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Any Budget close to a general election has more to say about politics than the economic condition of the nation. On Wednesday, George Osborne rose to deliver his sixth and final address of this parliament. It was an avowedly political statement, though how much survives May’s general election will depend on the result.
On two levels, this was not the Budget that the chancellor would have chosen to give. He was hamstrung by the Conservatives’ increasingly truculent bed fellows, the Liberal Democrats, who stood ready to veto any electorally influenced fiscal gifts Mr Osborne might have sought to distribute.
It also fell short of the final flourish the chancellor anticipated when he first took up his post. Back in 2010, the coalition’s plan was to eliminate the deficit by 2014, setting aside its last year for a pleasant haggle over the fruits of recovery. This has not come to pass. Sensible mid-course adjustments slowed the pace of consolidation. Public borrowing remains higher and austerity still stretches far into the distance.
Mr Osborne has redeemed his pledge to stop the debt burden rising after five years in office. He committed to pay down debt rather than indulging in expensive pre-election giveaways. With admirable consistency, he insisted that Britain stick to the road to solvency the coalition has marked out.
There was some softening to blunt the opposition’s charge that Mr Osborne harbours a Spartan enthusiasm for spending cuts. Just three months ago, the chancellor raised the prospect of a fiscal surplus of £23bn in the next parliament, a punishing commitment given that annual borrowing is still more than £80bn. In his statement, he relented, promising to increase public spending in line with economic growth from 2019.
The road ahead remains quite tough enough. The Conservatives’ plans require the next chancellor to find £20bn more in savings in just two years – much of it set to fall on threadbare departmental budgets. Even if he bears down hard on welfare, this is a scale of ambition that the coalition government has never come close to matching, despite a much easier starting point.
This was a poised performance from a chancellor who has grown in stature with every Budget since the “omnishambles” nadir of 2012. With each month’s economic data his political victory over shadow chancellor Ed Balls becomes more emphatic. The latter’s repeated warning that spending cuts would hobble the UK economy is belied by growth figures that put the UK at the top of the table of G7 nations. The expansion has become more balanced. The recovery has moved beyond the south-east to the UK’s less prosperous regions.
With little room to manoeuvre, Mr Osborne has engineered space to appeal to traditional supporters and wavering Tories. The income tax personal allowance threshold was raised further – to £10,800 next year. A costly and wasteful measure no doubt; but one easy to explain amid the electoral din. There were rewards for savers – including a tax-free £1000 threshold on investment income, and a “Help to Buy” Isa for those saving for a housing deposit. He doled out a little largesse to beer drinkers and motorists. The chancellor also hinted at raising the higher rate income tax threshold, a deep-blue commitment that the prime minister used to rouse last autumn’s Tory conference.
Any of these measures could be criticised. A government so insistent on cutting public sector debt should not be making it worse with bungs for wealthy savers or pensioners, let alone a tax cut for millions of middle-earners.
A more serious charge is that the government is neglecting the nagging problem of weak productivity. Mr Osborne boasted that Britain is set for growth of 2.3 per cent in coming years. This is admittedly better than Europe but nothing to walk tall about.
The Budget offered useful supply-side measures such as further devolution of power to northern regions. There were other sensible shifts in policy, notably the government’s fiscal support to a North Sea struggling with declining investment and low prices.
More is needed. For less than the eventual cost of his Help to Buy Isa, Mr Osborne could have increased the science budget by 15 per cent. The chancellor likes to sport a hard hat on construction sites, but has spurned infrastructure investment in favour of repayment of low-cost public debt. Tax simplification – other than the digitisation of returns – remains a pipe dream.
Overall, the Budget offered a coherent narrative of a nation which is still recovering from a financial disaster. He talked positively about the United Kingdom , a welcome change from Little England rhetoric that sometimes comes from the Conservative right. This Budget’s econmics will not decide the election, but it defines the battleground.