Conservative Diary

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Osborne makes the right calls on benefits, basic income tax threshold, corporation tax, shale gas, fuel duty and teachers' pay

By Tim Montgomerie
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I won't revisit what I said at the end of my earlier blog. If Osborne had embarked upon a growth strategy from the beginning of this parliament then the Chancellor might have made more progress on fulfilling his ambition at that time to eliminate the deficit by 2015. Instead the country will still be borrowing £73 billion at the time the Coalition parties go back to the country, seeking re-election. Even though much of the blame can be put at the door of the international trading environment - verified by the independent OBR - today's news about the lengthening age of borrowing and austerity raises big questions about the debt burden that will shackle British business and will hinder Britain's long-term competitiveness.

Putting that aside - and given the financial envelope - the Chancellor did the best job he could...

On the cost of living... he cancelled January's increase in fuel duty and made another above-inflation increase in the basic income tax allowance to £9,440. He told the Commons that the income tax bill of Britain's lowest-paid people has now halved.

On fairness... he announced that many benefits will grow by just 1% for three years as part of an effort to save £3.7 billion and ensure that it becomes increasingly worthwhile to leave benefits behind and take paid work. Also on fairness he raided the pension reliefs for higher earners but appeared to reject higher council tax bands not just for now but for the foreseeable future.

On competitiveness... Mr Osborne announced another cut in corporation tax (to 21% by 2014) so that Britain now will have one of the lowest rates in the world. He also announced a tenfold increase in capital allowances for investment in plant and machinery - up to £250,000 per year.

On energy... As predicted he promised new incentives for shale gas exploration. Cheaper gas has been an important driver of the strength of US manufacturing.

On public service reform... By ending national pay awards in education headteachers will have freedom to set pay and there'll be no more automatic pay rises for teachers. This is a big victory for Gove and could stoke big problems with the more militant teacher unions. By cutting more deeply into Whitehall admin costs he found £5 billion more for schools and capital investment. The extra money for education will be used to expand flagship academies and free schools.


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