This budget was striking for its grasp of the big challenges facing the countryby / July 8, 2015 / Leave a comment
This was a clever and far-sighted Budget from George Osborne. Sure, it was tactical as ever, the Chancellor quoting Alastair Darling and other senior Labour figures in support of his points. It stole the curbing of the non-domicile tax status, one of Ed Miliband’s few campaign initiatives that was both inspired and popular, straight from the opposition script.
But it set out to do a lot more than that. The framework was still that of the austerity Chancellor, and the ambitious targets for returning national finances to the black remain the big vulnerability of this Budget, where Greece, or the patchiness of the international recovery (see China’s stock market travails this week), make his forecasts vulnerable. Those projections are this Budget’s weakest link. Nor has he fully explained why he thinks the rate of the reduction of the deficit is right, beyond asserting simply that it is.
Yet Osborne has said recently that he has come to realise the extent of government’s power to change lives (with an echo even if inadvertent of Margaret Thatcher’s saying that “economics is the method, the object is to change the soul”). Much trumpeted as the first pure Tory Budget for 18 years, this set to reshape the way that British plan their work, their families, and choose to run their government. There are reforms that will hit some people hard, particularly students and some working families hard. But it would be a caricature to call it merely an ideological attempt to slash back the size of the state, as some inevitably will.
It will also be followed by the end of the week, he said, by a White Paper on productivity. This, together with the commitment to northern investment, may prove one of the most important exercises of the start of this parliament. Britain’s stalled productivity—the amount that workers produce per hour—is arguably the country’s greatest economic problem. Without changing that, it is hard to see why wages will rise above inflation in a sustained way. Yet the answers are hardly easy, in the face of international competition; they lie in infrastructure investment, innovation and in education, which all governments love to talk about but fewer deliver on.
There was little—but still more than usual—about education in this Budget. The replacement of student maintenance grants with loans will cause many to wince, although the raising of the amount available may ease it a bit, as may the lifting of the cap on student numbers. Osborne was too airy in his delivery, however, about whether this will discourage those from poorer backgrounds from going to universities—and the best universities. There is no ground to be complacent about the small improvement now underway, and the student loan system remains an incoherent tangle, costing the government far more than its projections reckoned. The commitment to three million apprenticeships, however, is useful. It is to be hoped that the White Paper has much more to say in detail on how to revive and repair Britain’s patchy and neglected technical education system.
The Northern Powerhouse, one of Osborne’s most imaginative (and cheapest) ideas from the last parliament got bigger—more commitment to spending on regional transport, conversations with Leeds, Sheffield and others about more powers in return for local mayors, a regional “Oyster” card to make journeys easier. There was a dig at the Scottish National Party that now it had more power, it would have to show what it did with it—a justifiable barb, in Prospect’s view (see our last cover on holding the SNP to account for eight years in power).
The big changes, however, were in tax and welfare. The systematic changes to welfare and the cuts to working tax credits were well trailed in advance—tactically, we can now see, to get the bad news out of the way. Too often, Osborne’s team has done this, letting it be understood at the same time that there will be some other measures to help people—but the sunnier side never arrives. His sequence of announcements in the autumn, at the party conference and then the Autumn Statement, had exactly that quality, when he warned of the cuts to come but offered nothing in amelioration—and appalled his party so much in the run up to the Election that he diluted his professed targets by the Budget in the spring.
This time, though, there was more balance. He went out of his way to list measures that would hit the higher paid and international elite, not just the curbing of the rules on non-doms but the removal of the higher-rate tax relief on buy-to-let mortgages. Had he not done something like this, however, he would have been brushing aside the explicit warnings of the Bank of England about inflation in the housing market. All the same, there was too little in the Budget about how to stimulate house building or about the housing predicament for those struggling to rent or buy. The raising of the inheritance tax threshold for passing on family houses was unnecessary, and will give ammunition to those who say the party looks after the better off as a matter of reflex. The Chancellor called it a basic human instinct to pass something on to the next generation, although in one of Caroline Lucas’s better tweets, she retorted “what about a clean environment?”, making the point that everyone has their own interpretation of that instinct.
Welfare reform, in contrast, was the hard centre of the Budget. The thrust of it, he said again and again, was to ensure “fairness” for those in work—that they did not support people in houses which represented a higher standard of living, and that the availability of benefits would not discourage people from seeking work. The “learn or earn” demand on school leavers may produce rapid shifts in how people handle choices in these years, although could also produce hardship; fine to tell people to move to find work, but housing shortages can make that prohibitive. There was also black comedy in the intrusiveness of the end to child benefit after the second child; an allowance will be made for multiple births, he said, a phrase that returned him for a second to the bean-counting Chancellor of his first, clumsier years.
Read more on the budget:
These dense, interwoven changes to the benefit system are intended to get people to behave differently, and quickly. Iain Duncan Smith, bobbing on the balls of his feet and beaming from the side, was complimented for his “Herculean efforts” in trying to bring the Universal Credit unified system of benefits into reality.
One retort to this is that it will force people into jobs that are very low paid, even if the numbers in work keep rising—one of the striking achievements of the last government, which mystifyingly, the Tory campaign made little of until the final months. That may in many cases be true, although the past year has seen a big jump in the (very broadly defined) “professional services” category of jobs. Hence the rabbit produced from the hat at the end of the speech (and the BBC’s Nick Robinson proved prescient in wondering, half way through the speech, whether the corporation tax cuts would be a prelude to compulsory wage rises).
The announcement, in a final flourish, of a national Living Wage, an immediate effective jump in the minimum wage, rising to £9 an hour by 2020, not only stole one of the key themes from the opposition. It took one of the key steps that Britain needs to take, in order to become a higher wage economy.
For the past week, since Osborne’s team began to trail the cut in working tax credits, the retort has been that it was all very well for him to say that the state should not have to top up low pay from companies, but if he was just going to hope that wages would rise, he would be guilty of wishful thinking. Meanwhile, a lot of people would see their standard of living fall. In the Budget, though, he forcibly shifted this burden from the state to employers–while compensating them with other tax cuts. Employers’ groups didn’t like that at all yesterday, but the cut in corporation tax is a big bonus to them which they cannot have expected either.
This is a radical Budget. That is not, though, so much because this is the first “pure Tory” Budget, liberated from the compromises of coalition. More than that, it shows the benefit of having been in office for five difficult years already, and some of the lessons learnt. If the growth forecasts hold up—and that is a big “if”—it could even look, in retrospect, like a significant success.