SENIOR TREASURY officials preparing today’s British budget held a number of rounds of talks with Department of Finance figures in both Dublin and London in recent months to learn from the Irish experience.
The talks, requested by the British, were held as the chancellor of the exchequer, George Osborne, began to prepare his first budget – which is expected to be one of the toughest seen in the United Kingdom in decades.
During the discussions, British officials were particularly interested in the Irish decision to impose a pension levy on public sector workers, but also in the politics of making tough cuts in a coalition government.
Equally, there was British interest in An Bord Snip, though the British have so far not decided to go down the same route – but the public credibility given to the need for savings was seen as an advantage from such an inquiry process.
The Irish side is understood to have advised that “a layered approach” is necessary, if public opinion is to be educated, but equally a number of short, sharp actions are needed to drive home the message to middle-class voters that tougher times lie ahead.
Mr Osborne is not expected to demand extra contributions today from public servants towards their pensions, but such are likely once a review by former Labour minister John Hutton is completed in September. However, the chancellor is expected to reduce future pension and social welfare increases by linking future rises to changes in the Consumer Price Index, rather than the slightly higher figures offered by the Retail Prices Index.
Despite Liberal Democrat doubts, the chancellor is likely to increase VAT rates from 17.5 per cent, perhaps by as much as two and a half percentage points – but the introduction of the new rate could be delayed until later this year.
Capital Gains Tax will also increase – despite some Tory anger. Mr Osborne has said that small business owners will enjoy some exemptions from the higher CGT rate, but he has not bowed to demands for concessions for long-term investors, or the elderly relying on investments.
Travel taxes are expected to rise significantly, while car- and home-owners will find insurance policies more expensive, with a doubling of the existing insurance premium tax. The “old reliables” – alcohol and cigarettes – will also rise sharply.
Child tax credit will be reduced, or eliminated for families on middle-class incomes, while Mr Osborne is expected to freeze welfare benefits – but with a warning that tougher action may be needed in time.
Meanwhile, there were suggestions that the treasury had spoken with major supermarkets about introducing a politically sensitive 5 per cent VAT rate on food – a measure which, if introduced, would cost every UK household £560 a year. The supermarket chains are understood to have opposed the idea strongly, and it is not known if it will be included today.
Former chancellor Alistair Darling said a move from the RPI Index to the CPI Index, which he believed Mr Osborne would announce and which would save the exchequer £1 billion if he did, had been discussed when he was still in the treasury. Many other ideas had been discussed, he said, “though some were more fit for human consumption than others”.
Unlike other senior Labour figures, Mr Darling, who is not a leadership candidate, sought to adopt a reasonable approach: accepting the need for some cuts, but disapproving of others.
The cancellation last week by the Liberal Democrat chief secretary to the treasury, Danny Alexander, of the Stonehenge interpretative centre was “perfectly reasonable”. Indeed, he thought that he had rejected it when in office.