Ten benchmarks for judging today's emergency budget
What does George Osborne need to do today? He needs to begin to
put right what Labour did so wrong. As importantly he needs to
rebalance the state so that the private sector has the space to create
the jobs and prosperity of tomorrow. Here are ten benchmarks to judge
today's historic emergency budget:
(1) The Bank of England needs a new mandate to focus on a broader definition of inflation when it sets interest rates and other monetary policy instruments. I'll look for some announcement from the Chancellor that he will be asking the Bank's Monetary Policy Committee to target certain asset prices - particularly the housing market - to ensure we don't allow a boom to bubble over again. Also with the Bank of England we need reassurance as to how the Governor will manage tensions between its monetary and financial aims. The need for monetary tightening may not always coincide with the instincts of banking supervisors.
(2) I dealt with this issue of exhausting opportunities for spending restraint yesterday:
- The Barnett formula needs to be reviewed so that money is targeted on the very poorest communities, whether in London, Scotland or any part of the UK.
- In other areas of spending we need to lift the ringfencing of the whole NHS budget - protecting frontline services as recommended by 2020Health is enough.
- Certain pensioner benefits also need to be reviewed if we are
avoid very deep cuts in other budgets or unnnecessary tax rises,
including a hike in VAT.
- I exclude international development from this category. Our responsibilities to the poorest and hungriest people of the world must always come first.
(3) We need to see a plan to tackle inequalities between the public and private sectors including a decentralisation of pay bargaining. Back to the previous point, continuing to ring-fence the NHS whilst decentralising other public pay could lead to NHS staff doing a lot better than teachers and police officers. The appointment of Lord (John) Hutton to look at public sector pensions is a good sign of the Coalition's intent in this whole area.
Charities need to be protected from tax rises as much as possible as
they prepare to play a leading role in the building of social
alternatives to state welfare. In today's FT former Cameron
speechwriter Danny Kruger sets out how innovative social enterprises can save the state money.
(5) We need simplification and lower business tax rates as a first step towards creating what George Osborne has promised to be "the most competitive corporate tax regime in the G20." Even if the steps are small in year one I hope we'll see a route map to deliver much lower business taxes by 2015.
(6) Capital Gains Tax must be
reformed in ways suggested by David Davis, Michael Forsyth and John
Redwood. The omens don't look good on this.
(7) A rebalancing of the tax system. I hope and expect to see more taxes on 'sins', more taxes on property and more taxes on the banking system. In return we should see lower taxes on very poor workers, marriage, saving and thrift.
(8) Tax increases should not be greater than 20% of the total fiscal tightening. Any tax increases that are not replacement taxes (including the 50p tax rate) should be attached to sunset clauses so that they are emergency, time-limited measures to address the crisis.
(9) I'm looking for ambition from the Chancellor on reducing the deficit. What does the government mean by eliminating "the bulk" of the structural deficit? Let's have clarity.
(10) My final and biggest benchmark is the one set out in my article for last week's Times (£): "If commentators are only talking about pain when Mr Osborne sits down on Tuesday he will have failed. If we are also talking about reform and a new economy he will be on the path to success." This should be a reforming budget that - over time - will deliver a smaller state and lower, simpler, fairer taxes.
Good luck George!
PS Paul Goodman has an eleventh benchmark: Start measuring the dynamic impacts of tax changes