George Osborne’s Budget was in tatters yesterday and his reputation tarnished after he announced his fourth policy U-turn in two weeks.
The Chancellor bowed to pressure from charities and Tory donors by reversing plans to limit tax relief to £50,000 or 25 per cent of a donor’s income, which was expected to save the Treasury up to £100 million a year.
The move followed a series of embarrassing climbdowns over VAT on hot pasties, caravans and church repairs, and prompted accusations that the Budget was “unravelling spectacularly”. The U-turns will cost the Treasury nearly £200 million a year.
Accountants and economists warned that the reversals could undermine the Government’s economic policy. Chris Sanger, head of tax policy at Ernst & Young, said: “The sudden reversal of policies make the Budget decisions appear to be knee-jerk measures rather than fully formulated economic policy decisions. This could now undermine the confidence in the Budget-making process.”
Alex Henderson, tax partner at PwC, said that there should have been much more consultation before the announcements. “These were measures dreamt up by the Treasury with little thought of their consequences.”
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Even Tory MPs admitted that they were “frustrated” by the U-turns and warned of “reputational damage” to the party. Andrew Tyrie, the Tory chairman of the Commons Treasury Select Committee, warned that the Chancellor would now come under pressure to reverse other policies, such as the “granny tax”, which freezes age-related tax allowances.
Ed Balls, the Shadow Chancellor, said that the Budget had become an “embarrassing shambles” and accused the Government of trying to “bury bad news” by announcing the decision while Jeremy Hunt, the Culture Secretary, was giving evidence to the Leveson inquiry.
However, charities that had complained that they could lose hundreds of millions of pounds a year hailed the decision as a “victory for common sense”.
Stephen Bubb, chief executive of ACEVO, which represents charity leaders, said: “The Chancellor has listened and done the right thing, and I applaud him for doing so.”
Sir Nicholas Hytner, artistic director of the National Theatre, said: “It’s pretty impressive to admit having made a 100 per cent mistake and to put it right.”
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Earlier the Chancellor told MPs that he would go ahead with a cap on income tax reliefs for wealthy people but not for charitable donations. “It is clear from our conversations with charities that any kind of cap could damage donations and that’s not what we want at all. So we have listened.”
The Treasury insisted that the Budget remained “fiscally neutral”, as the Chancellor had built in a “buffer zone” to absorb the changes.
Tory MPs and donors have been pressing the Chancellor for weeks to listen to concerns from hundreds of charities facing a financial crisis.
The venture capitalist Jon Moulton, who announced that he was withdrawing his financial support from the party over the issue, said that charities had already been hurt. “It was a bad decision,” he told BBC Radio 4’s World at One yesterday. “I am pleased they have had the nerve to actually reverse it. It seems to reflect a lack of proper consideration before the stuff was put out.”
Nick de Bois, co-secretary of the backbench Tory 1922 Committee, argued that ministers were still at a stage where they could credibly claim “We are listening”. But he warned: “There will come a point when competency can become an issue.” He said that some MPs were irritated at having to defend policies on the doorstep only to have them ripped away.
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A backbencher agreed that there was a fine line between being seen as a “listening Government” and an incompetent one. “This U-turn, along with caravans and pasties, shows a level of ineptness in thinking and doing. They failed to look at these policies through a political lens.”
The MP argued that time had been wasted that could have been focused on job creation. “This can be reputationally damaging in the long run.”
James Brown, an economist at the Institute for Fiscal Studies, said that the Government had sacrificed £200 million a year to get around political difficulties. He questioned the motives for the original policy. “If it was to prevent people from using dodgy charities to channel money to themselves or to their families without paying tax, the best response would have been to crack down on those using dodgy status in the first place rather than introducing this policy.”
John Curtice, Professor of Politics at the University of Strathclyde said the Budget was unravelling “relatively spectacularly”, but Mr Osborne had had to act. “U-turns are not good.But in general if you are in a hole, stop digging.”