Julian Knight: It doesn't matter if we pay now or next year, this Budget will hurt

At first glance, Chancellor George Osborne has two options in this week's Budget, either to go for the tax rises and cuts that are needed now, or to reveal just a proportion as a down payment to keep the markets sweet.

Both options have their pluses and minuses. Setting out the tax- and-spend agenda now will be following closely the Canadian model of cut deep and quick to get the trauma over with. The Canadians, who grandiosely went about demolishing hospitals to show their macho cutting prowess, is an example which has been closely watched by the new government. They managed to slash public-sector spending without the disastrous popular discontent seen in Greece recently. Think of it like the approach of a pre-chloroform surgeon, getting the patient drunk before performing the radical amputation: horrific when it happens but at least it's quick.

This approach would also help the coalition leadership to head off potential enemies within – on the Tory side the Redwoods and Davises of this world, on the Lib Dem side Hughes and Kennedy. Take the decision now when they are still in the honeymoon period and there is just a chance they will get away with it, particularly as the Budget is less likely to be the subject of guerrilla tactics than a solitary bill, such as the proposed sale of the Post Office. The opponents within will be faced with the stark choice of backing the Budget and the cuts or bringing the Government down within a few weeks of taking office.

However, the big problem with cuts now is that taking a pile of money out of the economy through tax rises and spending cuts could send it back into recession. This time it won't be global economics to blame; it will be domestic, like Ireland or Spain are experiencing now. Of course, the talk in the election that removing £6bn of spending right away – through measures such as scrapping the child trust fund – would send us back into recession was bunkum, but £40bn, £50bn or even £60bn straight away – then it's a racing cert.

Balance will be the key to this Budget: how to announce and get people used to the pain without actually taking the money right now. Therefore, expect lots of measures announced for the next tax year. Of course, this runs the risk of a 10p-style tax rebellion on the back benches, but it is the only sensible way to go. Pain announced now but, in reality, phased in.

Make no bones about it: this is the most important Budget for the UK since at least 1981 and perhaps even since the Second World War. The balancing act that has to be performed is so fine, and a lot of its success or otherwise will be down to international events and plain simple luck – such is the nightmarish state of the public finances Labour has left.

Drilling down into the likely measures, let's take a capital gains tax rise as a given. Ever since this rise was first mooted at the time the coalition was formed, a powerful lobby of dissident Tory MPs, City fund management firms and, of course, accountants have been using every argument that it will be a disaster and discourage Middle England from saving. This is utter rubbish. CGT is being used as a tax dodge by the rich masquerading income as a capital gain to take advantage of the lower 18 per cent rate. This needs to be addressed.

In addition, I think it will be a very healthy thing for profits on second homes to be taxed at least 40 per cent if this provides a disincentive. However, I do have a genuine concern that the annual CGT allowance of £10,100 will be slashed, perhaps in half, which would just start to bring normal, everyday people into the scope of the tax which at the moment is largely the preserve of the rich or those who don't plan their asset disposal properly.

As for pensions, the likelihood is that the top rate of pensions tax relief will change, but that there will be a cap on annual contribution size. In effect, people will be stopped from dumping lots of money into pensions and earning a massive income from it in retirement. Fair enough, as the tax break shouldn't be there purely to let the rich protect even more of their wealth. However, there is a real chance to do something radical with pensions which can raise some cash for the Treasury while actually encouraging more people to save.

About £13bn a year goes to top-rate taxpayers in the form of relief on their pension contributions. In their election manifesto, the Lib Dems proposed scrapping this and using the money to raise personal allowances. Now, higher personal allowances would be welcome, but it's tantamount to taking from tomorrow's savings to pay today's expenditure – which is precisely the attitude which got us into this financial mess in the first place.

Instead, why not go ahead and abolish the higher rate relief but set a single new rate for everyone, say 25 per cent? This would mean that basic-rate payers – many of whom aren't contributing to a pension at all at present, which will mean relying on state benefits in old age – will see that they can earn extra for paying into a pension.

It's gone unnoticed that private pension saving among basic-rate tax payers has gone through the doldrums at exactly the same time as the basic rate of income tax has fallen to 20 per cent. If the Government wants to raise cash to pay for higher personal allowances, then a far better way is to scale back the incredibly complex and fraud-prone tax credit system as well as ending the ridiculousness, of paying universal child benefit instead of means-testing it.

Any of these measures, though, are barely going to scratch the surface of the deficit. The heavy lifting will no doubt be left to VAT and spending cuts which are going to be even deeper due to the commitment to keep the NHS and international development ring-fenced.

Long term, this Budget and, crucially, the next comprehensive spending review, will change the face of this country and your every day experience of what the state provides and what you have to pay for out of your own pocket.

Rest in peace FSA: 1997 – 2010

So the Financial Services Authority is to be killed off and replaced with a consumer protection agency. No surprise there; it's been on borrowed time since its catastrophic failure in regulating Northern Rock. In the main it's been a bloated, rather arrogant and slow-witted watchdog, seemingly unable to marry its twin roles of promoting financial services in the UK and protecting the consumer. There has been an improvement, but all in all it's good riddance FSA. You will not be mourned or missed.

Having said that, though, I am worried that under the Lib-Cons we will end up with the talent migrating to the newly beefed-up Bank of England, leaving the new consumer protection agency as a backwater. The Tories have never really seen much point – until the credit crunch – for an effective regulator. We need a reinvigorated consumer body, perhaps without the deadwood FSA staff who are more into designing pointless rules than spotting worrying mis-selling trends. Let's hope this Government can deliver, and that it makes a break with the past – but I'm not holding my breath.

'Discrimination' is a fact of life

In its usual rabble-rousing way, Which? makes the pronouncement that insurers "discriminate" against older people when it comes to some insurance policies. It's a very loaded word, "discriminate". But its true meaning according to the dictionary is to "note the difference of and between or to distinguish". That's a pretty good description of the insurance industry per se, based entirely on discrimination.

What Which? found was that the older you are, the more you have to pay for travel cover. Some insurers don't cover over-75s, or premiums can rise threefold. As any young driver will tell you, they too find they are "discriminated" against with their car insurance. We will brush past the fact that older drivers benefit hugely from this discrimination and have access to certain companies that will cover only the over-50s.

As you enter your 70s, you are statistically far more likely to suffer a life-threatening or debilitating illness which, if it were to happen on holiday, would set a travel insurer back thousands. If the risk wasn't there, the premium would be lower. In short, higher premiums for travel cover when you get older are just a fact of life.

Suggested Topics
Sport
There were mass celebrations across Argentina as the country's national team reached their first World Cup final for 24 years
transfersOne of the men to suffer cardiac arrest was 16 years old
Life and Style
life“What is it like being a girl?” was the question on the lips of one inquisitive Reddit user this week
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
PROMOTED VIDEO
Arts and Entertainment
Armando Iannucci, the creator of 'The Thick of It' says he has
tvArmando Iannucci to concentrate on US show Veep
Life and Style
beauty
Sport
Luis Suarez looks towards the crowd during the 2-1 victory over England
transfers
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

News
Detail of the dress made entirely of loom bands
news
Sport
German supporters (left) and Argentina fans
world cup 2014Final gives England fans a choice between to old enemies
Arts and Entertainment
A still from the worldwide Dawn of the Planet of the Apes trailer debut
film
News
peopleMario Balotelli poses with 'shotgun' in controversial Instagram pic
News
A mugshot of Ian Watkins released by South Wales Police following his guilty pleas
peopleBandmates open up about abuse
Sport
Basketball superstar LeBron James gets into his stride for the Cleveland Cavaliers
sportNBA superstar announces decision to return to Cleveland Cavaliers
Sport
Javier Mascherano of Argentina tackles Arjen Robben of the Netherlands as he attempts a shot
world cup 2014
Arts and Entertainment
The successful ITV drama Broadchurch starring David Tenant and Olivia Coleman came to an end tonight
tv
Sport
Four ski officials in Slovenia have been suspended following allegations of results rigging
sportFour Slovenian officials suspended after allegations they helped violinist get slalom place
News
14 March 2011: George Clooney testifies before the Senate Foreign Relations Committee during a hearing titled 'Sudan and South Sudan: Independence and Insecurity.' Clooney is co-founder of the Satellite Sentinel Project which uses private satellites to collect evidence of crimes against civilian populations in Sudan
people
Arts and Entertainment
Balaban is indirectly responsible for the existence of Downton Abbey, having first discovered Julian Fellowes' talents as a screenwriter
tvCast members told to lose weight after snacking on set
Life and Style
More than half of young adults have engaged in 'unwanted but consensual sexting with a committed partner,' according to research
tech
Life and Style
A binge is classed as four or more alcoholic drinks for women and five or more for men, consumed over a roughly two-hour period
tech
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Biztalk - outstanding opportunity

    £75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

    Trade Desk Specialist (FIX, Linux, Windows, Network Security)

    £60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

    Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

    £35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

    Network Engineer (CCNA, CCNP, Linux, OSPF, BGP, Multicast, WAN)

    £40000 per annum: Harrington Starr: Network Engineer (CCNA, CCNP, Linux, OSPF,...

    Day In a Page

    A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

    A History of the First World War in 100 Moments

    Peace without magnanimity - the summit in a railway siding that ended the fighting
    Scottish independence: How the Commonwealth Games could swing the vote

    Scottish independence: How the Commonwealth Games could swing the vote

    In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
    Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

    A writer spends a night on the streets

    Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
    Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

    UK's railways are entering a new golden age

    New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
    Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

    Conchita becomes a 'bride' on Paris catwalk

    Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
    Pétanque World Championship in Marseilles hit by

    Pétanque 'world cup' hit by death threats

    This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
    Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

    Why did we stop eating whelks?

    Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
    10 best women's sunglasses

    In the shade: 10 best women's sunglasses

    From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
    Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

    World Cup final: Messi? Mascherano is key for Argentina...

    No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
    Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

    Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

    18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
    The true Gaza back-story that the Israelis aren’t telling this week

    The true Gaza back-story that the Israelis aren’t telling this week

    A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
    A History of the First World War in 100 Moments: The German people demand an end to the fighting

    A History of the First World War in 100 Moments

    The German people demand an end to the fighting
    New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

    New play reveals what Oscar Wilde said at trials

    For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
    Can scientists save the world's sea life from

    Can scientists save our sea life?

    By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
    Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

    Richard III review

    Martin Freeman’s psychotic monarch is big on mockery but wanting in malice