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| George Osborne's budget is for the very short term only | George Osborne's budget is for the very short term only |
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| Budgets have a tendency to unravel. Sometimes it can take months, even years, for the problems to surface. More often they are exposed within 24 hours once the Institute for Fiscal Studies has sharpened its claws. But George Osborne’s eighth package was a bit of a rarity. The holes in it were obvious even before he had finished speaking. | Budgets have a tendency to unravel. Sometimes it can take months, even years, for the problems to surface. More often they are exposed within 24 hours once the Institute for Fiscal Studies has sharpened its claws. But George Osborne’s eighth package was a bit of a rarity. The holes in it were obvious even before he had finished speaking. |
| Issue number one for the chancellor was how to explain away the fact that the economy is doing worse than was forecast four months ago - and not just this but in every year until the end of the decade. Osborne’s answer was to blame the state of the global economy: the turbulence in the financial markets, the slowdown in China, the weaker growth in emerging economies. | Issue number one for the chancellor was how to explain away the fact that the economy is doing worse than was forecast four months ago - and not just this but in every year until the end of the decade. Osborne’s answer was to blame the state of the global economy: the turbulence in the financial markets, the slowdown in China, the weaker growth in emerging economies. |
| Related: Budget 2016 live: Osborne hails 'sugar tax' on soft drinks but cuts growth forecasts | Related: Budget 2016 live: Osborne hails 'sugar tax' on soft drinks but cuts growth forecasts |
| Yet in the next breath he had to admit that the Office for Budget Responsibility had revised down its forecasts because it was now much less optimistic about productivity growth. The OBR has been been expecting output per head to pick up after a prolonged period of weakness since the Great Recession of 2008-09. It now believes productivity has been permanently impaired, with knock-on consequences for the long-term growth potential of the economy. This has absolutely nothing to do with events happening in the global economy and everything to do with the state of the UK. Osborne has been chancellor for six years: he now owns Britain’s productivity problem. | |
| Weaker growth tends to mean more pressure on government finances because tax revenues are weaker. That presented the chancellor with a headache because he has made a pledge to turn a budget in excess of £70bn this year into a surplus by 2019-20, the last year of the current parliament. | |
| The OBR has revised up its forecasts for borrowing for the next three financial years but is still pencilling in a £10bn surplus for 2019-20. This has been achieved by some creative accountancy. Osborne has brought forward capital spending into the years before 2019-20. He has announced additional spending cuts for the final year of the parliament. He has deferred changes to corporation tax worth £6bn until that year. And he has increased public sector pension contributions by £2bn. | |
| Had it not been for these changes, the OBR estimates that the £10bn surplus for 2019-20 would actually be a deficit of £3bn. It is, of course, possible that the economy will grow more strongly than expected in the next four years, in which case the state of the public finances will look a lot healthier. But Osborne can’t bank on that. | Had it not been for these changes, the OBR estimates that the £10bn surplus for 2019-20 would actually be a deficit of £3bn. It is, of course, possible that the economy will grow more strongly than expected in the next four years, in which case the state of the public finances will look a lot healthier. But Osborne can’t bank on that. |
| The same applies to the way in which the chancellor has paid for his tax cuts. He announced reductions in corporation tax, North Sea taxation, business rates, froze fuel, beer and cider duties, increased the personal income tax allowance and raised the upper-rate threshold. He will pay for them through yet another crackdown on tax avoidance, tougher tax rules for multinationals and unspecified efficiency savings in Whitehall. | |
| The giveaways are for real but the revenue-raising measures may not be. Will HMRC really secure additional billions from tax avoidance? Will US-based tech giants actually pony up the tax Osborne is banking on? | |
| The chancellor said repeatedly that he was delivering a budget for the long term, but it was nothing of the sort. It was a conjuror’s trick. And a not very good one at that. | The chancellor said repeatedly that he was delivering a budget for the long term, but it was nothing of the sort. It was a conjuror’s trick. And a not very good one at that. |