Wednesday, 19 October 2011

Government about to be devious

So, yesterday we had September's inflation numbers, CPI 5.2% and RPI 5.6%. April next year these numbers will be used to uprate a whole raft of taxes and benefits. In theory...

But there are early signs that George Osborne is about to pull a fast one. To start with they will increase business rates by the higher index, RPI, and get in another £1.35bn in taxes. Then, in theory, they should increase benefits such as the state pension, child benefit, job seeker's, and the tax thresholds by the lower index, CPI. This is already rather devious - using two different indexes depending on whether they are giving or taking, but indications are they are going to try to avoid handing out the full 5.2% which would cost them £1.8bn in extra spending. They may use a lower number on the spurious grounds that the September number is an "aberration".

This is devious, but not necessarily a bad idea. Government spending is itself stoking inflation. Uprating spending below inflation would be unpleasant for those living on government handouts, and not so nice for taxpayers who don't get the full indexation of their allowances, but it could be virtuous in that it would make inflation fall.

At the end of November, in the Autumn statement, we will see if Osborne has the gonads to try this one on.

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