scotland, the biggest announcement concerned the oil and gas industry. Toiling under an oil price that has halved since last summer, the sector is administering self-help through productivity gains. But it wanted an external helping hand too. The industry got what it asked for, with tax breaks for new investment, a reduction in the Supplementary Charge levied on profits and in petroleum revenue tax. The OBR says these will lead oil production to be 15 per cent higher than would otherwise have been the case but cautions that there is a “very high” degree of uncertainty about its estimate.
Following the money in this Budget confirms what we already knew: to paraphrase Liam Byrne after the 2010 election, there isn’t very much. The giveaway is 0.03 per cent of planned spending. That is more than looked likely only a few months ago and allowed the Chancellor’s to pose this challenge to his opponents: do you back tax cuts for most earners, savers and car drivers, and support for first-time buyers?
• Stephen Boyle is head of economics at RBS.
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