WITH SO many Budget lines leaked in advance, what is the purpose of sticking with the formal Budget speech?
Is it not time we questioned the value of this moth-eaten and increasingly vacuous annual ritual? There are certainly more serious reasons for questioning this annual theatrical joust with taxes and debt.
First is the spurious accuracy attaching to forecasts of growth and the size of the annual budget deficit. Key forecasts are no more accurate than they were 30 or 40 years ago. This time last year the Office for Budget Responsibility forecast 1.7 per cent growth for 2011, rising to 2.5 per cent this year and 2.9 per cent in 2013. But last November it slashed its 2011 forecast to just 0.9 per cent and lowered its 2012 forecast to 0.7 per cent. The 2013 forecast was also cut. Yet these forecasts have a profound influence on debt and deficit targeting. When these slip, everything else wobbles.
As for the Budget deficit, the figures have certainly bounced around over the last two years. Since June 2010 the OBR’s deficit forecast for the year just ending has gone from £116 billion to £127bn. That it might come in slightly nearer the discarded March 2011 forecast of £122bn is now to be seen as cause for relief. As for Public Sector Net Debt, the OBR’s estimates as to when the peak might be reached have gone since June 2010 from 69.4 per cent of GDP (£1.28 trillion) in 2013-14 to 77.7 per cent of GDP (£1.47trn) in the 2014-15. This hardly suggests progress in debt reduction. Annual budgets may even work to distract politicians and make the debt burden worse.
Another key objective of the Budget this year is to spur recovery and help boost finance for small firms. But what’s happened to the eight such initiatives announced so far? These include the National Loans Guarantee Scheme announced last November providing up to £20bn of guarantees for bank funding. But several bigger banks have raised concerns about whether the scheme will in fact mean cheaper loans for SMEs.
The Enterprise Finance Guarantee Scheme last March promised more than £2bn of fresh lending. But applications are falling, with small businesses complaining that banks are requiring guarantees from individuals despite the government’s underwriting.
A £2.5bn bank-led Business Growth Fund was launched in May 2011. To date it has funded just four projects. Do budgets and tax changes really make much difference to economic growth? A research paper covering long-run growth rates of 17 OECD countries by economists John Landon-Lane and Peter Robertson had a sobering conclusion: “There are few, if any, feasible policies available that have a significant effect on long-run growth rates and any policies that can raise national growth rates must be international in scope. The results therefore have bleak implications for the ability of countries to affect their long-run growth rates.”
Turn the sound down till it’s all over? It’s so tempting.