Tuesday 22 March 2011

There is a primitive part of the brain in all of us which deals with reactions, things that happen too fast for us to "think" our way out of. It's the part of the brain that throws your hands out to catch you when you fall (or makes you curl up into the foetal position and cry, depending on how hard your ancestors were).

Whenever I see George Osbourne, that part of my brain makes me bend over and unbuckle my belt. Almost 50 new tax and benefits changes will be let loose on Wednesday as part of the 2011 Budget, which leads me to believe that life in the Chancellor's office sounds like several hours of silence followed by a furiously scribbling pencil and some sniggering, as Georgie eurekas out another austerity measure.

In January Georgie brought in VAT and other tax increases, which were already expected to cost the average household £480 this year (according to the Institute for Fiscal Studies). Since then, rising food, gas and petrol prices have been turning families upside down and shaking them for those last few coppers and McDonalds sauce sachets. Now, reducing the upper rate tax band, higher National Insurance Contributions for all and the removal of child benefits for higher income families from April will make it harder for those HR Consultants from Cheltenham to have a second bottle of wine with dinner.

But maybe I'm being too hard on Georgie. I mean, what options did he have? The only ways to get rid of a deficit are to reduce spending or increase taxes (or, if you want to be really fancy, you can do both). So once you decide to do that, some people have to lose out, either by paying more taxes without any more benefit, or receiving less benefits. Since "we are all in this together" then this should really follow a sliding scale, with the people at the bottom (who don't pay tax) receiving less child benefits, income support, etc, and the people at the top (who don't get benefits) being taxed more, which is exactly what Georgie's proposals entail.

Hence the Guardian's focus lately on how it will affect their readers the worst, "the squeezed middle", who are unlucky enough to be in the centre of both of those sliding scales.

When you look at Georgie's options, it seems like what I would have done too. Chuck in a couple of measures to close tax loopholes for the super wealthy (boo, rich people, booooo), and the reintroduction of the bank levy (boo, bankers, boooooo), and it's actually hard to see why Georgie isn't being paraded around the country to fanfare and cheers. Maybe he just doesn't have that x-factor. Or maybe it's because nobody can afford fanfares any more.

Obviously, Big Ed Balls disagrees with everything, as is the job of the opposition. He says that the government shouldn't be focussing on the deficit, and instead should be focussed on growth, so lower taxes and higher government spending to encourage economic activity. The problem with that is that inflation is already so high that how much your weekly shop will cost really does depend on which queue you pick at Tesco.

Encouraging people to spend even more will push demand even higher, which will push the pound down and inflation up even more to the point where we are in exactly the same situation we are now, but still with a high deficit. Ed's solution? Increase interest rates. Except that this will stymy growth. Ow, my head hurts.

So when it comes to Labour vs Conservative proposals, I'm with Georgie (even though I'm not a Tory). And now I'm off to dance in the street for money to fund my petrol habit.