The age-old adage is you don’t jump horses mid race. George Osborne delivered that message claiming that he was still the man with the plan to secure the UK’s long-term economic future. This despite six years of austerity and cuts, and having missed his own fiscal targets on debt and the deficit; a point much laboured over by Jeremy Corbyn in his reply. The elephant in the room is the unhelpful statistic that the debt-to-GDP ratio will be higher in 2015/16 because of lower growth. Osborne’s reputation was and is on the line. He reminded the country that when he became Chancellor the UK borrowed £1 in every £4. Today it’s £1 in every £14. His message is one of continued prudence in the medium and longer terms. In his own words: I’m not going to leave the burden of today for the next generation. This was a ‘budget for our children and our grandchildren’.
The Chancellor framed his budget statement with an image of a tumultuous global economy beset by slow growth and weak forecasts for some leading economies and a dramatic slowdown in growth amongst the emerging economies. This has seen the current overall debt burden at more than £1.5 trillion at a cost of £1bn a week in debt interest payments. Osborne’s raison d’etre for this parliament, vital to his long-term ambition to move from Number 11 to 10 Downing Street and become Prime Minister, is to balance the books and deliver a surplus of £10.4 billion in 2019-20 (5 percent of GDP). In the face of a weak opposition (despite a better performance in the polls recently), he will bust a gut to make sure this happens. How he will turn a deficit of £21.4 billion in 2018-19 to a surplus of £10.4 billion remains to be seen and will be poured over by economists in the days to come. A surplus within three years is a major ask, and is reliant on a growing world economy and a substantial rise in tax receipts to the Exchequer. Quite a gamble, but then so is his current positioning for Number 10.
Employment in the UK is at record levels and the forecast by the independent Office for Budget Responsibility of one million more jobs by 2020 drew cheers from his backbenches. The Conservatives have gone out of their way to paint themselves as the true champion of working families and Osborne was keen to highlight that an additional 2,370,000 are now employed since he became Chancellor in 2010. By raising the tax-free personal allowance to £11,500 and raising the level at which the higher tax bracket kicks in to £45,000, he can legitimately say he is a champion of the middle classes at the least. Labour would scoff at the idea that this is a budget for the working poor, yet according to Osborne’s figures an additional 500,000 will be taken out of the higher tax bracket and a further 1.3 million will be taken out of tax altogether.
Much to the chagrin of the Labour party - and despite assertions from Jeremy Corbyn - this is a budget that has taken £9bn from big business and given £7bn back to small businesses. By a long way, Osborne’s biggest budget giveaway was the rise in business rate relief from £6,000 to £15,000. Where the monumental savings are to be made, however, is not apparent. This was a political budget more about his promises and the future than anything else.
Amid jeers from the Opposition benches, given the split in support for the European referendum amongst Conservative MPs, the Chancellor reminded the House that according to the Office of Budget Responsibility (OBR), a vote to leave the EU would bring unprecedented uncertainty, and that the UK would be better off inside a reformed EU. With the European referendum looming on the horizon, his insertion of this into his speech was to be expected, but perhaps also an attempt to needle his future leadership rival Boris Johnson, who was nowhere to be seen in the Chamber.
In his last Autumn Statement, Osborne proclaimed ‘we are the builders’. This time around it could have been ‘we are the savers’. With an ISA limit increased from £15,000 to £20,000 and a new lifetime ISA for the under-40s from April 2017, he is trying to encourage individual financial responsibility while giving something away to the youth, however unrealistic that may be. The fact that the average first-time buyer age in the UK is 37 years old may have had some bearing on this decision. A token gesture of £20m to help young families onto the housing ladder in the South West of England speaks of politicking, not a rebalancing of the housing crisis.
The Chancellor has pushed the Northern Powerhouse concept hard, yet the office responsible for the Northern Powerhouse recently moved from the North to the South, much to his embarrassment. Indeed, Corbyn took pleasure in reminding the House that 97 percent of those associated with the measure now work in the South. Despite its failings, the concept is a credible and worthwhile attempt by a Government at rebalancing a London-centric UK economy. Further investment in regional transport infrastructure complements efforts to strengthen connections between the North and South as does the rollout of the HS3 and Crossrail 2 schemes.
There were also loud cheers in the House of Commons from Conservative backbenchers upon the news of cutting the supplementary charge on oil and gas to 10 per cent, and effectively abolishing the petroleum tax. The SNP ahead of the Scottish referendum had based their sums on North Sea oil tax receipts, and by announcing these measures the Chancellor makes their long-term economic case that much more difficult, a potentially critical point with the SNP set to record another landslide majority in the Holyrood elections and the rising murmur of a second independence referendum. A welcome if not surprising measure was the freezing of fuel duty for the sixth year in a row. The expected fear of backlash from his own backbench MPs may have had something to do with this and with an eye on the leadership, Osborne will need all the support he can muster.
Anyone who had shares in sugary drinks drinks manufacturers ahead of the budget will be slightly less well off as the markets reacted immediately to the news of a levy on excessively sugary drinks – a clever move from the Chancellor as he doesn’t punish the end user and those less well off but the industry that makes them. Income from this will be used to increase funding for sport and longer school hours. This was the one measure that received approval from Corbyn, who rallied against disability cuts, missed targets and false promises. His rebuttal speech went rather well. Full of bluster, one wasn’t sure if he was speaking to the public or the MPs sitting behind him who haven’t exactly warmed to his election as leader or his brand of ‘Labour’.
Osborne is a man who likes to surprise and in this budget, he has gone out of his way to try and prove his detractors wrong. Fearful of the media headlines, he tried to be seen to help small business and the self-employed, encourage saving and ensure that his targets are met and his legacy as Chancellor is intact as he vies for the ‘big job’. The real proof in the pudding will be the next Autumn Statement. If growth figures are revised down again by the OBR and his notion of a budget surplus by the end of the parliament disappears into the distance, not only will it galvanise his opponents but he will have given Labour, and some of his backbench detractors, a very big stick. They will hit him with it. Repeatedly.