Wednesday, March 20, 2013
A budget to take your eyes off the deficit
Posted by David Smith at 04:00 PM
Category: Thoughts and responses

There were so many measures unveiled by George Osborne today that it will take teams of accountants some weeks to go through them all. In the absence of that, it can be said that the chancellor was imaginative, listened and acted on pretty well every idea coming from his backbenches (and at least one from the opposition) and produced plenty to think about.

This was not the dull "holding" budget we had been led to expect. The raising of the personal allowance to 10,000 next year was not a big surprise, and neither was the freezing of fuel duty in September. Perhaps the 2015 cut in corporation tax to 20% wasn't either.

But the cut in beer duty was a good populist measure for a chancellor under political pressure, the Help to Buy scheme went further than most expected on housing, and the new employment allowance looks good. As a growth package this was less of a damp squib than Osborne's earlier efforts, suggested quite a lot of thought had gone into this budget and was so much better than the March 2012 budget you would not have thought the same team was responsible.

There were, of course, disappointments. Growth was revised down further than had been expected - 0.6% this year is half the December forecast - and deficit reduction has stalled.

As the Office for Budget Responsibility's new forecasts, here, show, deficit reduction has come to a halt. The figures for 2011-12, 2012-13 and 2013-14 are, on an underlying basis, 121bn, 120.9bn and 120bn. Borrowing could easily rise, this year and next. As it is, debt won't be falling as a percentage of GDP until 2017-18.

Easily the most confusing part of Osborne's speech was when he dealt with the Bank of England's remit. The inflation target stays at 2%, but the Bank is being encouraged to use forward guidance and other measures to boost the effectiveness of monetary policy. It will also be required to set out the growth-inflation trade-off in its decisions. Interesting, if potentially confusing. The budget document is here.