The Brutal Budget?

Well, I’ve just watched George Osborne come of age.  The ‘light-weight’, ‘inexperienced’, ‘young’ Chancellor gave an assured performance that will do wonders for his poor reputation.  It should also dispel some of the prejudice that still exists about the modern Conservative Party.

The spin that had been dripping out from Whitehall over the last few weeks could be summarised in one sentence: “This is going to Hurt”.  The facts about the economic situation were not in question –

  • For every three pounds we currently receive in tax receipts we are spending four on public services (i.e we have a significant structural deficit).
  • The National Debt is already £22,400 per head.

The nation could not go on spending like drunken sailors on shore-leave.  You cannot tackle the debt until you tackle the structural deficit.  You can only tackle the structural deficit in one of two ways – raise taxes or cut public spending.  The trouble for George Osborne is that neither is a popular thing for a Government to do.  But in some ways the choice was made for him, as he put it, “We are over-spending – We are not under-taxed”.  So with an impossible juggling trick demanded what is my gut reaction to what he has done today?

Well he had some pleasant surprises that may confuse those who cannot see the Tories as anything other than the ‘nasty party’:

  • The increase in the tax-fee allowance was inspired and will benefit those on the lowest pay.  I fully acknowledge that this was a Lib Dem policy but it is a credit to our Coalition that we really have cherry picked the best thinking from both Parties.  880,000 of the poorest working people taken out of tax.  Wonderful.
  • The raise in Capital Gains Tax will mean that the wealthiest in our society cannot be accused of not shouldering their share of the burden.  Those who thought the Tories were all about protecting the rich ahead of helping the economy have been proved wrong.
  • His surrender of forecasting powers to the Office for Budget Responsibility is absolutely the right thing to do for the country – but removes a key ability for him to ‘play politics’.  The best thing Brown ever did as Chancellor was give up the power to play politics with interest rates – Osborne takes this to the logical next step.
  • The acknowledgement that the banks brought about the financial crisis and the new measures to tax riskier aspects of their behaviour will be in tune with popular feeling and was the right thing to do.
  • Restoring the link between state pensions and earnings.
  • As a small-business owner I was delighted with the measures he put in place to give us a fighting chance of getting through the recession.
  • No cuts in capital expenditure.  A grown up lesson learned from the last time the Conservatives were in power in the early 1990s.

The headline will of course be about the rise in VAT.  For all the above the pain had to come and this is where the punch landed.  A tax on consumption does encourage individual prudence, but it also risks lowering consumer spending to the point that both retail and manufacturing are hurt.  The leap of faith (no doubt supported by economic modelling) must be that the proportional pain caused by the 2.5% rise is counterbalanced by the good to the economy from the reduction in structural deficit.  We need to monitor this closely and make sure the economic modelling is correct – if it backfires we shouldn’t shy away from course-correcting quickly.

Obviously, much of the pain is also going to be felt by the Civil Service when the departmental cuts have to be worked through and Councils as they struggle to work within the constraints brought about by a council tax freeze.  The challenge for both Civil Service and Councils will be to deliver those reductions with the same equity and tone that the Chancellor managed today – and crucially without hitting the public perception of service delivery.  Ultimately, for right or wrong, it will be that upon which the Coalition is judged.



Filed under Center right, Centre Right, Economy, Politics, UK, UK Politics

4 responses to “The Brutal Budget?

  1. I enjoyed this blog and agree that this seems a sensible budget in very difficult times.

  2. JAY

    So much for David Cameron during the election promising to protect the most vulnerable in our society.

    To introduce a medical test for those on Disability Living Allowance to assess their ability to work is hitting the worst off the most. Now those who currently claim it will be worrying for the next three years whether they will lose it. They will probably be told in 2013 if they can work then they don’t need it. The whole point of DLA is to cover claimants when their condition means they have to take time off from work. It’s appalling, and really hitting the poor the hardest. What’s worse is that none of the turncoat Lib Dems will have the guts to vote against it.

  3. Jay. I admit I haven’t clocked that detail – but on the face of it what has anyone got to object to? At the moment no medical check-up is required. You just fill in a form. It is ripe for fraud. Opportunity creates the thief. Claims have quadrupled over the last 18 years.
    Now I can’t imagine for one minute that there will be any systematic conspiracy by the medical profession to “go all Tory” (as you would see it) and collude in a grand plan to deny genuine claimants their dues. However, if it stops non-genuine claimants then that is good for tax payers and good for genuine claimants (which I am sure is the majority of them).

  4. leveler

    there is no doubt that deep cuts to government spending are essential, but the approach has to be measured and planned. The media is getting itself and the general population in a fine froth similar to that of the prayer meetings of the American south. The conservative leadership have to curb there enthusiasum for cutting just because they can and be far more cool and clinical in there approach. The chancellor has to ask himself that instead of taking a shotgun approach to spending cuts .Would a more accurate and surgical approach not give the bond market more confidence in him and our ability to repay our debts

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