Osborne's budget is jam today – and damn tomorrow

http://www.theguardian.com/uk-news/2014/mar/19/osborne-budget-elections-austerity-public-finances

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George Osborne has a "long-term economic plan", he told us on Wednesday. It must sit next to his "credible fiscal plan", which is chock-full of "difficult decisions". Both were part of this week's budget for "building a resilient economy" and not "squandering the gains". And doing that requires ministers to "hold our nerve".

The chancellor has had five budget speeches to hone this hard-man act – the 2014 version showed him at his most polished yet. Every couple of minutes brought forth another word from the No-Turning-Back dictionary: "hard", "determined", "secure". And, over and over, "plan".

What plan? Perhaps the Iron Chancellor means his 2013 plan to foster a green revolution by introducing a minimum price for carbon. That was meant to provide EDF and the other fuel suppliers with the incentive and the certainty to invest in renewables.

It may not have been the best plan, but it did qualify as one – until Osborne froze the minimum price on Wednesday. Any energy giant now pondering whether or not to plough money into green tech must now wonder if the anti-"green crap" chancellor will scrap it altogether.

Or maybe Osborne is referring to his plan to simplify business taxes by cutting companies' investment allowances. These were a favourite device of Gordon Brown and, therefore, Terrible Tinkering. So it was that, in 2010, Osborne cut the amount businesses could invest tax-free to £25,000 a year. Two years later, he jacked up the allowance up to £250,000. Now he has pushed it up again, to £500,000 for two years. After which it will drop again to £25,000. Confused? I'll bet a lot of firms are.

Such inconvenient details are for the econo-nerds. However, there are an awful lot of them. Add them up and the picture you get is not of the steely man at the Treasury, purposefully executing a detailed plan – but a first-timer on a unicycle, veering about all over the shop.

The chancellor complains that "our country still borrows too much" – a year after administering a giant boost to the housing bubble. He claims to be helping savers and exporters: and a couple of hours later the Office for Budget Responsibility shows that his budget will result in households saving less and the UK continuing to lose share in export markets. How much will the government's big new policy on childcare cost? The OBR had to admit it didn't know: it only got the plans this Monday – too late to do the sums.

Ah, but what about austerity: isn't that what these five years were meant to be about? Here too, the rhetoric doesn't fit reality.

Under the original plans of 2010, the budget deficit should have been wiped out by now; instead it remains at about £100bn and the International Monetary Fund estimates that the coalition has done less to reduce public borrowing than the United States or France. The real achievement of Osborne's Treasury has not been in restoring the public finances, but in convincing a sympathetic press and a punch-drunk public that it is doing so.

A couple of years ago, Osborne and Ed Balls would regularly clash over Plan A and Plan B and there was much public debate about the difference between cuts and spending.

Well, if Labour MPs had any sense, they'd point out that Osborne junked Plan A a while back. In 2013, after two years of waiting for market forces to rebalance the economy, and watching GDP tank along with poll ratings, Osborne panicked. As one senior government adviser told me at the time, "We'll take growth from anywhere."

So it has proved. The chancellor who claimed there was no money managed to find about £130bn to chuck at the housing market.

The government that even now wants households to borrow less and save more has presided over a jump in unsecured lending. The new model economy has been forgotten in favour of one more go with the old, broken model.

For all that the coalition touted its renewed support for "makers and doers" and exporters, the promises of a bit more export-financing or another few million for research into graphene will simply not do the job.

Rebuilding British industry requires a financial commitment and attention to detail that none of the main parties have yet shown. It would mean being realistic about just how badly rotted are our manufacturing supply chains and serious public investment. Far easier simply to utter blank, fashionable phrases about industrial policy or rebalancing.

Which brings us back to this latest budget. Whatever the right of the Conservative party might want, the government can't slash taxes because there is no money. It can't spend more because there is no money. There isn't much more that it can easily cut: note how Osborne described the package as being "fiscally neutral", taking as much from taxpayers as it gave.

Whatever the rhetoric, this will be the holding pattern for politics up until the general election next May. What this budget confirms is that whoever gets into power in 2015 will have to carry on slashing, all the way until 2018.

Meanwhile, we are in the ridiculous position where none of the three main parties wants to admit the enormity of the austerity lined up for voters after 2015.

Yet in possibly the first budget after the election either income tax or national insurance will go up, or VAT will be extended to more goods – and possibly some combination of the three. And the first spending review, which will surely be held in autumn 2015, is going to have find money from departments that have already been cut almost to the bone.

This is not mere gloominess but the lessons from recent history: according to the Institute for Fiscal Studies, governments typically make tax cuts worth an average of £2.2bn in the year before election; in the year after election, governments make tax rises worth an average of £7.5bn.

Somewhere around the 10th anniversary of the collapse of Lehman Brothers, austerity will end and the real wages of the average worker will finally return to where they were before the financial crisis. This is what a lost decade looks like.