Friday, 25 March 2011

My response to this week’s Budget

George Osborne is not exactly the most popular man in Britain. That won’t worry him. What might cause more concern is that his long-term strategy for economic growth will need him to be the luckiest man in Britain.

He made a huge gamble in cutting so soon and so quickly. His “shock and awe” approach to deficit reduction was never likely to be popular, but the risk Osborne took was dependent on his fiscal package facilitating economic growth. I have never been convinced of the need to cut so deeply, and felt that a wiser tactic would have been a longer-term vision to reduce the structural deficit. Not only did I feel this made more economic sense (excessive fiscal tightening can be counter-productive), there were also political reasons behind my thinking: as a Liberal Democrat I am deeply uncomfortable with being committed to Osborne’s gamble. He might be right, but only time will tell. Osborne, like the rest of us, is at the mercy of events. In that sense at least, we are very definitely all in this together.

Growth and inflation figures are not perhaps what Osborne would have predicted, so would he be tempted to consider a plan B? No, and he’s right not to do so. I don’t think his economic and fiscal strategies are the right ones but to change course now would be catastrophic. The government must stick to its course because to do otherwise now would create economic uncertainty and political stability. The coalition would not only look arbitrary and unserious, it would also look cruel: why would anyone announce unnecessary and savage cuts only to change tack when the pressure is on?

Osborne remains convinced his plan is right, so much so that he feels able to announce that the “rescue” of the UK economy is complete and that attention should be turned towards “recovery” and “reform”. He’s partially right: the economy has not yet been rescued. Some difficult months lie ahead.

So what did will this Budget do? According to the Chancellor, this is a Budget for growth. It’s part of a longer-term strategy to reduce public spending from 48 to 40 per cent of GDP, to grow faster than the rest of the EU and expand the private sector. Whether it will actually help to raise growth is questionable, but it is certainly pro-enterprise and the business community are behind it.

But there was a lot more in Osborne’s budget than simply assisting economic growth. He’s becoming a more sensitive to how his message is received. An emphasis on economic growth isn’t likely to be well-received by the public, and instead Osborne chose to focus much of his attention on areas of social concern and living standards. This may or may not be due to Lib Dem influence in government, but it is certainly a welcome change. The chancellor might get lucky with his gamble on deficit reduction, but whatever happens the government has to do everything in its power to protect the most vulnerable from the human and social costs of this strategy.

It’s difficult to offer much in a “fiscally neutral” package, but Osborne was able to make some welcome announcements. A “fair fuel stabiliser”, a delay in the rise in fuel duty and a 1p cut are positive measures which should have the effect of taming inflation and relieving the pressure on families and rural communities. Many of our own MPs and MSPs have been looking for such action, especially those who serve more rural constituencies.

Mary Ann Sieghart, writing in The independent, made the spurious claim that “there was little for the Lib Dems to cheer”. I’m not at all convinced by that, and neither is Gordon Birtwistle – who takes a different view and insists that “it was pleasing to see how many of our policies made an appearance in the budget.” There was a lot to be cheerful about from a Lib Dem perspective, not least the increase in the personal tax allowance which even Ms Sieghart admits “takes another 1.1million low-paid people out of tax while also benefitting the squeezed middle.” That was not the only announcement to carry hallmarks of Lib Dem influence: other achievements were the Green Investment Bank, which has been brought forward, an increase in the bankers’ levy to pay for the reduction in corporation tax and a move towards localism via enterprise zones, regional railways and science parks. To suggest that the Lib Dems got nothing from the Budget is plainly ridiculous.

I’m particularly pleased that here is a Tory chancellor (yes, a Tory chancellor) who has announced an overdue boost to the manufacturing sector. Let’s not forget, the dependence on an economy based on speculation rather than production may have carried on under the Blair-Brown years but it originated in the 1980s when Thatcher’s government destroyed British manufacturing. Osborne is now preaching about the benefits of a structurally balanced economy – not something likely to have been inspired by his apparent idol, Nigel Lawson.

Merging National Insurance and income tax operations may have its advantages. More significantly, Osborne’s attack on “tax avoidance and evasion” is well-timed and can hardly be objected to. In fact, the big losers from this budget are the oil companies (who will be forced to pay an additional £2billion to compensate for the proposals on fuel duty), the banks (who will not contribute a further £600million) and wealthy tax dodgers. Surely no-one can have too many complaints about that.

Given the economic and political circumstances, this was a useful Budget. Unfortunately, however, it missed an opportunity to do more on green issues – action is urgently required now and the Green Investment Bank, while welcome, doesn’t go far enough. While talking up job creation, the Budget didn’t spell out any new initiatives to tackle unemployment. Action to reduce unemployment is needed because, even if the economy recovers in the way Mr Osborne hopes it will, there will still remain the problem that many young people who are currently unemployed may continue to be out of work in the good times. I for one am very concerned about that. Similarly, there was nothing in the budget on education or pensioners - in my view is simply unforgiveable. Surely education should be at the centre of any programme for economic recovery and our elderly citizens are among the most likely to be adversely affected by spending cuts?

I’m not sure Osborne has all the answers. He’s got himself into a position where events may well conspire to undermine his entire strategy. The predictions are currently indicating moderate economic growth, but it’s yet to be seen whether the private sector will expand sufficiently. So this wasn’t a Budget for growth (as all media correspondents agree) but a Budget for short-term stability, aimed at pleasing the markets while simultaneously appeasing the British public (it was notable that Osborne did not mention spending cuts).

The Chancellor has at least shown that the coalition is more than a “cuts government”. There was a lot more than I would have liked from this Budget, even one understandably limited to being “fiscally neutral”. But there were some welcome announcements and the knowledge that Lib Dems in government are genuinely making a difference.

I would finally like to briefly examine Labour’s response to the Budget. Ed Miliband looked in his element while launching into an amusing and devastating onslaught in respect to the growth revision. He criticised “Del Boy economics” (referring to the increase in VAT, which increased fuel prices) and ridiculed “a budget for growth that downgrades the growth forecast”. All very entertaining. But is this all he has in his armoury? Broad attacks on the coalition and good soundbites look great on TV, but whatever happened to developing a coherent policy of his own? Until he has something to offer in terms of policy, he simply can't be taken seriously.

As I’ve already indicated, having committed himself (and the coalition) to a four-year plan to eradicate the deficit, Osborne needs a bit of luck. Perhaps, however, he’s already got it in the shape of the Shadow Chancellor, who looks completely out of his depth and had to be informed by Charlie Stayt on BBC Breakfast that the government doesn’t control oil prices. In fact, Ed Balls has done a pretty good job in the last few days of assuring Gordon Brown he made the right decision in overlooking him in favour of Alistair Darling.

Overall, there is a fair amount in this budget we can be reasonably positive about. The fuel measures and the increase in personal tax allowance are moves that clearly evidence Lib Dem influence and will certainly relieve pressure on low-paid workers. However, with little on the environment and even less on education, pensioners or tackling unemployment, I can’t help thinking that – for all the positives – the Budget represents a missed opportunity.

You might also be interested in Mark Pack's analysis of Lib Dem influence in the Budget on Lib Dem Voice. Be warned, however, it does contain Nick Clegg's ill-conceived "Alarm Clock Britain" cliche!

1 comment:

Anonymous said...

Look I've read this and a lot of other peoples stuff on the budget. And you get either one lot of people saying how great their party is and how good the budget is and another lot just slagging it off. I will never be a member of a party and this kind of writing just turns me off, I've had a look at that link up there and honestly it is so arrogant and partisan. I know hes a Liberal and he wants to promote his party but take the blinkers off. I want to read somnething sensible about the budget not a party political broadcast on behalf of the Liberals or whatever. On the other hand although it looks like your a member of the same party you've got an idea about ordinary people and your not scared of being critical which is a good thing, yes there was some good stuff in the budget but like you say there was nothing for unemployed people.