Tax U-turns: a sign of weakness?

Are George Osborne's tax reversals a sign of confidence? Or is the government simply suffering from a lack of direction? Emily Hohler reports.

George Osborne's budget lies in "tatters" after he announced his fourth policy U-turn in a fortnight, say Jill Sherman and Anushka Asthana in The Times. The Chancellor bowed to pressure and reversed plans to limit tax relief on charitable donations to £50,000 a year, or 25% of income. The move followed earlier climbdowns on VAT on pasties, caravans and church repairs. All told, these U-turns will cost the Treasury nearly £200m a year, not to mention the cost to the government's reputation.

Chris Sanger, head of tax policy at Ernst & Young, said the reversals could "undermine confidence in the budget-making process" and even Tory MPs warned of reputational damage to the party. Ed Balls, the Shadow Chancellor, said that the budget had become an "embarrassing shambles" and accused the government of trying to "bury bad news" by announcing the decision about tax relief on donations while Jeremy Hunt, the Culture Secretary, was giving evidence to the Leveson inquiry.

Ed Miliband's advisers would have been hard pushed to dream up a better sequence for their opponents to portray themselves as "incompetent" and "out of touch", says John Rentoul in The Independent. Other recent U-turns include dropping proposals for secret courts and "a plan to kill buzzards to save pheasants so that posh people could shoot more of them". These are the latest in a long line (the Daily Mail puts the U-turn tally at 32). When David Cameron "had the benefit of the doubt", U-turns were a pragmatic and sensitive response to public opinion. Now that confidence in him is faltering, they are "a sign of weakness, incompetence and a failure to think things through".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

This is borne out by the latest YouGov poll in The Times, which finds that 50% think the recent U-turns are "a sign of weakness or incompetence". Nevertheless, David Cameron insisted that the U-turns were a sign of "courage", saying, "If we've got something wrong, let's change it" rather than "keep ploughing into the brick wall".

In spite of all the fuss, the reversals are "at the margins", says Andrew Grice in The Independent. "A real U-turn would have seen Osborne admit the private sector recovery on which his economic strategy is based had failed to materialise and announce a stimulus to start the economy."

Osborne shouldn't have stopped at tax relief on charitable donations if he wanted to help the economy, Carolyn Steppler, private client services partner at Ernst & Young, told the FT's Lucy Warwick-Ching. HMRC "still plans to limit the availability of tax relief for losses on trading activities, loan interest and unsuccessful investments in unquoted trading companies to a maximum of £50,000 or 25% of total income As a result, partners in unprofitable business ventures, and those who borrow money to make investments in certain partnerships, or purchase shares in their company or finance company loans, will all face higher tax bills from next year."

Emily Hohler

Emily has worked as a journalist for more than thirty years and was formerly Assistant Editor of MoneyWeek, which she helped launch in 2000. Prior to this, she was Deputy Features Editor of The Times and a Commissioning Editor for The Independent on Sunday and The Daily Telegraph. She has written for most of the national newspapers including The Times, the Daily and Sunday Telegraph, The Evening Standard and The Daily Mail, She interviewed celebrities weekly for The Sunday Telegraph and wrote a regular column for The Evening Standard. As Political Editor of MoneyWeek, Emily has covered subjects from Brexit to the Gaza war.

Aside from her writing, Emily trained as Nutritional Therapist following her son's diagnosis with Type 1 diabetes in 2011 and now works as a practitioner for Nature Doc, offering one-to-one consultations and running workshops in Oxfordshire.