Budget 2016: sweeteners today could taste bitter by polling day
The first Budget after an election is normally packed with tough measures to raise taxes and cut spending in the hope that as polling day looms, those measures can be reversed and electors offered bribes to vote the Chancellor back in.
In 1997 Gordon Brown unveiled the windfall levy on energy companies to fund the New Deal employment programme while in 2010 George Osborne announced reductions in public expenditure to reach £17 billion by the end of the parliament.
This year broke that rule. A whole host of micro tax cuts were announced up front, the tax hikes were on crowd-pleasers such as the sugar tax that raised just £285 million in this fiscal year and will give back £7.6 billion next year.
The list is endless: more of the lowest paid were taken out of the reach of the taxman; many middle class workers will find they no longer fall into the top rate band; petrol duty has been frozen; as has beer and cider duty in pubs; corporate tax is cut; North Sea taxation is cut.
But scroll forward a few years and the pain has been deferred: the final year of this parliament will see the government take some £13.5 billion out of the economy and another £4.2 billion in the first year of the next one (assuming the Tories are re-elected). The figures are in the “Red Book” for those hardy enough.
The 2019/20 fiscal year that ends a month before the likely date for the 2020 election has factored in a £3.5 billion cut in government spending, a fall in capital investment and £2 billion clawed back from public sector pensions.
Even the normally sober accountants PwC warn could “push some organisations nearer to the edge at the end of the Parliament”.
Any hopes he might have had of announcing jam today were undermined by the cuts to economic growth. He was forced to announce that the Office for Budget Responsibility had cut the outlook for economic growth severely.
GDP growth for this year has been revised down to 2 per cent from 2.4 per cent and to 2.2 per cent for 2017 from 2.5 per cent.
The Chancellor has gone to great lengths ahead of the Budget and in the speech itself to blame the gloomy outlook on the downturn in the global economy and particularly on turbulence in financial markets, slower growth in emerging economies like China, and weak growth across the developed world.
political imperative means that the Chancellor has had to roll the dice on an economic upturn
In fact the real cause was closer to home: it also cut the outlook for productivity growth, which will make long-term higher growth harder to achieve.
“With the period of weak productivity growth post-crisis continuing to lengthen, we have placed more weight on that as a guide to future prospects,” it said.
In normal circumstances Osborne would have piled the pain on this year. The reason for this deferred pain is political. Firstly Osborne and Prime Minister David Cameron were determined to do nothing to antagonise any backbenchers who might be wavering over the referendum on Britain’s membership of the EU.
Secondly having missed his targets on ending the deficit by 2015, he is determined to turn a budget deficit of more than £70 billion this year into a surplus of £10.4 billion in 2019-20 in order that he go into the election having finally put the public finances back into the black after 10 years of austerity.
But the political imperative means that the Chancellor has had to roll the dice on an economic upturn in four years time to allow for the gloomy forecasts to be rewritten in the 2020 budget.
A real sign that this was a political rather than economic budget was the extent to which Osborne raided other departments for measures to help cover up the lack of economic rabbits being pulled out of hats.
Presumably the delay to the review on obesity and the decision to impose a sugar levy had been held back (and kept away from the Department of Health) for this reason.
Equally the decision to insist that all state schools will be academies by 2021 (with a bit of extra money thrown in) was blatant theft from Osborne's near neighbour on the front bench, Education Secretary Nicky Morgan.
Osborne - and his Chancellor assuming he is Prime Minister by then - will be hoping there will be that good news on the economy between now and then, and that this major fiscal tightening will not need to happen.
There is already a fair amount of pain contained in the Budget that the Chancellor did not mention. The cuts to the 64,000 disabled people who reply in Personal Independence Payments will now amount to £4.4 billion with £1.3 billion coming in the 2019/20 year alone.
When he repeatedly said that this was a budget that put the next generation first, he meant the next political generation after Cameron steps down - either after losing the EU referendum or at a time his choosing during this parliament.
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