In Budget 2016, the Chancellor’s long term plan just got longer.
Things he had wanted to do in this Budget, until quite recently, have been put off, most notably the reform of pensions taxation. Instead, new imperatives have come into play:
• There is an EU referendum to be won in June
• There are a lot of very jumpy Tory back-benchers
• Mr Osborne needed to burnish his leadership credentials
So this is probably not the Budget he had been working on a few months ago. Also, the world economy has taken a dip since the time of the Autumn Statement last November. Then the outlook was almost rosy and Mr Osborne found £27bn available to him to ease austerity, and surprise his critics.
How the weather has changed.
In Budget 2016 he once again had a black hole to fill, as growth and revenues slip. But it’s the timing of the filling that’s interesting.
Movements in the global economy cause huge swings to the UK’s budget numbers. So confidently sticking to his projection of a budget surplus by the final year of this Parliament seems , well, incredibly hopeful – ‘courageous’ as Sir Humphry may have put it.
Budget 2016 was about the urgency of now. Hence the strong words about the risk of Brexit – so strong in fact that Mr Osborne’s position would hardly be tenable if voters chose to leave the EU. Mr Osborne is taking his gamble. The message is clear – there are a lot of risks out there; don’t add another one.
Then the jumpy backbenchers needed soothing down. So in addition to the controversial things not included (and waiting for a later date) like pension tax reform, we get the crowd pleasers of larger than required income tax cuts, the continuing freeze in fuel duty, the further support for tax-free saving, and positive help for small businesses and the self-employed. Enough there to soothe most troubled Tory brows – and to do Mr Osborne’s credential no harm.
But the small print shows that a lot of things have been kicked further down the road, to be picked up once the referendum is out of the way. For now, the Budget amounts to some fiscal relaxation, and hence the widening of the projected public sector borrowing. The spending cuts are not huge either, totalling £19 billion across the remainder of the Parliament. Maybe fewer flying feathers than many had nervously expected.
But then there’s that pesky self-imposed Fiscal Charter. Mr Osborne wants the books to balance by 2019/20, and again he says they will. But before we get there, there is £33bn more borrowing, compared to projections made only last autumn.
Hitting that much-vaunted surplus has got harder. The Chancellor has pencilled in some significant tax rises and some much bigger spending cuts for the final year of the Parliament. In the Budget statement he flourished cuts in business taxation, and was duly cheered by his own side. Small businesses will do well, but the small print shows that by the final year of the Parliament he will be hoovering up no less than £5.5bn more in business taxes, thanks to changes in corporation tax allowances.
At the same time, the additional spending cuts announced in Budget 2016, which are modest in the early years, surge to an extra £11 bn in the final year.
At the moment, 2019/20 looks like a year of significant tax rises and big spending cuts. That fits oddly with the normal calculus you would expect in the run-up to a general election.
Maybe we are not supposed to take them seriously. Maybe Mr Osborne thinks Labour so unelectable that he can afford to squeeze just before voters go the polls. Maybe he doesn’t expect to be Chancellor in the last year of the Parliament.
You can take your pick on how to read the 2019/20 chapter of the story told in Budget 2016.
For now, all hands to help Remain. Fiscal rectitude can wait.