Wednesday, 23 March 2011

Budget? What budget?

The best decision that George Osborne has made as Chancellor was to establish the Office of Budget Responsibility. Its value to public debate was shown today, in enabling a distinction between the Performance Politics of Budget Day at Westminster and the substance of the budget.

In fact, there was little or no budget to speak of today. Gordon Brown as Chancellor sought to ramp the pre-budget report up so that he effectively had two budgets a year, as weather making political opportunities. George Osborne would prefer to be called only once more in this Parliament. He set out his austerity stall last June and October: he knows what he wants to say in the Spring of 2014, but is a highly constrained Chancellor until then.

There was plenty in the OBR figures to support Labour leader Ed Miliband's assertion that "its hurting, but it isn't working". The government's most honest response is to acknowledge that it is hurting, but to argue with fingers' crossed that it will turn out to work by 2015, despite the initial results for growth and jobs being worse than they had anticipated last summer and Autumn.

That is not a partisan point - the half-time report, whatever your partisan or policy preferences, are as Andrew Neil tweeted

"Macro #budget2011 picture: higher inflation, lower growth, slower deficit reduction, higher unemployment "

The budget for growth lacked pyrotechnics, and often content. But there is a reason for that. The government's overall instinct is that government promotes growth by providing a stable, low tax environment and getting out of the way. There was an acceleration in promised corporation tax cuts. Osborne boasted that Britain would now have much lower corporation tax than the US, France or Germany - because corporation tax is already lower here than in Germany.

And it will continue to fall by 1% in each of the following three years – taking our corporate tax rate right down to 23%.

16 per cent lower than America, 11 per cent lower than France and 7 per cent lower than Germany – the lowest corporation tax rate in the G7.

But, if this is the answer on growth, isn't it then odd that German growth is higher?

So old arguments will return: the IFS will doubtless report that the tax threshold change is especially good for double-income households (often childless) in the upper half of the income distribution, as the government continues to argue against the evidence that its motivation is to take the poor out of tax, even as it shifts the burden to indirect taxes which hit both the working and non-working poor harder. (The £600 tax threshold increase is worth £5 a year to somebody earning £7500 a year, and nothing at all to someone earning £6500).

My favourite piece of Osborne chutzpah -

Last year, we restricted the allowance increase to basic rate taxpayers. This year we have not.

The result is that there will be no more people pulled into the higher rate tax band as a result of this Budget.

True - but 750,000 people will find themselves pulled into the higher rate in a fortnight as a result of last year's, which might be a minor change of only a few pounds, except that they are then hit by the double whammy of losing all of their child benefit.

And shifting the inflation measure to CPI for benefits last year, and now doing so for taxation "to bring it into line", is a stealthy way of making fiscal drag doing more work, making it even more likely that Osborne's headline claim turns out to be untrue.

There is a dash of Heseltinian intervention, but much of the evidence suggests that these affect the location of activity rather than the amount of it.

The incremental gift aid measures will be widely welcomed, and by charities in particular. Osborne may have found a tangible big society policy - that you can divert income going to general taxation to [other] civic causes. You don't gain personally by the tax break, and enabling philanthropy which costs the donor nothing to give may prove popular!

The green investment bank is an incremental step forward, or an important missed opportunity for green growth. It will be the bank that can't borrow and invest until 2015, when it will be able to borrow and invest. So why not in 2013 and 2014?

Osborne will always project super-confidence, whatever the figures and even if losing his voice. He has studied and emulates Gordon Brown much more than he acknowledges. His speech was more partisan than any of Brown's. (The Treasury website version looks to have been fairly heavily censored for excessive partisanship, and is missing many of the Osborne jibes we all heard with our own ears; whether this is a sensible way to deal with 'the record' might be doubted). He told us he will not rattle off figures, before saying that growth had been "revised" without telling us what it had been revised from, or even of the downward direction. Even New Labour's budgets contained less incremental policy tinkering and special pothole funds.

In the absence of the budget, it is a good job that there were plenty of distractions in the Westminster game.

Ed Miliband roused his troops with a feisty performance and decent jokes too. The right kind of snow for a skiing holiday was a funny shot, albeit a slightly low blow. Returning to the 'no platform' jibe against Nick Clegg may reverberate with other LibDems more than is in Labour's longer-term interests.

Nick Clegg demonstrated his new LibDem distancing strategy, pointedly refraining from any repeat of his hearty back-slap for Osborne during the glad, confident Coalition honeymoon of 2010.

Ken Clarke added to the gaeity of the political nation by coming close enough to falling asleep to have the bookmakers pay out, compounding the entertainment with an official shut-eye denial.

Ken, as Chancellor, had a balance between spending and taxes (50:50) which would much better suit the "we're in this together" story which the ProgCons once intended to tell. That's in the past now.

But Ken's tired eyelids may also have offered the most incisive snap judgement on today's budget non-event.

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