Wednesday, July 08, 2015
Three messages from the budget
Posted by David Smith at 04:00 PM
Category: Thoughts and responses

For a long time during George Osborne's seventh budget it was quite hard to detect a unifying theme, or even a set of themes. As the first Tory-only budget for nearly two decades, and the first of the new parliament, it was in danger of appearing bitty and unfocused. Watching in the House of Commons, there were moments of Gordon Brown-like micro detail that had the chancellor's audience drifting.

It came together in the end, most notably with a living wage announcement intended to soften the blow of 12 billion of welfare cuts and demonstrate that the government is on the side of "hard working" people. In case that left some on the Tory side a little uneasy, the other big end-of-speech announcement, the commitment to spend at least 2% of GDP on defence, went down very well.

As an initial response, there seemed to be three messages:

- deficit reduction can be achieved at a more sensible pace, without risking credibility. The roller coaster spending profile of the March budget was never going to survive serious scrutiny, and it has gone. Achieving the budget surplus that is intended to be the future norm will take a year longer; instead of 2018-19, 2019-20, when a 10 billion surplus is projected.

- as well as being politically popular (though it has had a mixed reception from business), the new national living wage, which will begin at 7.20 an hour next April - for over-25s - rising to more than 9 by 2020, is a kind of super minimum wage. Just as the BBC is taking on some of the welfare bill by funding free TV licences for the over-75s, so business in general will effectively take on some of the costs of welfare, particularly tax credits, by paying more.

- For a government that said fiscal adjustment would come through spending restraint, there are some chunky tax increases in the budget. The new dividends tax will eventually raise more than 2 billion a year, vehicle excise duty reforms nearly 1 billion and increasing insurance premium tax from 6% to 9.5% 1.5 billion. Most of the burden of adjustment will still be on spending, together with the clampdown on tax evasion and avoidance, but these are decent revenue raisers.

More at the weekend.