14 March 2016

UK: Budget politics get personal

With more than one hundred days to go to the UK’s EU referendum, the odds on the runners and riders to succeed David Cameron have altered considerably.

Cameron, whether he wishes to or not, will surely depart if the Leave vote goes against him and may well not wish to stay on as leader if he faces a bitterly divided Tory party even if the Remain camp win.

The political scene has already illustrated its capacity to turn nasty. Witness the attempts to damage Michael Gove for allegedly being garrulous about the purported “Brexit” sympathies of Her Majesty the Queen. Alternatively we have witnessed the parallel attempt to subvert Sajid Javid over his alleged use of elaborate offshore tax structures during his days at Deutsche Bank.

Predictably enough, the leadership stock of George Osborne and Sajid Javid has fallen precipitously in the most recent Conservative Home poll of party members and sympathisers. Osborne has fallen from first to fourth place, behind not only Boris Johnson but also Michael Gove and Liam Fox. Mrs May has been very clever in playing her cards close to her chest and her semi-detachment has not improved her near-term leadership chances, unless she is set t o play a post Remain unity ticket. Although Osborne has heavily seeded a lot of FOGs (“Friends of George”) throughout the parliamentary Conservative party, this has not prevented half of Tory MPs declaring that they will vote Leave. The hierarchy have abandoned attempts to consolidate and professionalise the party organisation in order to marginalise the 70% of the members who are Brexiters. It is no accident that the least popular Conservative at present is Lord Feldman who is beset by worries about illegal campaign spending in Thanet and recurrent troubles in the youth wing.

However the game is never over until the fat lady sings.

The Leave campaign is making as much capital as it can out of “Project Fear”. The latest manifestation of this is a letter from over one hundred Royal Society Fellows in the Times predicting the end of science as we know it. The Remain campaign has barely kicked off, partly due to the lacklustre efforts of Stuart Rose and a decidedly tired looking Cameron.

To date, there has hardly been a peep let alone any passion from the Labour benches. This will be led by Alan Johnson or “AJ” who is the most effective communicator that the Left currently has. This will eclipse Jeremy Corbyn who admittedly still has his followers. Regrettably Tony Blair is still weighing up his support for the Remain camp which may be something of a mixed blessing for the Remain side. There are posters for Tom Bower’s acidic “Broken Vows” biography on every Tube station wall, spelling out putative infidelities with Wendy Deng and Blair’s endless circuit of foreign fund raising tours. His support may be less than welcomed.

This leaves next Wednesday’s Budget all the more important as it will reflect its standing as being more pitched from a party that is trying to win an election. By all rights, this really ought to be a post-election exercise, of maintaining the leaky roof to reach the Budget surplus promised by 2019-20. There will be plenty of cautious warnings about dark clouds over China and the Eurozone, coupled with talk of the sunny uplands ahead. Osborne has already dropped anything unpopular like pension relief reform, leaving himself only a little leeway in terms of taxation system rebalancing to play with. The northern powerhouse initiative should see some extension to the East Midlands and the rural mid-south coast where, for instance in Norfolk and Hampshire, the UKIP vote is omnipresent. County Tories are mindful of such support efforts and do not appreciate being subordinated to urban centres such as Portsmouth or Southampton.

Although I enjoy no privileged insight whatsoever, I think that Osborne may increase the 40% tax rate threshold marginally from £42,385 to £43,000. This would benefit the hard-pressed middle class. He might also step in and cut the top rate of tax for those earning over £150,000 per annum from 45p to 40p. He will have to do something to replace the assisted mortgages with a 5% deposit which expires this year. While he is unlikely to essay rent caps, one ought to expect tax breaks on sinking funds for repairs to private rental accommodation, stepping in to help young renters where conditions can be dismal. The younger demographic is a key both to Osborne’s electoral chances and to the Remain camp, given that older voters are more often inclined to the Leave camp.

Capital gains tax is the obvious target on the taking side, given that it yielded £5.5 billion last year. Here Osborne could bring the current rates of 18% and 28% for basic and higher rate tax payers into line with income tax bands of 20% and 40% respectively. Remember that capital gains tax went unmentioned when the Chancellor vowed a triple lock on income tax, National Insurance and VAT rates over the life of this parliament. A nother inviting target might prove to be redundancy payments below £30,000 which are at present exempt from income tax or National Insurance. One approach might be to say that you get so much money for the equivalent of so many years tax free but that the eventual redundancy payment is taxed over that limit. Relatively low oil prices may enable Osborne to hike fuel duties.

The Budget will be a day’s worth of noise amidst weeks and months dominated by the EU referendum. I sense that the Remain camp may be deliberately allowing the Leave side to burn themselves out, isolated and increasingly sounding like obsessives. Many voters in 21st century Britain can only take so much of Bill Cash, Iain Duncan Smith or Jacob Rees-Mogg going on at them. Boris Johnson has a proven popularity south of Watford but may prove nationally to be something of an acquired taste. Yet the Remain camp has yet to focus around any particular charismatic personality who can make a positive case for an EU that seems increasingly lurching from one crisis to another. The press is mainly Brexit and may have to work hard to find other stories if it intends to crusade with this intensity for another hundred days without losing readers.

Understanding Finance

Helping clients understand what we do is key to building relationships. To explain some of the industry jargon that creeps into our world, we’ve pulled together a section of our site to help.

Related articles