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Osborne’s Budget: unthinkable in Scotland




THERE could be no clearer illustration of the gulf in political culture between Westminster and Scotland right now than last week’s Budget. Neither of Scotland’s two big parties, SNP or Scottish Labour, would have dreamed of putting George Osborne’s package of class-based measures through Holyrood.

The parties in Scotland last week were arguing, instead, about who would put up taxes on the rich, with Labour suggesting, somewhat bizarrely, that they would allow taxes to go up but not down. I don’t see Ed Miliband putting that in his next Westminster Budget response, somehow. The Labour leader has said he will support the Tory benefit cap when it comes before Westminster next week, and he appeared lost for words in the Commons on Wednesday. Labour have become so afraid of being cast as the skiver’s friend that they are losing the will to defend the welfare state that was its greatest achievement.

Yet there was much to criticise in the “silver surfer” Budget. The abolition of the annuities scam is certainly welcome – pensioners were forced to take out fixed income-for-life contracts which were poor value for money and only benefited the big insurance companies. However, the Chancellor’s reform will mainly benefit older people who have had incomes high enough to build up large pension funds. They will be able to shelter £1.5 million in tax-free pension contributions and then take out the income when they retire at the 20% tax rate instead of 55%. They win at both ends.

And forget the talk of grandads driving around in Lamborghinis. People are woefully ignorant of the sums necessary to secure a decent standard of living in retirement. Just to deliver a pension worth the equivalent of the national minimum wage requires savings on retirement of £220,000. The average pension pot is less than £27,000, most of which older people can already take out under existing rules. This is a pension plan for those rich enough to hire good accountants.

As for Individual Savings Accounts (Isas), how many people do you know who earn enough to save £15,000 a year from their after-tax income? Many Scots have net annual incomes of less than that. This is simply a Government- sponsored tax avoidance scheme for people on six-figure salaries. Over 20 years, a wealthy couple using Isas can now shelter an investment portfolio of over £1m, at historic rates of return, entirely tax-free. Nice work.

Conservatives always say they are opposed to state subsidies – except when it comes to their own people. Under the Help to Buy scheme, people taking out mortgages of up to £600,000 have their deposits subsidised by the taxpayer. This is such an astonishing use of public money that I am surprised it is legal. Even the Business Secretary, Vince Cable, questioned it. Yet the Chancellor has now extended this property subsidy to 2020 at a cost of £6 billion. All this will do is make home ownership even more difficult for younger people and drive rents higher still.

There was scarcely a mention of the 900,000 young people who are without work – a blight on an entire generation. The under-25s already get a lower minimum wage and lower Jobseeker’s Allowance than other adults. They now stand to lose housing benefit, even though many of them have children, and have all their remaining benefits squeezed in the Chancellor’s new benefits cap.

Unlike the baby-boom pensioners, younger adults cannot afford to put money in pensions. They are burdened by student debt, low pay and crippling housing costs. They don’t have wealth tied up in Isas or in house prices so most of the savings benefits pass them by. These young people have had a very rough deal since 2010 with £9000 tuition fees (in England), the abolition of educational maintenance allowances (not in Scotland), and rising rents.

The Chancellor has now announced a permanent ceiling on all benefits apart from Jobseeker’s Allowance, at £119bn. That may seem a lot, but it covers everything from tax credits to child benefit; disability living allowance to housing benefit; maternity pay to pension credits. Millions of those “hard-working families” the PM always talks about depend on these benefits, because they are earning such low wages they qualify for state help. People on welfare have already been losing out as their benefits have been rising by less than the rate of inflation. But now, with this ceiling, the squeeze will be even harsher. And the Chancellor has signalled that he wants another £12bn taken out of social security after the next General Election. The Child Poverty Action Group says that all the progress made over the last decade in eradicating poverty is being reversed.

So, there you have it: the well-off get generous tax handouts, bumper pensions, tax-saving schemes and subsidised mortgages; the poor get hard cheese. Yes, some will gain from the £10,500 tax allowance, but the Institute for Fiscal Studies has pointed out that this will also benefit higher-rate taxpayers, and will lift few really low earners out of poverty.

How did it come to this? It doesn’t even make much economic sense. Give more money to the rich and they tend to save it or speculate on property; give it to the poor and they spend it right away in the high streets. One reason Britain’s recovery has been so sluggish is because consumer demand has been depressed by an average £1600 cut in wages since 2010. That’s why shops and factories are closing. Inequality is bad for growth. The Government hopes to counter this by encouraging older people to spend their pensions up front, but what is more likely is that better-off pensioners will simply invest their newly released pension cash in buy-to-let flats, which will further inflate property prices.

What I can’t understand is why public opinion, in the south of England at least, has become so crude and mean-minded that people allow this to happen. Whatever happened to fairness, decency, democracy? Is this really what Better Together mean by the collective security of the Union? The weakest being made to pay for the financial crisis? Is this the “race to the top” Ed Miliband promised at the Labour conference in Perth? Is this Anas Sarwar’s “moral economy”?

Now, I keep being told that people in Scotland are just as hostile to welfare claimants and immigrants as people in the southeast, and maybe they are. But they certainly don’t vote that way in elections. All the main parties in Scotland are essentially social democratic, and even the Scottish Conservative Party is a very different creature from the Europhobic, public school-dominated organisation of the same name in Westminster. There is not the same degree of hostility to welfare in Scotland, where the institutions of civil society are more resilient, and inequalities of wealth and income are much less pronounced than in the south of England.

This is a real problem for Better Together in the referendum campaign. They try to call the SNP “Tartan Tories” but the Nationalists’ record of government says otherwise. Alex Salmond’s electoral success has been built on the policies Labour has had to abandon because they are no longer politically acceptable in Westminster. We are no longer living in the UK of the welfare state, nationalised industries, the NHS – we have entered a new and harsher age. And in September, Scots will have to ask themselves: can voting No really insulate Scotland from the bitter winds of change blowing from the south?

About @iainmacwhirter

I'm a columnist for the Herald. Author of "Road to Referendum" and "Disunited Kingdom". Was a BBC TV and radio presenter for 25 years - "Westminster Live" and "Holyrood Live" mainly. Spent time as columnist for The Observer, Guardian, New Statesman. Former Rector of Edinburgh University. Live in Edinburgh and spend a lot of time in the French Pyrenees. Will that do?


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