Wednesday, March 18, 2015
No giveaways - but one or two gimmicks
Posted by David Smith at 04:30 PM
Category: Thoughts and responses

George Osborne stuck to his "no giveaways" pledge in the final Budget before the election - there is actually a modest fiscal tightening of 745m for 2015-16.

That did not stop him sprinkling a few crowd pleasers through his Budget, including cuts in beer, cider and spirits duty and a further freezing of the duty on petrol and diesel. There was the expected pledge to increase the income tax personal allowance, but not immediately. It will go up to 10,600 in April and then to 10,800 and 11,000 respectively over the following two years. The higher rate threshold will also rise.

The main message of the Budget was, as expected, sticking to the long-term plan. Achieving his original 2010 aim of having debt falling as a percentage of gross domestic product was clearly important to Osborne. It is duly achieved, on the Office for Budget Responsibility's new projections, but mainly by selling assets acquired - including the stake in Lloyds Bank - in the banking rescues of 2007 and 2008. As far as debt is concerned, the old distinction between the level including the rescues (financial transactions) and excluding them has usefully gone away, enabling this to happen.

Another important, if odd, priority was to get rid of the 1930s' spending comparisons, which emerged after the autumn statement in December. So 2018-19 will apparently mark the end of austerity, when spending is down to 36% of GDP - slightly higher than the low point under Gordon Brown in 2000 - after which it can rise in line with GDP. 36%, rather than 35.2%, will mark the low point.

It is all a bit silly, and it is all a very long way off, but then so were the 1930s' comparisons. In December Osborne wanted a 1% of GDP budget surplus by the end of the decade. Now he is apparently happy with 0.3%, or maybe has had that imposed on him by Davivd Cameron.

As for public spending generally, the combination of a coalition government, an OBR given the decisions late, and the fact that a joint policy can only be presented for the first year of the next parliament means that very little that is useful can be gleaned from today's Budget and the OBR analysis accompanying it.

The Treasury says the OBR's numbers for deep departmental cuts in 2016-17 and 2017-18 can be disregarded because a Tory government would make savings on welfare and from clamping down on tax evasion and avoidance (again). The Institute for Fiscal Studies will try to make sense of it tomorrow and we will also have the Liberal Democrats' separate projections. But it is all a bit of a mess.

Living standards will be a battleground in the election. Osborne laid stress on the OBR's projection of a rise in real household disposable income per capita in this parliament. As I noted at the time, this was also what the OBR was predicting in December, though it did not get much picked up. In practice, the debate between Labour - real wages are falling - and the coalition, real incomes are up, is just likely to give statistics a bad name.

On Thursday March 19, I gave a presentation on the budget at Reed Global's annual post-budget breakfast in the City. The presentation and accompanying article can be found here.