Gordon Lawrie
The actions of the British
government in Libya are
going unexamined by the media
Alan Fisher
Kingdom in the crosshairs
Bob Smith
A line in the sand
Sheila Hetherington
The Hetherington Club is
much in the news. But who
was Hetherington?
Islay McLeod
Signs of the times
The Last Word
Thom Cross
Beeb Watch
The Cafe
To respond to David Chalmers’ ignorant comments in The Cafe (SR, 23 March), we are fortunate to have two Cruise outlets here in Edinburgh. Perhaps if Mr Chalmers got out a bit more, he would enjoy the shopping on George Street.
Michael Johnston
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The budget
Osborne’s gamble depends
for success on something
that isn’t happening
Alf Young
Typically chancellors of the exchequer only badge their annual budgets as being in pursuit of something specific when there’s not enough of that something about. Thus George Osborne’s budget for growth yesterday tells us this coalition government at Westminster, having doled out lots of fiscal pain last year by way of tax rises, benefit reductions and spending cuts, is now fretting that the hoped-for compensating rebound in economic activity isn’t happening fast enough.
Osborne’s Treasury no longer sets its own forecasts. That task has been handed over to the independent Office for Budget Responsibility. As recently as November, the OBR forecast UK GDP growth at 1.8% for 2009, 2.1% this year and 2.6% for 2012. Yesterday it cut these forecasts to 1.3%, 1.7% and 2.5% respectively. Now, thanks to a soaring global oil price and higher-than-expected inflation, the OBR expects this recovery ‘to be weaker than the recoveries of the 1980s and the 1990s’.
And as the chairman of the OBR, Robert Chote, admitted on BBC’s Newsnight last night, its growth forecasts ‘could change again’. So it’s time for a ‘Plan for Growth’, jointly authored by the chancellor and business secretary Vince Cable. An ‘urgent call for action’. Because ‘we literally cannot afford to go on like this’. I quote directly from the plan itself.
It peddles a familiar litany of measures governments can take to stimulate growth – from streamlined planning to cutting regulation, from a skills revolution to introducing the most competitive corporate tax system in Europe. The OBR remains to be convinced.
It judges ‘there is insufficient evidence at this stage to adjust our trend growth assumptions in the light of these measures’. The coalition won’t like that. But a government that has set itself the unwavering task of eliminating the UK’s budget deficit in a single parliament, has another problem. It simply cannot afford to spend lots of new money, even on something as vital to its longer term survival as more growth now.
This budget is, as they say in trade, fiscally neutral. Despite a welter of almost Brownite micro initiatives to stimulate growth and ease the pain of squeezed households, George Osborne will be giving away next year a net total of just £10m. And if you’ve fallen for the headlines suggesting he’s managed this by raising all the additional cash for cuts in corporation tax, a small cut in fuel duty and another hike in the income tax personal allowance by bashing big banks and big oil, think again.
For the gamble to succeed it must materialise, at the latest, by this time next year, To misquote Yeats, if by then that growth continues to prove elusive, things will indeed fall apart, the coalition cannot hold.
There’s a technical measure in this budget which means that, from 2012/13, indexation of a whole range of personal taxes from national insurance to ISA limits will be indexed each year by the CPI measure of inflation rather than RPI, as now. CPI has historically been the lower measure of price movements.
So by 2015/16 that change will cost us all in excess of £1bn a year. Almost as much as the giveaway involved in raising the personal income tax allowance by another £630 next year. A similar switch to that CPI measure for indexing benefits, tax credits and public – and some private – sector pensions, announced in Osborne’s first budget last June, will be costing millions of us a whacking £10.6bn a year by 2015/16.
That leads us to another great unanswered question about this coalition’s economic strategy. There are plenty of other billion-pound-a-year-plus hits on business and families from last June’s austerity budget and the tough autumn spending review that followed that are only going to start being felt in people’s pockets from this April, adding to the squeeze already being felt from January’s VAT hike. The freezing of child benefit rates for three years and its removal from families with a higher rate taxpayer. Cuts in the rates of capital allowances available to businesses. National insurance contribution rate increases. And so on. And so on.
This budget may have been fiscally neutral. Last June’s will be taking more than £40bn in tax rises and benefit cuts out of our collective spending power by 2014/15. When that gargantuan squeeze starts impacting on family incomes and business investment decisions over the next three years, accompanied by the widespread cuts in public spending, the overall impact on demand in the wider economy could make even the OBR’s latest growth downgrades look overly-optimistic.
That is the essence of George Osborne’s great political gamble. He has nailed his reputation to the mast of unflinching fiscal rectitude. But the widespread pain that involves will only be worth it if the UK economy starts growing strongly again, spawning large numbers of new jobs in time for extensive tax giveaways in 2014 and the hoped-for feel-good endorsement at the polls a year later.
That gamble hinges on a rebalanced economy growing robustly again. There’s little sign of it yet. For the gamble to succeed it must materialise, at the latest, by this time next year, To misquote Yeats, if by then that growth continues to prove elusive, things will indeed fall apart, the coalition cannot hold.
Alf Young is an award-winning journalist who writes regularly for the Scottish Review
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