GEORGE Osborne’s Budget speech created the impression of a man with a mountain to climb who finds his path is longer and steeper than he expected and who is stuck for new ideas about which way to turn next.
His initial plan to rescue the government’s finances from the effects of the financial crisis and subsequent recessions has been blown off-course by much slower than hoped for growth. The Office for Budget Responsibility has revised down its growth forecasts for the UK economy to 0.6% this year, 1.8% next year and 2.3% in 2015. That compares to predictions of 1.2%, 2% and 2.3% at the time of the Autumn Statement.
Mr Osborne did his best to point blame at slower than predicted trade with Europe when in fact many other factors are also at play, including his own austerity measures.
The Chancellor’s aspiration to maintain Britain’s AAA credit rating fell by the wayside earlier this year and his target date for national debt to begin falling will be missed.
He would like to do something about this. You can hear it in his voice when he talks about “public spending out of control” under the last Government and Britain’s “bloated” welfare system, but you just know he dares do nothing about it for fear of splitting the coalition.
As a result, yesterday’s Budget speech offered no new ideas: just more of the same, at least when it comes to overall direction. The Government will seek to make £11.5bn of savings in the next spending round, but that is not really much different from the previous target of £10bn. The marginal degree of this change can be better understood when compared to total planned spending for 2015/16 of £754bn.
The Budget did, however, contain some laudable ideas. The plan to bring forward the proposed £142 a-week flat rate state pension is fair for people, mostly women, who have taken long periods of time out of work to bring up families. It was never right that they should be dependent on benefits to top up their retirement incomes, particularly during any period of widowhood.
Raising tax free allowances to £10,000 is an excellent way to redistribute the economic cake. It provides a genuine financial incentive to work.
The reduction of Corporation Tax to 20% sends out the right message to investors and those who wish to start businesses. The £2,000 Employment Allowance, which can be used to offset employers’ national insurance contributions, could also help increase the current surprisingly strong rate of jobs growth in Britain. Mr Osborne described this measure as the biggest tax cut in the Budget. May be, but its hardly a vote winner.
Nevertheless, the Chancellor is right to say, as he did when he was referring to plans to extend the restriction of public sector pay increases to 1% for a further year, that jobs preservation is a greater priority than pay rises.
One area that has been talked about a great deal is private sector funded infrastructure investment.
Along with housebuilding, infrastructure investment could provide some useful contribution to economic growth.
Cuts in Whitehall departmental budgets will be used to boost infrastructure spending by £3bn a year from 2015/16. While welcome, it sounds a small sum to me.
The measure to stimulate demand for newly built homes by the government lending homebuyers 20% of the cost of a house is half of a good idea. The problem is it won’t work unless the other half of idea is also implemented. As well as stimulating demand, the housebuilding sector needs supply-side support too, including loosening of planning restrictions.
Without doubt, Mr Osborne is unsure of his path, but any change of direction will only come in two years time ahead of the next General Election. In the meantime, we have to grin and bear it.