The Budget was boring – and that was a huge mistake

Philip Hammond © Getty Images
It’s time the chancellor was bold on tax

I wrote a piece on the Budget for MoneyWeek magazine last night.

The over-riding sense was that it was a boring Budget. The self-employed got clobbered to pay for emergency sticking plasters on social care and business rates.

Big deal. Chancellor Phillip Hammond is “keeping his powder dry” for Brexit – whatever that means.

But I’ve had the evening and a morning to think about it. And the more I think about it, the more irritated I’ve become…

If there was ever a time to be bold, it’s now

Before I rip into yesterday’s Budget, let me flag up the good things. Hammond didn’t introduce yet another new form of Individual Savings Account (Isa), or mess about even more with pensions. He didn’t come up with any more wizard wheezes for getting first-time buyers onto the magical ever-growing British property ladder.

So that was the good stuff. Now for the bad stuff.

The headlines are screaming at Phillip Hammond for penalising “white van man” this morning (we’ll get to that in a moment).

But elsewhere in the comment sections, the intelligentsia is congratulating Hammond on his caution. After all, Brexit is coming. The last thing the country needs is more radicalism and more change right now.

So his lack of big announcements – beyond a fiddly adjustment in National Insurance designed to pay for some sticking plasters on the social care and business rates front – or any sort of “vision”, was welcome.

Rubbish.

Let’s take a step back here. This is an opposition-free government. It might have a slim majority in the house, but the reality in the country – as Labour’s by-election disasters demonstrate – is that voters see no other choice. Not only that, but it has three years to go until the next general election.

This is as good as it gets in terms of being able to do things – potentially unpopular things – that might lay the foundations for genuine change and improvement.

But, you say, what about Brexit? Forget Brexit. Brexit is a red herring, a poor excuse for inaction. It will be whatever it will be and we will have to deal with that.

Don’t imagine for a moment that there’s a pot of money that the chancellor can somehow hoard between now and then that will “cushion the blow” of a bad deal, that in any case may or may not ever materialise.

There is no “war chest”. We’re up to our eyeballs in debt. This is a bit like imagining that having £5,000 in cash in a bank account somewhere would be enough to shield you from a dramatic change in circumstances, even while you’re carrying £10,000 in credit card debt and a £400,000 mortgage.

It makes sense to try to pay off our debt – I’m not saying we should go out and splurge. But this piddling about with “I’m spending a couple of billion on this emergency relief, so I’m going to take a couple of billion from this group of taxpayers to compensate” is just so much shifting deck chairs on the Titanic, when instead you should be thinking about how to change course.

So the stage is set for a rethink – for a simplification. And instead, all we get is more tinkering around at the edges.

We need to make everything simpler

Let me be clear. I don’t feel particularly strongly about Hammond’s decision to go some way towards equalising taxes for the self-employed (although I’d rather that he’d dropped taxes for everyone else rather than raised them on the self-employed).

It’s more about what it represents. It’s the timidity that annoys me.

I can see why he did it. it’s very politically expedient. Left-wingers can’t really get annoyed about it because the truth is that it’s one of the most progressive tax moves Hammond could possibly have pulled, falling hard on higher-earning self-employed people and not really affecting the genuinely low-earning self-employed. And yes, traditional Conservatives might get annoyed – but hey, who else are they going to vote for?

But this is the problem. Again, it’s all about political expediency. And that’s how we’ve ended up in this mess.

If you delve into the grim history of our tax system, it’s basically all about sneaking things past people under the guise of “emergency” (taxes to fund wars), “fairness” (look, this group of swines are doing better than you – let’s raise taxes on them to make everything fairer), or “they’re too thick to notice” (Gordon Brown’s 1990s pensions raid).

What you get is a very destructive layering effect. Things never become simpler. Instead you get rule after rule, designed to tackle problems that have only arisen in the first place because of loopholes created by previous rules.

There are plenty of “unfairnesses” about the current system. It is silly that certain groups of employees within certain industries are able to structure their tax affairs so that they get to pay a lower tax rate than someone doing exactly the same job.

But what’s even sillier is that we’ve created a system so complicated, that we’ve managed to tie up a significant chunk of the nation’s time, brain power and wealth-generating capacity in figuring out how to best organise our own or other’s affairs in the most tax-efficient manner.

That is madness. Governments say they are obsessed with productivity. You want to improve productivity? Start flattening the tax system so that we spend less time messing around with financial engineering and gaming the bureaucracy, and more time doing some actual work.

Starting on the mammoth task of merging National Insurance and income tax would be a great beginning, for example. I know it’s hard. I know that there are so many little differences, and that it would involve the temporary creation of so many winners and losers, that it’s the sort of Gordian knot that even Alexander would walk away from.

But now, at the point in the election cycle when you can afford to be unpopular, is most definitely the time to do it.

Maybe Hammond is just working up the nerve, and wrapping his head around the challenges involved. But after yesterday, I seriously doubt it.