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| The budget: giving, taking - but not growing | The budget: giving, taking - but not growing |
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| George Osborne's budgets follow a trajectory. It runs thus: Summer 2010, fiscal pain now, economic gain later. Spring 2011, a call for a March of the Makers, with policies designed to rebalance Britain away from the City and towards other industries. Last year, a bundle of small flashy measures that came apart so quickly it will be remembered as the Omnishambles. At least Wednesday's budget lacked the fidgetiness and the bombast of old. | George Osborne's budgets follow a trajectory. It runs thus: Summer 2010, fiscal pain now, economic gain later. Spring 2011, a call for a March of the Makers, with policies designed to rebalance Britain away from the City and towards other industries. Last year, a bundle of small flashy measures that came apart so quickly it will be remembered as the Omnishambles. At least Wednesday's budget lacked the fidgetiness and the bombast of old. |
| The chancellor can no longer claim to spy green shoots or even promise a turnaround before the next election. As he admitted, government borrowing is now forecast to keep rising as a proportion of GDP all the way till 2016. What he offered instead was a budget that manages economic decline in terms designed to appeal to Conservative voters. More state money going towards helping people on and up the housing ladder – on top of all the Bank of England billions to boost lending that have instead gone into cheaper mortgages. Another reduction in fuel prices. And a squeeze on public-sector pay and a raid on their pensions, part of which will fund cheaper childcare for working families. That last item may prove particularly tricky for Ed Miliband to oppose. | The chancellor can no longer claim to spy green shoots or even promise a turnaround before the next election. As he admitted, government borrowing is now forecast to keep rising as a proportion of GDP all the way till 2016. What he offered instead was a budget that manages economic decline in terms designed to appeal to Conservative voters. More state money going towards helping people on and up the housing ladder – on top of all the Bank of England billions to boost lending that have instead gone into cheaper mortgages. Another reduction in fuel prices. And a squeeze on public-sector pay and a raid on their pensions, part of which will fund cheaper childcare for working families. That last item may prove particularly tricky for Ed Miliband to oppose. |
| Running through all of this is a canny ability to do populism on the cheap. None of these giveaways cost a lot, yet they will certainly make a few headlines (although perhaps rather more timely ones than the Evening Standard front page that divulged much of the Red Book detail before Mr Osborne had even stood up to speak). But it's unlikely that they will distract attention from the economic mess this government has landed in less than three years after taking office. | Running through all of this is a canny ability to do populism on the cheap. None of these giveaways cost a lot, yet they will certainly make a few headlines (although perhaps rather more timely ones than the Evening Standard front page that divulged much of the Red Book detail before Mr Osborne had even stood up to speak). But it's unlikely that they will distract attention from the economic mess this government has landed in less than three years after taking office. |
| Down, down, down | Down, down, down |
| Growth forecasts down – again. Borrowing projections up – again. An economy not likely to go into a triple-dip recession soon, according to the Office for Budget Responsibility, but enjoying the worst recovery in 100 years. The government's austerity did not cause all this, as this week's tumult in Cyprus reminds us, but it has exacerbated Britain's chronic economic weakness. To all intents and purposes, this is a depression – except this time Herbert Hoover is at the controls, rather than Franklin Roosevelt. However big a failure, plan A lives on. The spending cuts will continue, while responsibility for growth will continue to be outsourced to the Bank of England. The Treasury plainly has a lot riding on Mark Carney, soon to take over in Threadneedle Street. Where Mervyn King would push back on some of Number 11's proposals for new lending schemes, Downing Street's clear hope is that Mr Carney will be much more enthusiastic. | Growth forecasts down – again. Borrowing projections up – again. An economy not likely to go into a triple-dip recession soon, according to the Office for Budget Responsibility, but enjoying the worst recovery in 100 years. The government's austerity did not cause all this, as this week's tumult in Cyprus reminds us, but it has exacerbated Britain's chronic economic weakness. To all intents and purposes, this is a depression – except this time Herbert Hoover is at the controls, rather than Franklin Roosevelt. However big a failure, plan A lives on. The spending cuts will continue, while responsibility for growth will continue to be outsourced to the Bank of England. The Treasury plainly has a lot riding on Mark Carney, soon to take over in Threadneedle Street. Where Mervyn King would push back on some of Number 11's proposals for new lending schemes, Downing Street's clear hope is that Mr Carney will be much more enthusiastic. |
| Yet the monetary activism we have seen to date – £375bn in quantitative easing, £80bn in funding for lending – has not got the economy out of the doldrums. Even so, there is no question of extra government spending. Forget about the immediate £15bn public-works programme called for by Vince Cable; Mr Osborne found £3bn for capital spending, to begin in 2015. And that will come from other parts of the budget, so the boost it provides to the economy will probably be minimal. The same goes for the National Insurance cut for employers, which will provide useful loose change for small businesses and barely be noticed by bigger ones. | Yet the monetary activism we have seen to date – £375bn in quantitative easing, £80bn in funding for lending – has not got the economy out of the doldrums. Even so, there is no question of extra government spending. Forget about the immediate £15bn public-works programme called for by Vince Cable; Mr Osborne found £3bn for capital spending, to begin in 2015. And that will come from other parts of the budget, so the boost it provides to the economy will probably be minimal. The same goes for the National Insurance cut for employers, which will provide useful loose change for small businesses and barely be noticed by bigger ones. |
| Home truths | Home truths |
| One of the few clear stabs at a growth strategy was the money for mortgages. This will not come off the public finances, but are loans taken out by the government from the financial markets and lent on to would-be buyers who are short on deposits. Part of Mr Osborne's charm offensive to an "aspiration nation", it carries faint echoes of the 1980s: Thatcher's right to buy reimagined as David Cameron's even righter to buy. But it is a worse and more muddled policy than that. If the problem with the housing market is that there is not enough of it, then the government should be encouraging the building of more (ideally council) houses. On the other hand, if the problem is that house prices are too high for would-be buyers, then the state should not be helping to push them up. Add to that the prediction by the OBR that by 2015 real wages will be 9% below where they were in 2009 and you have a policy that is encouraging indebted Britons to take on more debt, despite the fact that they're getting poorer. A very dangerous prospect. | One of the few clear stabs at a growth strategy was the money for mortgages. This will not come off the public finances, but are loans taken out by the government from the financial markets and lent on to would-be buyers who are short on deposits. Part of Mr Osborne's charm offensive to an "aspiration nation", it carries faint echoes of the 1980s: Thatcher's right to buy reimagined as David Cameron's even righter to buy. But it is a worse and more muddled policy than that. If the problem with the housing market is that there is not enough of it, then the government should be encouraging the building of more (ideally council) houses. On the other hand, if the problem is that house prices are too high for would-be buyers, then the state should not be helping to push them up. Add to that the prediction by the OBR that by 2015 real wages will be 9% below where they were in 2009 and you have a policy that is encouraging indebted Britons to take on more debt, despite the fact that they're getting poorer. A very dangerous prospect. |
| It is also notable that the coalition's rhetoric about making Britain more productive has been replaced with a return to that age-old British obsession with the property market. Rebalancing is dead: long live the old, busted economic model. | It is also notable that the coalition's rhetoric about making Britain more productive has been replaced with a return to that age-old British obsession with the property market. Rebalancing is dead: long live the old, busted economic model. |
| Fighting talk | Fighting talk |
| Even amid a slump, some are still doing very nicely, as demonstrated by Wednesday's news of the nine Barclays bankers awarded £38.5m in bonuses (including £17.5m for the aptly named Rich Ricci). Just who lost out from the budget was less obvious. And yet we know that any chancellor setting out a "fiscally neutral" budget – as Mr Osborne said he was doing – must take as much with the one hand as he gives with the other, so losers there must have been. Mr Osborne did not exactly deny it. Instead, he wrapped the worst of the news in passages of the speech so technical that casual listeners would have switched off. | Even amid a slump, some are still doing very nicely, as demonstrated by Wednesday's news of the nine Barclays bankers awarded £38.5m in bonuses (including £17.5m for the aptly named Rich Ricci). Just who lost out from the budget was less obvious. And yet we know that any chancellor setting out a "fiscally neutral" budget – as Mr Osborne said he was doing – must take as much with the one hand as he gives with the other, so losers there must have been. Mr Osborne did not exactly deny it. Instead, he wrapped the worst of the news in passages of the speech so technical that casual listeners would have switched off. |
| While the Liberal Democrats have been insisting that the downward ratchet to benefit rates that Mr Osborne announced last autumn would have to be the last attack on the needy, the chancellor revealed his desire for fresh cuts to welfare, while discussing a public-spending aggregate called "annually managed expenditure". Mr Osborne quipped that AME, whose biggest component is social benefits, had been "annually unmanaged" by Labour. He resolved to impose a cap, which would surely be hard to make stick without entirely breaking the link between welfare provision and welfare need. Will his cap mean that if more people claim disability benefits then the rates will be automatically be cut? All-important details won't emerge till the spending round in June, and that could prove to be a political bloodbath. | While the Liberal Democrats have been insisting that the downward ratchet to benefit rates that Mr Osborne announced last autumn would have to be the last attack on the needy, the chancellor revealed his desire for fresh cuts to welfare, while discussing a public-spending aggregate called "annually managed expenditure". Mr Osborne quipped that AME, whose biggest component is social benefits, had been "annually unmanaged" by Labour. He resolved to impose a cap, which would surely be hard to make stick without entirely breaking the link between welfare provision and welfare need. Will his cap mean that if more people claim disability benefits then the rates will be automatically be cut? All-important details won't emerge till the spending round in June, and that could prove to be a political bloodbath. |
| The second big group of losers are public sector workers. The big squeeze on their pay will now continue for another year; significantly the chancellor said this would not just be a case of continuing with a 1% limit on general rises, but would also involve cutting back on so-called progression payments which reward teachers, civil servants and others for their experience as they develop their career. Then there were the obscure changes to pensions, which abolish so-called "contracting out". State employees, as well as the dwindling band of private sector staff who still have access to final salary pensions, are going to face a hike in National Insurance equivalent to a penny and a half on the basic rate. Whereas the coaliton recently boasted of having put public sector pensions on a sustainable footing, after one poisonous row with the unions, Mr Osborne hinted that he expects public sector employers to claw back the extra National Insurance that they are now expected to pay by further reducing the benefits in the years ahead. Stand by for another showdown. | The second big group of losers are public sector workers. The big squeeze on their pay will now continue for another year; significantly the chancellor said this would not just be a case of continuing with a 1% limit on general rises, but would also involve cutting back on so-called progression payments which reward teachers, civil servants and others for their experience as they develop their career. Then there were the obscure changes to pensions, which abolish so-called "contracting out". State employees, as well as the dwindling band of private sector staff who still have access to final salary pensions, are going to face a hike in National Insurance equivalent to a penny and a half on the basic rate. Whereas the coaliton recently boasted of having put public sector pensions on a sustainable footing, after one poisonous row with the unions, Mr Osborne hinted that he expects public sector employers to claw back the extra National Insurance that they are now expected to pay by further reducing the benefits in the years ahead. Stand by for another showdown. |
| Long, hot summer | Long, hot summer |
| The Eastleigh byelection set the coalition's two wings against one another and Wednesday did little to repair relations. Where Mr Osborne's budget represented a plausible Conservative strategy for sharing out the pain of a failing economy, there was little here for the Liberal Democrats. They can point to the early fulfilment of their pet project of a £10,000 personal allowance, but voters are unlikely to rate it as a distinctively Lib Dem achievement. Indeed, with the hike in VAT to 20%, tax credit cuts and earnings lagging behind the cost of living the average voter might not notice anything at all. And then, of course, there will be particular spending ministries headed by Lib Dems such as Vince Cable and Ed Davey which can now be expected to put up a fight against the fresh demand for more cuts. | The Eastleigh byelection set the coalition's two wings against one another and Wednesday did little to repair relations. Where Mr Osborne's budget represented a plausible Conservative strategy for sharing out the pain of a failing economy, there was little here for the Liberal Democrats. They can point to the early fulfilment of their pet project of a £10,000 personal allowance, but voters are unlikely to rate it as a distinctively Lib Dem achievement. Indeed, with the hike in VAT to 20%, tax credit cuts and earnings lagging behind the cost of living the average voter might not notice anything at all. And then, of course, there will be particular spending ministries headed by Lib Dems such as Vince Cable and Ed Davey which can now be expected to put up a fight against the fresh demand for more cuts. |
| If squabbling with the Liberal Democrats were the end of it, Mr Osborne would probably be well satisfied. But as that spending round in June looms, he is likely to run into resentment from several Tory colleagues too. Ministers charged with administering even protected budgets like schools and hospitals might rage when they discover that they are in for more industrial strife on questions like pensions; others – such as Theresa May in the unprotected Home Office – can be expected to turn up the volume against additional cuts. | If squabbling with the Liberal Democrats were the end of it, Mr Osborne would probably be well satisfied. But as that spending round in June looms, he is likely to run into resentment from several Tory colleagues too. Ministers charged with administering even protected budgets like schools and hospitals might rage when they discover that they are in for more industrial strife on questions like pensions; others – such as Theresa May in the unprotected Home Office – can be expected to turn up the volume against additional cuts. |
| Politics is set to get bumpier, but perhaps the politics of parsimony is inescapably so. Where the chancellor effectively gives up on growth, and instead concentrates on how to dole out the pain, then no matter how cunningly he selects who he wants to protect, large parts of the population are going to get hurt. And there is never too much of a gap between financial pain and howls of political anguish. | Politics is set to get bumpier, but perhaps the politics of parsimony is inescapably so. Where the chancellor effectively gives up on growth, and instead concentrates on how to dole out the pain, then no matter how cunningly he selects who he wants to protect, large parts of the population are going to get hurt. And there is never too much of a gap between financial pain and howls of political anguish. |
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