Archive for March, 2011
Thursday, March 24th, 2011
‘The wizardry of George Osborne?’
Last year’s emergency budget, which announced the deepest public spending cuts since World War II, was all about “frontloading the pain” and readying public opinion for the austerity to come. By contrast, the 2011 budget is the coalition’s first major attempt to move the agenda away from cuts and towards recovery. Yesterday George Osborne threw everything at making the case for this shift in narrative.
And, like all Chancellors before him, he pulled a rabbit from his straitened Treasury hat, cutting the price of petrol and endearing himself to millions of cash-strapped motorists. Already dubbed the “Ford Focus Budget”, Osborne’s rabbit cornered Ed Miliband leaving him little room to accuse the Government of ignoring “the squeezed middle” of hard-pressed Brits. Osborne flashed some of that wizardry that was previously on display when, in late 2007, he proposed an inheritance tax cut, and frightened Gordon Brown out of an early election.
This was a more overtly political budget than most, at times bordering on the glad confidence of a manifesto launch. With this Chancellor it is very difficult to dissect the politician from the policy-maker. Osborne’s speech and announcements were masterful in pre-emptively snuffing out opposition attacks. Fiscally neutral, and with few changes to public spending, Osborne relished the opportunity to paint on a relatively blank canvass, showcasing a proactive Government, intent on moving on from last summer’s forced, and therefore largely reactive spending review. He said, “That we are able now to set off on the route from rescue to reform, and reform to recovery, is because of difficult decisions we’ve already taken.”
Ed Miliband chided Osborne for apparently drawing inspiration from a heady mix of Nigel Lawson with Michael Heseltine. For Miliband and much of the country, these are figures from the darkest days of Tory economics. But needing aspects of both characters does point to the dilemma of a Conservative politician in Osborne’s shoes. He does not want to be remembered as the man who got a grip on spending but then put his feet up as ordinary people felt the consequences. He wants to combine Lawson’s supposed fiscal rectitude with a Heseltine-like passion for manufacturing, firing up industry in the regions and pushing British exports around the world. Whatever the policy substance, it is a vital political counter to Labour’s attacks on the “same old laissez faire Tories”.
The centrepiece of the entire coalition economic strategy is the elimination of the structural deficit by 2015-16. It is essential to the Government’s fortunes that the plan remains on course and retains economic credibility. In his speech Osborne drew heavily on the endorsement of the Government’s plans by independent domestic and international opinion. The down-graded growth expectations from the Office of Budget Responsibility (OBR), from 2.1% to 1.7% were not particularly helpful to Osborne’s cause. But neither are they sufficiently alarming that the Chancellor will feel under pressure to change course. Indeed the OBR still forecasts that the Government is on target to eliminate the structural deficit one year early.
The Chancellor clearly feels comfortable that the economic conditions are sufficiently benign that he can focus on supply-side measures above fiscal policy tools. Yesterday he fired up his growth strategy on “four economic ambitions”: the most competitive tax system in the G20; the best environment in Europe for business; a more balanced economy; and the most flexible, and better educated workforce in Europe. The big headline, which will no doubt calm fluttering hearts at the CBI is the reduction in corporation tax by 2% in 2011-12, falling eventually to 23%. According to the Chancellor, this will leave the UK with the lowest corporation tax in the G20. Osborne relished informing the Labour front-bench that this was not a tax cut for the banks, as the bank levy would be adjusted accordingly to off-set any impact on them.
Moving into Heseltine mode, Osborne put a heavy emphasis on rebalancing the economy away from financial services, announcing further investment in apprenticeships, support for SMEs in research and development and 21 new enterprise zones with local tax incentives and less burdensome regulation on planning. The Green Investment Bank will go ahead with 2012 with the ability to borrow from 2015-16. Owners of private jets will, for the first time, be caught by air passenger duties (even they are “in this together” with the rest of us). There will also be a fresh assault on regulation, particularly on planning rules, as well as a drive to streamline the tax code, rivalled only by India in length and complexity, according to the Chancellor.
Having set out the plan for growth, Osborne’s second objective was more overtly political, and with an eye firmly fixed on today’s headlines. His objective was to demonstrate that the coalition is in touch with Britain’s hard-pressed families and the high cost of living and uncertain economy they face. The pay uplift of £250 for public sector workers earning less than £21,000, combined with the rise in the tax-free income tax allowance will lessen the blow on those on low to mid incomes.
As is customary on budget day, the rabbit made its guest appearance at the end of the show. The Chancellor announced not only a cut in fuel duty, but also a new “fair fuel stabiliser”, which will link oil company profits to the price at the petrol pump. This was another neat signal, perhaps, that “we are all in this together”, even oil companies.
For Nick Clegg and the Liberal Democrats, they will be able to point to significant influence on this budget. The party’s flagship election policy of taking those who earn under £10,000 completely out of taxation is now at the core of the government’s approach. The setting up of the Green Investment Bank and the focus on rebalancing the economy away from financial services were also given due prominence. Given the sum of the coalition’s parts, this is arguably an ideologically coherent budget, reflecting for the most part a “small l” liberal approach to economic recovery, tempered by an activist ambition for manufacturing, skills and exports.
In truth, this was never going to be a difficult budget for the Government or for George Osborne. Given the economic circumstances, public expectations are extremely low and most still blame Labour for the state of the nation’s finances. Yet Osborne has proved highly adept at delivering a very politically astute budget. As for the growth strategy itself, the big question remains the health of the economy. The plan is designed to bolster and support a level of growth that is, for now, no more than an assumption. If the economy grows as forecast, the growth plan and George Osborne will win plaudits and the coalition will have turned the corner on cuts. Without growth as forecast the attention will turn once more to the wisdom of the cuts, and therefore, to the wisdom rather than the wizardry of George Osborne.
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