There were three salient points in today’s Budget. First, with better revenues this year and savings on debt service and welfare, the Office for Budget Responsibility has cut its forecast by £1bn-£2bn a year for the next four years since the Autumn Statement. Second, the chancellor George Osborne resisted the temptation to use this improvement to fund a pre-election bonanza. The Budget is roughly neutral overall, with modest giveaways (eg higher personal allowance), balanced by “takeaways” (cap on pension contributions, measures to curb tax evasion and avoidance). As a pre-election Budget, this is very cautious. The fiscal framework is clearly exerting a powerful discipline. Third, the Budget cuts the post-election fiscal restraint from 5.3 per cent of GDP to 4.5, and no longer aims to overachieve so much versus the Charter for Budget Responsibility targets. And there is scope to reduce post-election austerity further, while meeting the CBR targets.
In what may be the chancellor’s last Budget, let us attempt a retrospective. Mr Osborne has some notable achievements. For example, with rises in the personal tax allowance (and tax credits inherited from Labour), the tax wedge on people in low-paid work is among the lowest of any advanced economy. His most important achievement is probably the creation of the CBR and OBR, with reasonably clear fiscal targets and independent forecasts. This has ended the old routine, whereby pre-election governments often produced giveaways and post-election governments usually had to make emergency tax increases to repair the damage. Mr Osborne has established a more honest and transparent framework for fiscal policy.
Moreover, with Labour, the Liberal Democrats and Conservatives all committed to meet the CBR targets, the post-election government is likely to stick to the overall path of gradual fiscal consolidation laid out in this Budget for the next two or three years at least.