Leaders: Osborne invokes Adam Smith’s principles – but fails to deliver

THE Chancellor, George Osborne, used the words of one of Scotland’s most famous sons, Adam Smith, to justify the approach the UK coalition government took in its third Budget.

Some 200 years ago, Mr Osborne told the House of Commons, Smith set out the four principles of good taxation: taxes should be simple, predictable, support work, and they should be fair. These remain good principles today, the Chancellor said, proclaiming that they meant “the rich should pay the most, and the poor least”. But he did not leave it at that, aiming a jibe at the previous government, led by another son of Kirkcaldy, Gordon Brown. The tax system the government inherited from its predecessor had drifted far from Smith’s principles, Mr Osborne claimed.

This passage of yesterday’s Budget speech encapsulates the approach to the economy the Conservatives and Liberal Democrats have hammered out between them in coalition. There was unquestionably an element of principle underlying some of the announcements, but this was also an extremely political Budget. In this respect, and with most of the initiatives pre-spun in advance to gain political advantage, it was more like a Gordon Brown Budget than Mr Osborne or his Lib Dem chief secretary to the Treasury, Danny Alexander, would care to admit.

On tax, Mr Osborne was right to quote Smith approvingly. However, the announcements he made did not match the principles outlined by the father of modern economics. There was Smithsonian principle in increasing the point where people start paying income tax to £9,205 from April 2013. It is undoubtedly fair to allow lower and middle-income earners to keep more of their money before the taxman steps in, and cutting the top rate of tax to 45p in the pound is pragmatic as there is evidence higher earners found ways not to pay the 50p rate.

However, far from being simple, some of the changes were sleekit – particularly the announcement in the paperwork released by the Treasury of a reduction in the basic rate tax limit next April from £34,370 to £32,245. That will drag about 300,000 more people into the 40 per cent tax band. And by removing age-related allowances for new pensioners from April 2013, while allowances for those already of pension age are frozen, as the new personal allowance catches up, more than £3 billion is taken out of the pockets of older people by 2017. This move, already dubbed the “granny tax”, may yet come back to haunt the coalition. And phasing in child benefit cuts for families with one parent earning £50,000, and axing it for those on £60,000 rightly ends the “cliff edge” cut-off, but also makes the system more complicated. These are just the kind of things Mr Brown used to do.

As to the drama in the speech, Mr Osborne made much of tax evasion and aggressive tax avoidance being “morally repugnant”, as he clamped down on schemes where people avoid tax by buying houses through companies and increasing the stamp duty on properties over £2 million to 7 per cent. Voters will share his repugnance, he said, that previous governments have sought to crack down on tax avoidance only for rich people to find new, and legal, ways of avoiding paying up to the Treasury. As to the so-called mansion tax, it may have some symbolism but it remains to be seen how much it will bring into the national coffers.

Lest this analysis seems churlish, there were a number of welcome measures in the Budget, notably the cut in corporation tax which moves from 26 per cent to 24 per cent in April and to 22 per cent in 2014. This should allow businesses to compete internationally, take on staff and, if they prosper, eventually contribute more in taxes. For Scotland, the deal on decommissioning North Sea oil installations and the £3bn for the fields west of Shetland are welcome. They go some way to restoring the oil industry’s confidence after last year’s tax raid. Apart from the seemingly arbitrary scope, investment in broadband and creative industries cannot be criticised, nor can capital allowances to support investment in Irvine, Nigg and Dundee.

Overall, however, this was a Budget which in seeking to help Middle Britain but with a nod to the wealthiest had all the hallmarks of what it was: the product of negotiations by two parties in an uneasy coalition. What would Adam Smith have made of it? Was it simple? No. Was it predictable? Yes, in that we knew of most of the measures in advance. Will it support work? We hope so. And fair? Well, in terms of the tax-free allowance yes, but in other measures like the pensioners’ allowances no. In short, we cannot be sure it will contribute to the wealth of the nation which, given our parlous economic position, is a major cause for concern. We suspect Smith would not have been impressed.

More clarity needed on curriculum plans

Michael Russell, the education secretary, was adamant yesterday that the planned introduction of new national qualifications, which will replace the current exams as part of the Curriculum for Excellence (CfE) reforms, would go ahead in most of Scotland’s schools and all local authorities bar one: East Renfrewshire.

What was puzzling was that Mr Russell’s forceful expression of confidence in the qualifications came on the day he announced he would allow some schools which had concerns over the new system to opt for a one-year delay, and revealed he would be spending a further £3.5 million on additional supply cover to release classroom teachers to prepare for the new courses.

This prompts two obvious questions. If all is going as swimmingly well as Mr Russell protests it is, why is there a need to allow anyone the additional year? And why spend taxpayers money to help prepare teachers for the new qualification? Furthermore, why was the education secretary planning to make these concessions yesterday? Had newspapers not found out about it and revealed his plans in advance, Budget Day would have been a good day to bury bad news.

In his own defence, Mr Russell would cite the support from parents and yesterday the National Parent Forum Scotland (which, for the record, receives funding from the Scottish Government) did swing in behind him, saying that uncertainty would harm children.

This is a valid point, but parents’ groups must accept that a lot of the uncertainty comes from the lack of clarity about the CfE – respected education academic Lindsay Paterson has said its “grand aims are so vague as to be unexceptionable” – for which the SNP has been responsible for five years.