THE U.K. BUDGET

British budgets are like an old-fashioned music hall magic act, with the Chancellor of the Exchequer cast as the magician. First, there is the photo-op with the red box outside his house, 11 Downing Street. Then he moves to the theatre, otherwise known as the House of Commons. There he proceeds to conjure up a series of make-believe scenarios, the white doves being replaced by tax breaks and giveaways, known in the civil service as lollipops.

This year's budget, announced yesterday, was never going to be very exciting. The coalition Government has staked all on a 5-year austerity programme, and they will sink or swim on the basis of that. So Mr. Osborne was reduced, faute de mieux, to lots of talk and minor tinkering.

Most of the press comment afterwards focussed on the cut in the top rate of income tax from 50% to 45% and the reduction in additional tax allowances for pensioners. Both of these are sensible changes. On the first, very high tax rates just don't bring in any revenue (the effective rate used to be higher than 50%, as national insurance contributions add an extra burden), since it pays rich people to employ clever accountants to avoid them. Indeed, the Inland Revenue's report on the experience of the 50% rate confirmed this. So reducing the rate may even increase the amount going into the state's coffers; after all, that is exactly what happened when Margaret Thatcher abolished all of the higher income tax rates over 40% some thirty years ago.

On the second, Mr. Osborne reduced the higher personal allowances that pensioners get (i.e. the amount of income they can earn before they are taxed). This is a fiendishly complex system, with one allowance for those aged 65-74, another for those aged 75, an upper earnings limit and a partial clawback scheme. It is so complicated that many pensioners don't bother to claim what is their due, and I am sure that Inland Revenue officials will have been begging successive Chancellors to get rid of it for years. The reductions have inevitably been called a "granny tax", but it is really just an administrative simplification. After all, if you really want to help pensioners (personally I don't, but many people do), then the easiest and simplest way to do so is to put up the basic state pension. Everybody can understand that.

If the above all looks a bit like small beer, then there was one thing tucked away in the small print that was truly revolutionary. Child benefit will be reduced for anyone earning over £50,000, and abolished completely for people earning more than £60,000. This attracted surprisingly little comment, since it is the rich who lose out; but it represents a fundamental break with the concept of universal benefits, paid to all in a category (in this case children), irrespective of need, a concept which has been part of the postwar welfare state. True, only a minority - the rich - will be affected. But the principle has been breached, and future Chancellors will find it increasingly easy either to maintain the upper limit in nominal terms (thereby letting the benefit "wither on the vine") or to reduce it. Watch this space.

Walter Blotscher