Twelve months on from his last Budget the Chancellor George Osborne was always going to play his cards cautiously today. Despite the London Evening Standard’s best effort to inject some high drama into today’s Budget by mistakenly leaking the contents before Mr Osborne had taken to his feet in the Commons, when he did there were no dazzling slights of hand from the Chancellor as he leaned on the dispatch box.
Mr. Osborne described his centre piece economic announcement of the parliamentary year as a ‘Budget for those who aspire to work hard and get on’. It was solid and workmanlike, and once again it reiterated the Coalition’s determination to stick to its course, pay down the deficit and repair the nation’s public finances.
There was little surprise in the contents of Mr. Osborne’s red box. Commentators have voiced repeatedly in preceding weeks how limited the Chancellor’s options are for manoeuvre. Growth is as flat as a pancake, tax receipts continue to slide and annual government borrowing shows no real signs of receding. But Mr. Osborne was clear that this Budget was anchored to his economic plan combining monetary activism with fiscal responsibility and supply side reform.
Yesterday, in a precursor to today’s announcement, the Chancellor informed his cabinet colleagues that he was cutting Whitehall budgets by a further 1% a year for the next three years to fund infrastructure build. In addition to the departments already ring-fenced from cuts – Education, Health and International Development – special protection was given to HMRC while police budgets and local government funding will be protected for the first year. The Defence budget will be allowed to roll over £1.6 billion underspend to cover off 2014-15. This outcome clearly demonstrates the effective lobby campaign undertaken by the ‘National Union of Ministers’ the alleged cabal made up of the Home Secretary Theresa May and the Defence Secretary Philip Hammond who have openly challenged the Treasury over further cuts to their departmental expenditure.
Mr. Osborne expects the changes to spending to save the Treasury around £2.5 billion over two years with the savings being used as a down payment for the June Spending Review (which will cover the fiscal period 2015-16) delivering around £1.2 billion of the £10 billion spending cuts he hopes to be able to deliver in that period.
In a Budget that had little to cheer about, the Chancellor did his best to tinker and put a positive sheen on his announcements. The most eye catching measures were bringing the £10,000 tax free allowance forward a year to 2014, 20% tax relief on childcare up to £6,000 per child from 2015 and scrapping the planned rise in fuel duty which was due to take effect in September. The cancelled rise in beer duty, the abandonment of the beer duty escalator coupled with ‘a penny of your pint’ will have endeared Mr. Osborne to Sun readers as the tabloid campaigned assiduously for change.
Despite the Chancellor’s reference to gloomy growth figures, the Office of Budget Responsibility did offer a glimmer of optimism as it confirmed that the UK had avoided a ‘triple dip’ recession with the latest quarter’s figures recording growth, albeit virtually stagnant with 2013 output figures forecast to reach 0.6%.
As a fiscally neutral Budget there were never going to be any giveaways to the frustration of the Conservative backbenches, but the Chancellor will have placated a large tranche of his party critics by fast forwarding planned corporation tax reduction to 20% in 2015 (although this will be offset by an increase in the bank levy which is sure to further dent the relationship between the city and the government).
To paraphrase the Chancellor as he wrapped up his statement, he described his Budget as one for those who want to ‘own your own home, want help with childcare, start your own business, save for retirement, leave your home to your children and work hard and get on’. In that vein the ‘Help to Buy’ scheme which will offer first time buyers 20% equity loans if they are able to provide 5% deposit, along with introduction of a new employers’ allowance to cut NI bills by £2,000 and the abolition of stamp duty on buying shares on AIM and other growth markets were right out of a Thatcherite manifesto.
The Chancellor may have viewed his Budget as fit for an ‘aspiration nation’, but once again it reminded those in the Commons and outside how much the UK’s fate is at the whim of external events.
As the future of Cyprus will dominate the geo-political agenda over the weeks ahead, all eyes in the UK will now look to the arrival of Mark Carney the new Governor of the Bank of England in July. It offers small comfort to Mr. Osborne that he has bagged this ‘economic heavyweight’ and persuaded him to take up the post at the ‘Old Lady’ but what lofty expectations now lie in wait for Mr Carney. Today Mr Osborne showed his limited hand now the baton will pass on to Mr Carney to go one step better in the quest for growth.
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