There is a danger that Labor will be hit by the Macron effect when the Budget is announced at the end of this month. Emmanuel Macron, first elected as French president in 2017, put business investment and building a culture of entrepreneurship at the top of his to-do list, but was later accused of being a friend of the wealthy. It became.
Rachel Reeves echoed similar sentiments, saying economic growth was a priority and businessmen should be given more support than even the Conservatives were prepared to give.
Already, the Treasury has quietly announced a tax cut for small business owners, which will cost businesses £3 billion a year in lost tax revenue.
It is an extension of the Enterprise Investment Scheme and its cousin, the Venture Capital Trust Scheme, to the rest of the council and provides up-front discounts of up to 30% on income tax to people who invest in companies.
Pensioners who will lose their winter fuel allowance, saving the government an estimated £1.4bn, will be a priority for the Chancellor, especially given that the Treasury has not commissioned a report since the tax cuts almost began. You may be wondering if that was the right thing to do. Thirty years ago, I discovered whether money was actually being put to good use.
In his first year at the Elysée Palace, Mr Macron replaced France’s “solidarity tax” on wealth, which had been levied on assets over €1.31m (£1.09m), with a 30% tax on capital gains from interest and dividends. Replaced with significant tax cuts. This equates to a 70% tax reduction on profits earned from financial assets.
Mr Macron, an admirer of Britain’s Anglo-Saxon model of capitalism, planned budget reforms to boost investment and boost growth. These included reducing corporation tax to 25% (the same rate as the UK) and reducing unemployment benefits.
However, a 2022 report examining its effects found that there was no evidence that abolishing the wealth tax boosted the economy or actually had any positive effects at all.
As Mr. Macron discovered, the budget can set the tone of an administration and become the lens through which the public views the leadership’s broader efforts.
France Strategy, an independent think tank founded by former socialist French president François Hollande to analyze social, environmental and economic issues, concludes that the main beneficiary will be the bank accounts of France’s 3,800 richest households. I attached it.
These measures are small considering the French and British government budgets, which exceed £1 trillion a year. But as Mr. Macron discovered, they can set the tone of the government and provide a lens through which the public views the leadership’s broader efforts.
Macron soon became known as the “president of the rich,” and the nickname stuck. All the budget’s enthusiasm has been focused on begging British business owners to spend a little more cash lavishly on their companies’ assets, and that the 14 years of austerity the rest of the country has endured will never repeat. If this remains the case, the workforce could be similarly strained. It ends.
Mr Reeves is well aware that he is not in the position enjoyed by Labour’s Gordon Brown at the beginning of this century. At the time, a growing economy allowed them to court corporations with generous tax breaks and increase welfare payments, putting pressure on children’s livelihoods in the process. poverty.
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And the Chancellor has hinted that inheritance tax privileges and an increase in capital gains tax are among her preferred ways to get broad-shouldered people to contribute a little more, but scrapping the two-child allowance The big test will be how to respond to the voices calling for this. The Resolution Foundation has clearly shown that if this cap is maintained, child poverty will increase.
The cap, which limits Child Tax Credit and Universal Credit to the first two children in most households, will affect around 1.6 million children and will cost the government £2.5 billion this year to abolish. It will cost £3.6 billion.
The foundation said it had found a “very strong relationship” between local child poverty levels and the proportion of households affected by policies introduced by the previous Conservative government.
Mr Reeves is seeking ways to close a £40bn spending gap. It’s not an easy situation. Most economists would agree that policies that encourage faster economic growth can help close that gap. What is less clear is how tax breaks for the wealthy and a virtual freeze on welfare payments to the poorest will achieve their objectives.
Philip Inman is economics editor at the Observer and economics reporter at the Guardian.
