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The man without a convincing plan

WATCHING George Osborne delivering his fourth Budget was a rather surreal experience, akin to seeing a chirpy weather man exclaiming that "Spring is just around the corner!" when the map behind him shows the UK being battered by gales, snow and ice, with a series of deep depressions marching in from the west.

Even with added political spin and wishful thinking, the headline figures were dreadful. When the Coalition came to office the Chancellor was telling us that the economy would have grown 7% by now. Instead, it is 3% smaller than it was in early 2008. Last autumn, this year's growth was predicted to be 1.2%. Now the Office for Budget Responsibility (OBR) has revised that figure to 0.6%. Every one of the Government's growth predictions has been an over-estimate so far.

Meanwhile, though the budget deficit has indeed been cut by a third to 7.4%, this too is higher than forecast late last year. And public sector debt as a proportion of GDP is now expected to continue to rise right up to 2018. Even the unemployment figures, which have tended to defy gloomy expectations for various reasons, went the wrong way yesterday. This left the Chancellor clutching at a single straw: the OBR's declaration that the UK will (by the skin of its teeth) avoid a triple-dip recession.

This is hardly a cause for celebration and it left Mr Osborne with precious little room for manoeuvre. Any neutral observer would surely conclude that these figures are proof that his economic policy has failed. Instead, trapped by his own dogma, he continues to insist that it is merely success postponed.

Certainly, circumstances are against him. He inherited a huge deficit and global events – especially the ongoing eurozone crisis – have dampened hopes of an export-led recovery, despite what amounts to a devaluation of sterling over the past three years. If nothing is done to inject some demand into the domestic economy and stimulate output, the tax take will continue to shrink and the benefits bill will carry on rising.

Given the current record low interest rates, some modest borrowing to kickstart growth looks like a no-brainer. Instead, Mr Osborne tinkered around the edges of the economy and served up a fiscally neutral Budget that will do nothing to create growth.

Some of it was dressed up as a give-away Budget, including the welcome (though much-trailed) fuel-duty cut for motorists. There was relief too for beer drinkers, much to the fury of the Scotch whisky industry. The "help to buy" scheme for first-time buyers is a deliberate echo of Margaret Thatcher's "right to buy", though it is merely the latest in a series of initiatives that have failed to date to kickstart the housing market. Without the massive housebuilding programme that many on all sides have called for, it could merely create a new housing price bubble.

The treatment of Scotland echoed the main theme of this Budget, which was to further throttle departmental budgets in order to free up money for capital spending: robbing Peter to pay Paul. If the Scottish budget appears to escape relatively lightly, that is only because so much of it consists of spending on schools and the NHS, which are both protected from cuts. The problem is that the scope of the capital spending injection is too small to affect growth by more than a fraction of 1%. Meanwhile, the further cuts to public services, combined with the extension of the 1% public sector pay cap and ending of annual increments, merely take more spending power from the Scottish economy, which is unduly dependent on public sector employment. And the very poorest households, which have suffered some of the worst cuts in living standards and whose residents can be relied upon to spend what they have, got nothing whatsoever from this Budget. In fact, in a little sting in the tail, the Chancellor revealed that to keep deficit reduction on track he will need to take £11.5bn more from spending budgets, a rise of £1.5bn on previous announcements. In other words, the A in Plan A still stands for austerity.

There are certainly measures Scots will welcome. There is progress at last on the development of two pilot carbon capture and storage projects, including one planned for Peterhead, to clean up power station emissions. There are grants for the development of shale gas production and up to £2000 relief from employers' national insurance contributions to encourage job creation. And there is help with childcare costs, though not until 2015 and many poorer families claiming universal credit will be excluded.

Nick Clegg and the Liberal Democrats will make much of the rise in personal allowances for income tax to £10,000 from next year, taking an estimated 250,000 Scots "out of tax altogether", though they continue to pay National Insurance, which is a tax in all but name. Also, in the real world, many Scots households know that any such gains have been more than outweighed by frozen wages, capped benefits and huge rises in the costs of food, fuel and power. The reality is an unprecedented squeeze on living standards, which combined with a government that relentlessly talked down the UK economy when it came to power, effectively killed off demand. Mr Osborne did nothing to reverse this downward spiral. Scots no longer expect their children to be better off than they are.

This is all grist to the mill of the Scottish National Party, which is in the business of selling an optimistic vision of an independent Scotland. (It is up to voters to decide if that vision is realistic. The OBR forecast of North Sea oil and gas revenues, markedly lower than those from the Scottish Government, adds to the debate.)

Meanwhile, Labour may claim to have won the argument on the speed and scale of deficit reduction but will not win the next General Election simply by saying: "Told you so." So far there is a vast gap between the handful of specific measures Ed Balls says he would take now and the interesting blue-skies thinking about "predistribution" and creating kinder capitalism from Ed Miliband. The party now needs to fill that gap with a fully-costed, fully-worked through alternative economic policy.

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