OSBORNE’S politically-calculated offering brings a glimpse of happier times after the gloom of previous years, writes Bill Jamieson
For all the earnest talking down of Budget expectations, it hardly seemed worthwhile showing up for the big day. But George Osborne not only brought out some big surprises but also delivered a Budget that in many respects defined his chancellorship.
It was as significant for the political calculation behind it as for the confirmation from the Office of Budget Responsibility (OBR) of further upgrades to its growth forecasts for this year.
With next year’s appointment with the voters clearly in mind, the Chancellor could fairly be said to have resorted to the old nursery rhyme advice about weddings: “Something old, something new, something borrowed, something blue.”
The old proverb also adds the line, “and a silver sixpence in her shoe”.
There’s no silver sixpence – but he unveiled a new one pound coin which looks remarkably like the old threepenny bit – an unintended reminder, perhaps, of what inflation can do to the spending power of money.
There’s still plenty of borrowing behind this year’s Budget presentation. But there’s also much that is blue to rally heartland Conservative voters – in particular, the substantial increase in the maximum that can be put into a tax-sheltered individual savings account (Isa) and the major simplification both of Isa and of pension savings.
For a moment, it was possible to feel almost grateful to the Chancellor – but only for a moment. For the past five years savers and pensioners have taken a terrific battering, helpless against the deadly combination of ultra-low rates of interest on savings accounts and inflation which tore into the spending power of money put aside for retirement.
Here was a constant plunder of the prudent. The wonder is not that the household savings ratio has fallen in recent years but that people troubled to save at all. And it has angered many that the income from savings accumulated out of already taxed income should be further attacked by the taxman. The raising of the Isa ceiling while welcome is chronically overdue.
As for Osborne’s business constituency, the help for investment and exports is thoroughly in line with that business lobbies were calling for.
The confirmation of further progress – albeit four years behind schedule – in turning the Budget deficit into surplus should allay residual fears of further new taxes to deal with the gap between government spending and revenue.
On the key figures for government spending and borrowing, he said the deficit this year would be £12 billion lower than previously forecast at £108 billion or 6.6 per cent of GDP. And the government was on track to post a surplus in 2018-19.
Pleasing though that prospect is (at last), it is not in his gift to deliver, as this sunny upland is more than three years beyond the next General Election. Such long-range forecasts, as we recall from the Brown era, are highly perishable and vulnerable to events. And the £108bn deficit still represents a massive gap between what the government raises in tax and what it spends.
And remember that the deficit is only the amount by which borrowing rises each year. As for overall Public Sector Net Debt, the Chancellor made much of the forecast that this will now peak a year earlier than previously expected at “just” 78.7 per cent of GDP in 2015-16.
In fact, the debt figure in 2014-15 will hit £1.35 trillion and this figure will keep rising well after 2015-16 to hit £1.55tn in 2018-19. Heaven help us if there’s any unexpected bump in the road between now and then.
But gone for now were those earnest admonitions in his earlier budgets for more sacrifice and warnings of tough times ahead. Instead, we were given a glimpse of the sunny uplands – and a fair scattering of populist measures – the raising of the personal tax free allowance from £10,000 to £10,500, lifting three million out of tax; a freeze on whisky duty which will please the industry in Scotland; an additional £140 million for flood repairs and £200m for fixing those wretched potholes, the cancellation of the planned fuel duty increase, a penny off beer duty, and (chancellors can never stoop too low for headlines) a cut in bingo tax from 20 per cent to 10 per cent.
We have come a long way from Osborne’s first Budget of 2010 when the sky was black and we were braced for the worst.
The recovery from recession has been long in coming. But now we have a further rise in the OBR forecast to growth of 2.7 per cent this year – far higher than most had dared to hope just a year ago.
None of this can be taken for granted. And to address concerns about “an unbalanced recovery” the Chancellor announced a clutch of specific measures designed to broaden the upturn. For exporters, the doubling of the amount of finance available to £3bn, together with lower borrowing rates, will be welcome news.
For business, the investment allowance which can be offset against tax is to be doubled to £500,000 and extended to 2015. Manufacturers who are heavy energy users will get substantial reductions in their energy bills. Small house-builders stand to get a £500m package of help. There will be extended grants for 100,000 new apprenticeships and enterprise zones get a three year extension. That ticks most of the “would like” items on the business list.
For the North Sea oil industry, the Budget news was more mixed. The Chancellor re-iterated the commitment to an oil tax review. This came with a new OBR forecast that £3.2bn would be generated for the UK in tax receipts in 2016-17 – the first year of a mooted independent Scotland.
This compares with a Scottish Government “most pessimistic” estimate in its white paper of £6.8bn. The OBR projection was used by the Chancellor yesterday to underline his warnings of how vulnerable an independent Scotland would be to oil price and production fluctuations. That brought derision and gestures of dismissal from the SNP benches.
But it was the raft of unexpected changes on Isas and pension savings, together with the announcement of a million new “pensioner bonds” offering higher rates of interest of up to 4 per cent that grabbed most attention and which will mark out his Budget for years to come.
Fiddling around with “cash Isas and “equity Isas” is now banished at last with the introduction of one new and substantially enlarged single Isa pot. Backbenchers grumbling about the measly increase in the threshold for higher rate tax have cause for quiet reflection.
The pension simplification should prove a boon for Scotland’s fund management sector and the enhanced appeal of pension saving with access to larger tax-free lump sums and an escape from low interest rate annuities should help the likes of Standard Life and Scottish Widows in their pensions marketing and sales.
But a major caveat should be entered – people are living longer, and the new proposals for much easier access to pension pots may encourage pensioners to splurge the money in the early years of retirement leaving them dependent on the state in later years.
Splurging all the money too early? Going for broke? Leaving ourselves defenceless? With a £1.3tn debt pile to concentrate minds, governments would never ever do that, would they?