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Donna Edmunds: Ultimately, a Budget that doesn't fix the economy isn't a good Budget

Edmunds DonnaDonna Edmunds is Head of Media for the Bow Group. Before the budget, she laid out her recommendations for a return to supply side economics in a Bow Group Briefing.

Osborne has made it easy to damn with faint praise; budget 2013 was his best yet. After last year’s omnishambles budget, Osborne was clearly keen to avoid Pasty Tax II: The Return of Scrooge. Rather, he attempted to demonstrate that he was listening, and yes, that we’re all in it together, with another freeze in petrol duty and a penny off beer tax.

These are welcome measures, particularly for Robert Halfon MP who can view the petrol duty freeze as a personal victory, but the budget as a whole will do little to quell unease on the Tory backbenchers over the next year, especially if the growth forecast of a meagre 0.6% turns out to be optimistic. Looking at the OBR’s growth predictions over the next few years – 1.8 per cent in 2014, 2.3 per cent in 2015, 2.7 per cent in 2016 and 2.8 per cent in 2017 – Macawberish optimism seems to be the name of the game. The figures are based on an assumption that rising wages will increase disposable incomes from 2015 onwards, but it’s unclear why either the OBR or the Chancellor believes that wages will rise in real terms. The OBR also expects employment figures to rise, but the private sector job market has only expanded because real term wages are dropping so it’s unlikely that both wages and the job sector will increase without a change in a third factor. Yet that nebulous third factor was not delivered in this budget.

So where does the Chancellor believe that growth will come from? The cut in Corporation Tax to 20 percent demonstrates some understanding on his part of the concept that tax cuts stimulate the economy, but he then delays the tax cut to 2015. Why the prevarication? If Osborne accepts that these measures are needed, why does he think that delaying them will help with the recovery?

Yet there is a more fundamental problem with this budget than the fact that much of it was merely tinkering on the side lines. ConservativeHome has noted that, when it comes to the economy, there are three groups within the ranks of Conservative MPs at the moment:  “There is the cost of living caucus, whose main concern is the squeeze on household budgets. Then there are those whose primary worry is this country’s long-term competitiveness. Finally, there are the revolutionaries who want a whole new approach. Osborne knows he can’t satisfy this last group. But he thinks that if he can please the first two, he’ll be all right.” But the Budget isn’t a tool for keeping a party in line, it’s a plan for the economic outlook of a whole country and everyone in it. Osborne should be thinking less about name checking one or two of his fellow Parliamentarians, more about how the measures within the budget will affect the budgets of voters up and down the country during the 26 months until the next general election.

Those of us interested in politics have been lamenting for years that voter turnout at the ballot box is falling year on year. We blame apathy, a lack of education, an increasing obsession with gadgetry and entertainment, a ‘dumbing down’ of the population. The cause is none of those. Rather the electorate are increasingly aware that politicians are talking to, and acting in reference to each other only. If politicians show no interest in the electorate, why should the electorate show any interest in politicians?

And that is why, despite the rhetoric on aspiration, this was such a weak budget overall. First time buyers (and ceramicists) will take heart from the measures aimed squarely at them, but continued inflation of the housing bubble and further complication of the tax code through breaks for certain industries will not help the economy as a whole. And in the long run, that means that they won’t even help the individuals that the policies are aimed at. Likewise the raise in personal income tax allowance to £10,000 – what good will an extra £700 a year do if £400 of that is taken away by the VAT rise, and the rest by inflation driven in part by QE? The answer is that it won’t do any good, not for hardworking aspirational people across Britain, and ultimately therefore not for the Chancellor come polling day 2015. 


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