If there is one thing that is certain about this week’s Budget, it must be that it was not the biggest economic story that could determine our wellbeing.
For all the smart populism of George Osborne’s pick-and-mix of tax cuts, subsidies and whizz-bang schemes, it is Cyprus that is dominating politics. The simple fact that a government could effectively legislate to steal a share of depositors’ savings to fund a bank bail-out has woken us up to just how rapacious and amoral defenders of the eurozone have become.
Yet there are still political leaders in Britain, most notably in the SNP, who would have us join the euro if they could.
The proposed levy on Cypriot bank accounts is not some German heist. Angela Merkel’s government is quite reasonably offering to bail out the Cypriot government so long as the Cypriots put up some money themselves. It is the Cypriot government that has come up with the novel idea of raiding the accounts of depositors who, it can be fairly argued, are the innocents in this mess.
By definition, the depositors – many of whom are foreign and especially Russian and British – have not borrowed beyond their means but have saved for their future, most usually their retirement.
If this is approved in Cyprus, where next? Is there any other government that would not seek to do the same?
One would like to think it could not happen here and the highly-negative public reaction will at least warn politicians to think twice if they ever contemplate trying it – but politicians can become desperate when put in a corner.
The Cypriot government did not have the £6 billion asked of it, clearly it could not borrow it (although that’s rather what Labour keeps saying we should do in Britain) and rather than cut public spending thought it should legislate to tax people by confiscating a slice of their savings.
Apart from the obvious moral injustice of the proposals the bigger picture – and why it could be so important to Britain – is the continuing eurozone crisis and how this is depressing our economic recovery.
The eurozone remains, at some forty per cent, the largest single market for our exports and when it is in recession it naturally impacts on us, too. While our trade with the likes of China, India and Brazil has been growing it has not been enough to make up for the fall in sales to Europe. The last thing Osborne needs is for the eurozone crisis to drag on – but as the latest instalment in Cyprus shows it is going to do just that. Whatever one may think of Osborne, David Cameron and Nick Clegg, this is not something that Ed Miliband, Ed Balls (or Alex Salmond) can fix either.
So, I now turn to the Budget, which in the context of the European scene had its pleasing moments but also contained a poison pill.
The Chancellor is in a straitjacket of his own making. He has told us we will have austerity to end the deficit and start tackling the debt when he has instead allowed public spending to rise. He therefore has little room for manoeuvre until export markets give him the growth that brings improved tax receipts.
The good points of the budget such as the abolition of the beer duty escalator, the 1p cut in beer duty, the reduction in corporation tax to 20 per cent and bringing forward the raising of the personal tax allowance to £10,000 – among others – will all be financed by efficiency savings and improved management – which is why they can only be marginal rather than radical proposals.
The biggest and most important change is the new £2000 relief on employers’ national insurance contributions (NIC) that is expected to release 450,000 businesses from NIC payments on staff altogether.
This should make a real difference to calculations that bosses make about hiring or retaining staff.
Getting more people into work is the best thing that could come of this budget and the idea reminds us just how daft the previous government was to raise a tax on jobs.
Hopefully, the Chancellor will extend this scheme. However, there was a worrying initiative that, on the face of it, seemed smart but will store up trouble for the future and that is the £130 billion subsidy to mortgages intended to help get the property market moving.
This will undoubtedly help people buying a house but it will also be riddled with anomalies for it essentially means that taxpayers (including those without a home of their own) will be subsiding people buying houses up to £600,000 in value.
If there are not enough new houses built then the subsidy will simply be eaten up by a rise in house prices and the Chancellor will have started a new property bubble.
We are in effect creating our own sub-prime mortgage market – and if we just stop for a minute we might realise that (American) politicians meddling in the property market in the 90s started this whole economic catastrophe.
It may take a decade but we are now laying the seeds for the same again in Britain.