We began our preview of this week’s Budget by wondering how worried the Chancellor is. Now that the Budget has actually been delivered, the answer is… ambiguous.
There was certainly cause for worry within Osborne’s Red Book. Thanks not just to the global economic situation, but also to our country’s persistent productivity problem, the Office for Budget Responsibility downgraded all of its growth forecasts for the next five years. And this, of course, had grim ramifications for the public finances. Tax revenues are lower than was previously expected, whilst the government’s borrowing – and the national debt that accumulates from it – is higher.
In fact, Osborne has now missed two of his three fiscal targets. One of these, the welfare cap, was breached at the time of the last Autumn Statement. The other, the ‘supplementary target’ to have the national debt falling as a share of GDP in each year until 2019-20, involves a new infraction. The OBR now expects that the debt will rise from 83.3 per cent of GDP in 2014-15 to 83.7 per cent this year.
And Osborne’s remaining – and most important – fiscal target is under threat too. The OBR still forecasts that he will bring the public finances out of deficit, and into a surplus of £10.4 billion, in the target year of 2019-20. But this looks increasingly unrealistic. The deficit forecast for the year before, 2018-19, has leapt from £4.6 billion at the Autumn Statement to £21.4 billion now. Can the Chancellor really eradicate that total, and then some, in one year?
We have gone through these numbers not to bore, but to demonstrate how difficult Osborne’s position is. The great promise of his Chancellorship – to fix the public finances – could end up coming to nothing.
So, how is he responding? This is where the ambiguousness comes in. Wednesday’s Budget certainly contained some tough policies for restraining the deficit. The most controversial, which is already under heavy criticism from all parts of the political spectrum, is Osborne’s £4.4 billion cut to the Personal Independent Payments made to disabled people. To add to this, the Chancellor has also asked for £3.5 billion in extra efficiency savings from government departments. He has imposed new taxes on the fizzy drinks industry and others.
Yet, even though the Budget was a taking one overall, it also contained quite a lot of giveaways. There was another hike to the tax-free personal allowance. There were new savings accounts to which the state will contribute on your behalf. There were cuts to the levies faced by small businesses. There were… well, you get the point. The Chancellor was not entirely severe.
We can barely complain about this, particularly when it was motorists who benefited from the most surprising of the Budget’s kinder policies. Fuel duty will be frozen at 57.95 pence a litre for 2016-17, which is the sixth consecutive year it has been kept at that level.
But it is all quite strange. Many people expected Osborne to raise fuel duty in this Budget primarily because he had both an opportunity and a necessity to do so. The opportunity arises from the price of oil: fuel costs are relatively low at the moment, meaning that there will be few better times for the Chancellor to ask a bit more of motorists. The necessity is due to the state of the public finances. Osborne forewent £billions of revenue by freezing fuel duty during the last Parliament. He could do with that sort of money now.
And yet Osborne chose not to respond to either the opportunity or the necessity. Fuel duty was frozen.
Many of the Budget’s other policies were of another peculiar sort: they were talked up to be big, but were actually quite small. The infrastructure announcements certainly fell into this weight-class. We heard about new money for Crossrail 2 and HS3, yet the money didn’t add up to much by the usual standards of public spending. The former received £80 million to help plan out the possibilities. The latter got £60 million for the same purpose.
This isn’t to criticise these policies – we’re pretty keen on infrastructure on this blog, and it’s good to see Osborne making progress on that front. But these big-small things are another example of this Budget’s ambiguity. It’s unusually difficult to know what to make of it all. But perhaps that is actually what we should make of it.
There is much more of interest between the covers of Wednesday’s Budget. Driverless car trials. CCT reviews. Salary sacrifice. But I won’t detail them now, for we shall be covering them all on this blog in the coming days and weeks. Now there’s a promise that isn’t ambiguous.