Comment: Osborne’s Budget is a shrug of despair in the face of catastrophe
George Osborne's fourth Budget was a cry of despair, a categorical admission of failure. It is startling to see a British chancellor present a policy package which no observer expects to have the slightest bearing on the economic disaster facing this country.
For all his badly-delivered sound and fury, the chancellor signified nothing. This Budget will have no impact on GDP. As the government's own Office of Budget Responsibility stated afterwards: "The government has announced a number of policy measures that are expected to have a broadly neutral fiscal impact in aggregate between 2012/13 and 2017/18, with 'giveaways' almost exactly offsetting 'takeaways' over this period. Correspondingly, we also assume that they will have a broadly neutral effect on the economy, with no impact on the level of GDP at the end of the forecast horizon."
Borrowing will be roughly £61 billion higher in the six years from 2012 than forecast at the end of last year. Growth is also lower – estimated at just 0.6% this year, although that figure is also liable to be downgraded, as almost all the OBR figures are. Osborne once again pushed back the target on when he would manage to reduce debt as a proportion of GDP for second consecutive year. Every 12 months, it moves one year further away. National debt will peak at 85.6% in 2016, not far from the mythical 90% at which nations struggle to ever fully recover. In any sane political system this last fact alone would be considered good enough reason to consider the chancellor a historic failure. Living standards continue to fall, youth unemployment reaches appalling levels. Even Osborne's claim the deficit was falling appears to have been false. The OBR said the figure excluded Royal Mail, APF and SLS transfers.
Against this backdrop, radical action is required – whichever side of the debate you're on. But Osborne's flutter of policy announcements barely scratched the surface. He is a man on a treadmill, sweating profusely and going nowhere. His proposals say much more about the internal divisions within the Tory party and his own aims for the 2015 general election than they do Britain's economic circumstance.
The chancellor's one wise decision, both economically and politically, was to face down his right-wing backbenchers calling for a cut in capital gains tax or Irish-level corporation tax (although he did reduce this by one more per cent). Giving tax cuts to the rich is immoral in the current circumstances, but it is also economically illiterate. The rich save money, the poor spend it. If anyone gets a tax cut, you should be aiming at those at the bottom.
Instead, he seemed to act according to the views of election strategist Lynton Crosby, who once won an Australian vote by promoting lies about immigrants killing their own babies. At least this was less morally hazardous. Crosby's white van man populism triggered a small cut in beer duty, the scrapping of fuel duty, help for homebuyers and a cut to national insurance contributions for employers which should come in useful for smaller firms. Treasury Budget veteran James Bowler oversaw the process, ensuring we didn't get a repeat of last year's shambles, which combined anaemia with incompetence. This year, the failure was merely restricted to the latter. Osborne's achievement, if you can call it that, was to find focused winners (aspiring home-owners, drinkers, drivers) and balance them against vague, ill-defined losers.
To cover his indifference to his backbenchers, the chancellor went out his way to name check them. Bob Blackman, Robert Halfon and Priti Patel got a nod, as did Lib Dem Alan Reid and Labour MP Tristram Hunt. All looked pleased. That may be his greatest accomplishment today – apart from taking a penny off my next pint, a move which even he admitted "won't change the finances of any family".
The 'help to buy' housing scheme consciously echoes Margaret Thatcher's 'right to buy' scheme, like a greatest hits of Tory history, except that this hit decimated Britain's housing stock. The failure to replace social housing created many of the borrowing and benefits problems we have today. The absence of a similar focus on house-building in this Budget shows no lessons have been learned, and will not be learned while the chancellor refuses to budge on borrowing. The policy itself is not harmful, although it will depress the housing market for the next year until it takes effect. Estate agents take note.
There were even some relatively well-thought through political tricks. The employment allowance will take £2,000 off employers national insurance bill for all businesses, taking one third of them out of the tax altogether. A couple of 'monetary activism' policies show Osborne taking some of the better lessons from abroad – specifically Canada – ahead of Mark Carney's arrival at the Bank of England. The rush on taking people earning under £10,000 out of income tax altogether is good economics – and good politics. It even allowed him to rub Ed Miliband's nose in it with a "nought per cent band" joke. There was no repeat of the staggering, head-smacking idiocy of the 50p tax cut.
Indeed, the best thing you can say about the Budget is that it avoided such levels of foolishness and arrogance. But that is not the standard Britain should expect from a chancellor during the worst depression it has faced since the 1930s. In so far as Osborne's policies have any impact whatsoever they are broadly regressive, taking care of those in the suburbs and instead of those on the estates.
But the worst one can say about it is that it will do nothing to kickstart the economy and literally no-one expects it to. Osborne is in a straitjacket of his own making. He pretends there is no alternative, despite the deafening roar of those who insist otherwise.
Even those who supported him in 2010 recognise Britain needs to borrow to spark growth. Ideally this would take the form of something truly radical, like taking anyone earning less than £22,000 out of income tax altogether. Or perhaps it would go towards a programme of house building, which would create jobs, prevent exorbitant rents, allow young couples to buy and prevent benefit money flowing to unscrupulous landlords.
Anything. Anything would be better than this; a man who shrugs in the face of catastrophe.
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