Osborne’s “bold” Budget for the future
Two months on from the election, the summer Budget saw the Chancellor George Osborne at the height of his powers, and the Conservative Party more determined than ever to reshape the British political scene.
So we saw a series of “bold” and “ambitious” plans to shift Britain rightwards and change “from a low wage, high tax, high welfare economy, to a higher wage, lower tax, lower welfare country”. For The Economist it was telling that “Osborne, the man who would be PM” ranged “widely across government”, covering “education, Europe, welfare, security, [and a] rising Asia.”
His biggest plays came right at the end. The Welfare Secretary Iain Duncan Smith literally punched the air at the news of a new national living wage worth £9 an hour by 2020. Conservative backbenchers, and the US Ambassador to Britain, also strongly welcomed the Chancellor’s commitment to meet NATO’s 2% defence spending target.
Little on tech
The Chancellor said boosting the nation’s productivity was a key priority, but his speech contained surprisingly little on the role of technology in delivering this. For Labour’s Chi Onwurah MP, it was “strange a budget supposedly focused on productivity ignores tech… Osborne feels he’s won the tech vote & doesn’t need to try anymore.” It was left to the likes of Minister for the Digital Economy Ed Vaizey MP to highlight initiatives like the £23m allocated to six new Digital Economy Centres.
Size of the state
Mr Osborne began by announcing additional spending cuts to reduce the size of the state. While hailing better than expected figures on economic growth, job creation, investment, and tax receipts, the Chancellor said £37bn more in cuts would be needed to eliminate the deficit and deliver a surplus.
Welfare and the deficit
Changes to cap welfare and limit tax credit and Universal Credit eligibility would save around £12bn, he said, and a renewed clampdown on tax evasion and avoidance another £5bn. The remainder would come from reductions in departmental budgets, to be announced this autumn at the Spending Review. Even so, Mr Osborne admitted that he would not be able to deliver a budget surplus until 2019-20, a year later than promised.
Crucially, no department will see cuts as deep as those seen under the Coalition between 2011 and 2013, and the NHS will receive an additional £8bn each year to fully fund its five year plan. There were other crowd-pleasing measures to raise revenue too, including £750m more for HMRC to prosecute tax evaders, and new limits on so-called “non-dom” taxpayers.
A new squeeze on finance
Another easy target – the banks – will also be hit with a new 8% surcharge on their profits. This will gradually replace the bank levy, and the sector will be encouraged to focus on productive investment, innovation and competition.
Supporting the middle class
Other key changes like increasing the personal allowance to £11,000 and the 40p tax threshold to £43,000, and providing 30 hours of free childcare to the parents of three and four year olds, seemed calibrated to ensure their appeal to the bulk of voters on middle incomes. Only the better off are likely to balk at today’s restrictions on mortgage and pensions tax relief.
Tax and business
There were also several measures showing Mr Osborne’s longer term vision, including promises to cut the corporation tax rate to 18% by the end of the Parliament, and continue to support SME investment.
The Conservative life sciences Minister George Freeman summed up the reaction among his colleagues: “Stunning Budget: Living Wage, backing SMEs, infrastructure, 2% defence + investing in NHS. One Nation Politics.”
Unsurprisingly, opposition party politicians were far more sceptical. Labour’s John Mann MP said it was a highly political budget and “cleverly tapered so that it has a particularly positive impact for George Osborne and his leadership ambitions. This is his pitch, he’s going early.” The SNP’s Treasury spokesman Stewart Hosie MP attacked the Chancellor’s “harsh austerity agenda” and “savage cuts in tax credits”, while the Liberal Democrats said the Budget meant “four more years of pain, austerity and cuts”.
Reaction from the business community was also muted. The CBI’s John Cridland described it as a “double edged Budget for business”, warning that firms “will be concerned by legislating for wage increases they may not be able to deliver.” Coadec and techUK also spoke for many in the tech community in expressing disappointment at the relative lack of focus on technology, while holding out hopes that the Plan for Productivity to be published this Friday will include measures to boost the sector.
None of this will matter to the Chancellor who will feel that he’s significantly strengthened his party’s grip on politics, and his own chances of succeeding David Cameron.