Pulling the Rug From Under Cameron

The budget was ‘boring’ – until the end of the speech, when suddenly it was a ‘trick’ or a ‘flourish’, depending largely on your political point of view. I am going to go for a flourish, myself. The 2p off income tax was an iconic moment in the sweep of modern British political history. Just when David Cameron thought he was about to transform Old Conservatism into New Labour with promises of improved public services, New Labour swivelled around to become the Old Conservatism.

What is a zero carbon house? Not many of us know just yet, but I suspect a lot of people will be wanting to find out, and there will be plenty of legal work in developing and explaining the rules. I had my first invitation to a conference on the issue this morning.

Tying relief on stamp duty to carbon reduction is a clever idea, though a zero carbon requirement may be somewhat daunting. A simple raising of the thresholds for inheritance tax and capital gains tax is more reasonable, if less headline-grabbing.

The reduction of corporation tax to 28p from 30p, to be financed from reform of capital relief allowances - in particular an end to relief on empty industrial buildings - looks good. It is generally better to pay a lower rate on a basic tax than to claw money back through allowances, which is more costly and tends to favour the bureaucratically competent above others.

Politically, the cut in the basic rate of income tax is somewhere near glorious. Socially it is more doubtful. It gives a bit of money to people who vote, to middle class families. But with the scrapping of the 10p band, it does so at the expense of low-income workers. Those with children will get it back through tax credits, those without will pay.

Budget Links

Great Carbon Emitting Competiton

Who won?

In the centre-left corner, heavyweight Gordon Brown flicks aside his trainer, David Miliband (for it is he) to stake his place in the middle of the middle...

In the centre-right corner, middle-to-middling-weight David Cameron comes on wearing out-size gloves ...

Boof! Whack! Thwack! Kapow!

Labour to insulate homes - Tories to tax airlines ... that was actually the headline on the Daily Mail online edition, for about five minutes, until a panic-struck call from Tory Central Office got it changed to - 'I'm greener than you! Brown and Cameron go head-to-head over climate change'.

But they couldn't bump the Telegraph, which stuck with - 'Tory 'tax on homes abroad' will hit 400,000' ...

A clear victory to the New Labour spin machine. But which will be champion. It is not as easy as it looks.

Brown can be seen as taking a soft option. The idea of setting legally binding carbon emission limits sounds good, but it is really pretty vague. Insulating homes and pushing long-life light-bulbs sounds worthy but dull and they are ideas that have already been recycled several times.

Cameron, by contrast, is hitting hard - super-discount flights, second homes, tax-free aviation fuels ... .

The trouble is that a huge proportion of carbon emissions come from energy wasted in homes and only a tiny amount comes from aviation. Brown sounds dull and repetitive, but he is confronting the real problem. Cameron sounds tough and ready, but chances are he is shooting at his own voters for very little effect.

Personally, I think aviation fuel should be taxed if for no other reason than to reflect the true cost of flying. Towns and cities bidding for air traffic through offering subsidies does not much bother me - it is a reasonable economic decision as the air routes bring in business well beyond the cost of the subsidy. The airlines deserve a commission on that business.

But what we really need to remember is that all this is largely by the bye. As Michael O'Leary at Ryanair likes to remind us, the real cost of air travel to the passenger is negative. The airline should properly pay you to fly with them, recouping the cost of the flight and making a profit through in-flight advertising and on-board casinos.

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