An emergency budget for turbulent economic times
Yesterday’s Budget – full of severe cuts to services and tax rises – was presented as unavoidable given our economy’s dangerous position. But where do the real risks lie?
Yesterday, the Chancellor George Osborne presented the Budget, the government’s financial plan for the next five years. Budgets come once a year, but this could be the most important in decades.
Britain is deeply in debt, paying billions in interest on the money it has to borrow, and the numbers are rising every year. The new government promised to address this by cutting spending and raising taxes, and yesterday’s Budget outlines a plan to do so more quickly than many had expected.
VAT, the tax on all sales (other than essentials such as food), will rise. Also going up is the tax on ‘capital gains’: the profit made on investments such as stocks and property. And the banks will pay a special tax, though the details have yet to be finalised.
Some taxes, however, will go down, including the ‘corporation tax’ on business profits. The ‘income tax threshold’ will rise, meaning that you will now be able to earn almost £7,450 before paying any tax at all.
The single biggest cut to public spending comes from a new method for calculating ‘benefits’. These direct payments from the state – to the unemployed, the disabled and so on – are updated according to the prices of a selection of essential goods, and the new measure will see them rising more slowly than before. The maximum for housing benefits will also be reduced.
There will also be a ‘wage freeze’, meaning that government workers will be paid the same amount of money next year, even as living costs gradually rise. Individual departments, meanwhile, will need to cut a full quarter of their budgets, with the exception of protected services such as schools and hospitals.
Bold or foolhardy?
The Chancellor presented the Budget as the brave act of a government doing the difficult but necessary thing; the risk of letting our debt spiral out of control is just too big.
But his critics suggest that he has put ideology before pragmatism and misjudged where the greatest risk in fact lies. By cutting back when the economy is still fragile, they claim, the government will just make things worse: if we go back into recession then, however much taxes are raised, fewer people will pay them, meaning an even bigger debt to pay off.
- Governments often compare their budgets to those of households: just as we have to cut back in lean times, so do they. Is this analogy useful or misleading?
- Do you prefer the idea of a government that plays it safe or that makes radical changes?
- Very few politicians, economists or journalists saw the credit crunch coming, and yet many of the government’s the major decisions rely upon economic forecasts. Who can we trust to do this?
- Write an application for the job of Chancellor of the Exchequer outlining the qualities you think are important for the job.
Some People Say...
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