Julian Knight: Savings break is the only bright spot in 'consolidation' budget

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The Independent Online

I have covered every single one of this Labour Government's Budgets and encountered nothing approaching the bucket-load of brown stuff poured over Alistair Darling's effort. You'd have thought that instead of asking those who earn nearly three grand a week to pay an extra 10p in the pound Darling had announced the rounding up of the nation's first born. I have been inundated by accountancy firms gnashing their teeth and suggesting wheezes to get around the new tax rate. As if I am going to go into bat for the rich. Frankly, not a priority.

But in a way, these emails strike at the heart of why it is actually a terrible idea to raise taxes in this way. The rich always find a way of getting around higher tax rates and that's the reason Nigel Lawson lowered the higher rate of income tax in 1988 from 60p to 40p. He was right: future tax revenues grew instead of falling. The simple truth is it won't work and to pretend that taxes on the rich will bring the budget anywhere back to normal is cloud-cuckoo-land economics.

The public finances are careering towards the abyss, despite a slowdown in the rate of spending. The best we can hope for is that by 2014 we will have a debt the size of basket-case Italy. The interest alone will cripple us. This Government is like a homeowner replying to one of those ghastly ads on TV that go "Would you like to consolidate your loans into one manageable monthly repayment?". The problem is the monthly repayment won't be manageable, and unless the Government shows how it can close the chasm in public finances, it will struggle to find a lender to take on bad risk.

This weekend's reading will be a miserable one for Mr Darling so let's at least give him one pat on the back. The decision to increase the Individual Savings Account (ISA) allowance to £10,200 is welcome. Last week I called for just such a break. I didn't quite get what I wanted, which was for people to be allowed to invest the full amount in cash rather than half the allowance, but any morsel of comfort for savers has to be seized upon.

The truth is that many Treasury officials have never liked ISAs. When they originally replaced Personal Equity Plans (PEPs), the plan was to review them after five years. I always suspected that if they could have got away with it, ISAs would have gone. For years, thresholds were left in place, and when they were finally raised it was by an inadequate amount. And why do the rest of us have to wait a year before we can join the over 50s and enjoy the new higher ISA limit? But, as I say, savers will be grateful for small mercies.

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