On a mission
Some will love it, some will hate it. But no-one can fault George Osborne’s summer Budget for lack of ambition
“This was a big Budget for a country with big ambitions.” So said George Osborne as he delivered his summer Budget. He was quite right. His previous few Budgets were, in fiscal terms at least, piddling things. They barely added or subtracted more than a few hundred million pounds from the Exchequer’s budget.
No such criticism can be levied at the Summer Budget. By 2020/21 the fiscal impact will be almost £19bn annually (in terms of extra money raised). Almost £13bn of that consists of welfare cuts which will be immensely painful for many families.
But big though it was, it was also a Budget chock full of paradoxes.
It changes the profile of the government’s deficit reduction plan over the next five years, removing the preposterous “roller-coaster” of austerity, inserted in a moment of panic before the election to avoid the accusation that the Conservatives wanted to bring public spending back down to 1930s levels. But, in so doing, it is less ambitious, putting off the moment Britain finally achieves a budget surplus (and hence starts reducing the national debt) by a year.
It introduces radical, tough cuts to welfare, but balances them out with a new living wage, a kind of extra tier of minimum wage for those over 25. It gives homeowners a boost by freeing them up from inheritance tax, up to a million pounds, but balances this out by reducing the amount of tax relief landlords can get on their buy-to-let mortgages.
It squeezes the amount high-earners can put away in their pensions tax-free, and launches a potentially radical investigation into whether pension saving should get tax relief at all. But, at the same time, it protects state pensioners while squeezing all other welfare spending. Last year the state pension accounted for 40% of total welfare spending; by 2019 that will have risen to 46% — in large part because everything else in the welfare budget has been squeezed except for pensions.
This was a Budget which stole ideas from Labour — the abolition of permanent non-dom status (though foreigners will still be able to use this status at least temporarily) and the living wage, to take two. But it is by no means a characteristic Labour Budget.
Significantly, the Treasury did not publish an analysis of the impact on families incomes in the same way as it has done in previous Budgets. One presumes that is because the analysis will be very ugly indeed. The welfare cuts which make up the bulk of the savings in today’s Budget will have a big impact on the wages of the lowest income households. And while this might, to some extent, be compensated for by the introduction of the living wage, there are big question marks over whether this will actually force employers to cut jobs rather than increase wages. And the Office for Budget Responsibility’s own analysis suggests that, all else being equal, the living wage will benefit wealthier families more than poorer ones, since it will push up the wages of second earners in well-off homes.
Such aspects of this big, important fiscal statement are likely to be chewed over for some days and weeks to come. And, given the scale and ambition of the Budget (and the fact that the Chancellor’s team has changed so much in the past few months) one suspects that there will almost certainly be some gremlins hidden in the small print.
Then again, one cannot fault the Chancellor for his ambition. This is a Budget which does indeed aim to change the nature of the state, to reduce its reliance on welfare, to cut taxes (especially on business) and to improve productivity. It will take some time before we work out whether it is successful.