George Osborne yesterday delivered his seventh Budget as Chancellor. Far from the unpolished, omnishambles ‘pasty tax’ budget of yesteryear, the man at the height of his political powers clearly enjoyed being unshackled from his former coalition partners as he undertook significantly more reform than the basic housekeeping to get an all-Conservative agenda underway. However, the Budget wasn’t the right wing prospectus which was signalled during the election campaign.
This was a budget which stole Labour, Liberal Democrat and SNP clothes, drenched in language which implied lower taxes, but created new and higher taxes for businesses and society which equated to a £47bn tax hike. It was a myriad of policies whose true meaning is yet to fully unravel. The benefit cuts and austerity measures were present and in force but spread over a longer period; a rebranding and lifting of the minimum wage was accompanied with a corporation tax drop payoff and the bank levy will be phased out, but an 8% profit surcharge introduced.
This was a budget not driven by economics, but politics and pragmatism. It staked out new the centre ground, keeping middle-classes happy. But what does this mean for the SNP’s political strategy? The Budget is divorced from the anti-austerity approach of Sturgeon’s party, but it muddies the central tenant of her Government and party to create “a distinctive Scottish approach to growth with fairness and equality at its heart”.
Osborne’s ‘Living Wage’
The relative twitter silence of the usually vocal First Minister indicated that she and her party were a little shell-shocked by the Chancellor’s biggest rabbit hat trick. Each party’s headline minimum wage pledges demonstrate that ‘Red George’ has pulled a fast one over his left-wing counterparts:
-Ed Miliband’s election pledge to increase minimum wage by 2019: £8.00 per hour
-SNP plan to increase minimum wage by 2020: £8.70 per hour
-Chancellor’s plan to increase ‘living wage’ by 2020: £9 per hour
The Chancellor’s policy delivers a 13% boost above the minimum wage by 2020. However, as typical of the Chancellor’s announcements there is another side to the story.
Rather than implementing a living wage (which is set at a higher level by the Living Wage Foundation) the Chancellor has rebranded the national minimum wage – a typically political move to usurp one of Labour’s golden policies. The policy also leaves out under 25s (who are typically effected by low wages).
The First Minister has made the Scottish Business Pledge a central part of her leadership, with implementation of a Living Wage (currently at £7.85 per hour) at its heart, which is more than the £7.20 promised by the Chancellor for April 2016. The SNP (and Labour) will rightly argue that tax credit changes will leave families worse-off or standing-still, but setting high headline rates the Chancellor has taken the sting out of the SNP’s plan and calls that control of the minimum wage should be passed to Holyrood so it can be raised to £8.70 by 2020.
30 Hours of Free Childcare
Another feature of the SNP’s independence strategy and election campaign was the increase in free childcare provision. The First Minister recently confirmed that free early learning and childcare provision would rise from 16 to 30 hours per week, by the end of the next Parliament. The Chancellor will now reach 30 hours per week by September 2017.
With the challenges of finding sufficient provision aside, this is an immediate challenge to Sturgeon’s differentiation from Westminster for a fairer and more prosperous Scotland.
Tax-free Personal Allowance
The rise in the income tax personal allowance is set to see 47,000 Scots removed from tax altogether next year. Lower paid workers are set to benefit from the increase in personal allowance to £11,000, which will eventually rise to £12,500.
Though the same impact from tax credit cuts must be taken into account (particularly those with larger working households), the policy poached from the Lib Dems, will ultimately mean that no-one working 30 hours a week on the national minimum wage will pay tax.
Setting the Scottish Rate of Income Tax (SRIT) from September and varying all income tax rates and bands following the devolution package in the Scotland Bill, sets a new challenge for Finance Secretary, John Swinney. The need to keep hold of Scotland’s middle class voters will compete with wealth redistribution to achieve the Government’s social justice goals. By lifting low and middle income households out of income tax, and setting this political direction, the Chancellor makes Mr Swinney’s choices more difficult and the possible decision to raise income tax in Scotland starker in comparison to England.
The Big Devo Welfare Question
Prior to the budget, the Scottish Government made clear that social welfare cuts would hit Scotland hard, whilst also trumpeting the strength of economic growth and high levels of employment – a somewhat inconsistent approach with the former point undermining the strength of the latter. A fine line pursued by the SNP Government is the portrayal of Scotland as a nation still recovering economically at the mercy of Westminster welfare cuts and a strong nation of entrepreneurialism and dynamism that is constrained by Westminster.
This comes into particular focus when the devolution of welfare powers is complete. With the powers to control many welfare payments, the opposition (particularly the Conservatives) will gleefully wait on how the Scottish Government intend to pay for increased welfare payments and mitigation – cuts, higher borrowing, higher taxes or a combination? The options open to the Finance Secretary is the subject of a blog for another day.