Debt will remain high for decades, writes Stephen Boyle
Back in 1947, when austerity was really austere, the chancellor of the exchequer, Hugh Dalton, had to resign after divulging details of his Budget to the Star newspaper.
Last month, George Osborne flew to Hong Kong and gave a speech that was a trailer, perhaps even a spoiler for this Budget.
The Chancellor told his Chinese audience he had two economic concerns: finishing the job on the public finances and rebalancing the British economy.
We learned again today that the public finances remain precarious. The government will borrow £95 billion in 2014-15. It will be 2018-19 before the books balance. Debt will remain uncomfortably high for a couple of decades. Yes, decades. That leaves the UK vulnerable to higher interest rates – interest payments will top £50bn next year – and to events, such as another flare-up in the eurozone.
That’s why this fiscal give and take totalled only £140 million over five years. Austerity is a marathon and we are only now approaching the half-way mark.
New forecasts from the Office for Budget Responsibility (OBR) confirmed the recovery is strengthening. It expects growth of 2.7 per cent this year and decent expansion for the foreseeable future. But it also said that recent growth has been unbalanced, echoing the Chancellor’s second concern. He said in Hong Kong that he wanted business investment and exports to contribute more.
Doubling the amount firms can offset against tax and extending that allowance until the end of 2015 should boost capital spending. Could the government be boxing itself into a corner here? Just as routinely deferring rises in fuel duty makes it ever more difficult to reinstate them, will extending allowances be a drug it’s hard to quit?
In a modern economy, investing in equipment, vehicles and buildings is becoming less important than investing in intangible assets like intellectual property. So, funding for the Turing Institute – which will focus on big data and hard maths – and “catapult centres” to exploit “the world’s hardest material” graphene and cell therapy is welcome.
Boosting overseas sales is tougher. Even with additional funding for exporters the target of doubling sales in the decade to 2020 is a big ask – the OBR says the UK’s share of world exports will decline over the next five years.
Perhaps the biggest announcement was on pensions. Mr Osborne is giving people with defined contribution pensions more freedom to choose when and how they take their pension savings. Crucial to the success of this change will be the quality of the advice that people receive as they approach retirement. When today’s front benches are sitting in the House of Lords, it is this measure that we will be discussing, for good or ill.
• Stephen Boyle is head of economics at Royal Bank of Scotland