Budget 2013: ‘Aspiration nation’ asked to hang on
‘A BUDGET for an aspiration nation” was Chancellor George Osborne’s alliterative soundbite yesterday. But in sticking to his guns on deficit reduction, and with minuscule room for manoeuvre, a more apt phrase of Winston Churchill’s sprang to mind: “Keep b*****ing on”.
For business there was an encouraging list of ticked boxes – a further cut in corporation tax, a meaningful cut in employers’ national insurance, a major lift for “second steppers” on the housing ladder, measures to encourage equity finance for business and the scrapping of a planned fuel-duty increase prominent among them. It could have been a Budget written by the Institute of Directors.
For households, there was a lift in personal tax allowances which may help ease the pressure on lower income households – a little. And there was that reliable old stand-by, hauled out from a bygone era, a penny cut in the price of a pint of beer to keep up civilian morale.
But in the Commons’ chamber, the Budget speech was a noisy and cheerless affair, as befits a country now in the sixth year of economic misery and with no prospect of a meaningful recovery anytime soon.
Little wonder patience is running out and frustration rising. The atmosphere among MPs yesterday was like a swarm of wasps trapped in a jar. The yahboo decibel count threatened to drown the speech altogether.
Time after time an ineffectual Deputy Speaker tried to call for order. And, as if all that was not unseemly enough, there was the spectacle of the Leader of the Opposition reading the contents of the entire Budget in London’s Evening Standard – the greatest budget leak of all time.
Six years into a trough for the economy that is set to last longer than the Great Depression, George Osborne left no room for hope that a meaningful recovery is near. Indeed, despite all the gloomy forebodings, the biggest shock was the latest downgrading of the Office for Budget Responsibility’s growth forecast this year to just 0.6 per cent.
Let’s just remind ourselves how it got there. Back in the Budget of 2010, it forecast growth of 2.8 per cent for 2013. That was cut in last year’s Budget to 2 per cent and further lowered in the December Spending Review to 0.8 per cent. Now it has been lowered still further.
Expectations have been not so much lowered as crushed. The growth forecast was not so much been cut as sent flying down a steep staircase, bruising and bleeding with every tumble. And who can be confident we have now really hit bottom?
For 2014, the OBR is forecasting growth of 1.8 per cent – strangely, an upgrading of its December 2012 prediction of 1.5 per cent. But who dares believe this? What is clear is that a return to the long-term trend rate of growth – 2.5 per cent – will not be seen for three years.
The hope among the faithful is that this will prove Mr Osborne’s “darkest hour” and that his determination to stand firm will be seen by history as a bravura show of dogged endurance: grim is good. In truth, he had little alternative given the limitations he set not to finance stimulus by yet more borrowing.
Even if the stance does pay off in time, history doesn’t get to vote in elections. His strategy has to prove it or lose it by the end of next year if Conservative political fortunes are to show a credible improvement.
And that is expecting a lot. Even in 2015 the UK will still not have clambered back to trend growth. And, on debt, the latest predictions are that, in 2015-16, this will have risen to £1.4 trillion, on its way to a scary 85 per cent of GDP and more. Put another way, more than £600 billion (or about £25,000 per household) will be added to Public Sector Net Debt over the course of this parliament.
As for the annual debt interest charge, this will have spiralled to £57.8bn. Little wonder the mood across the political class resembles that of a swarm of angry wasps. It is not just the Chancellor who is entrapped but a political system heavily reliant on ever-rising public spending to ensure a “feelgood factor”. There is nothing feelgood about £60bn being sucked out of tax receipts every year to pay for money already spent.
And the Chancellor will be praying there is no rise in interest rates until then. As if a near £60bn interest charge was not enough, the small print in the Budget Red Book reveals that every one percentage point rise in debt interest would add £800 million to the debt interest bill this year and £4.4bn in 2015-16.
There was little in this Budget that could be said to move the needle on the economic dial, still less to make it a game-changer. But there was a wide range of measures that will help business and may raise confidence. In particular, the extension of the house purchase shared equity scheme to second-time buyers – interest-free loans of up to 20 per cent of the value of new-build properties – was exactly what Homes for Scotland wished for.
It should help housebuilders and confidence, with the Bank of England guaranteeing £130bn of new mortgage lending for three years. These and other capital spending measures totalling £2.5bn will be financed by a 1 per cent cut in most government departments in each of the next two years. A further £11.5bn of cuts are earmarked in the 2015-16 Spending Review, up from £10bn in the Autumn Statement. Savings on public-sector pensions and tighter tax avoidance measures should also help plug the gap.
The inevitable cry will be that the Budget falls far short of the fiscal stimulus required. But let’s not overlook the stimulus already under way. On top of the £500bn-plus of deficit spending so far, the UK has enjoyed the lowest interest rates ever, above average inflation that has been above the 2 per cent target rate for 39 successive months, and £375bn of quantitative easing, almost certainly now to be increased. Savers have taken unrelenting punishment. The hope now is that, with that tick-list of items for business, the barriers to investment – in particular the spending of the huge nest-eggs that corporate UK has accumulated over the past three years – have been lowered and that confidence will gradually improve.
The big reservation remains whether exports can be lifted to improve net trade – our Achilles’ heel. Here a recovery in the eurozone, which accounts for some 40 per cent of UK exports, is vital. But the stand-off in Cyprus has the capacity to plunge the single currency region – already forecast to remain in recession – back into crisis. Like Micawber, the Chancellor desperately needs something to turn up.
But equally, he needs “events” like a hole in the head. Welcome to plod-on Britain, and another year of hard pounding.
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Wednesday 22 May 2013
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