BUDGET 2013: The reaction

Simon Miller, John Phelan, James Dowling, Ryan Bourne, and John O'connell share their expert opinions on Osborne's 2013 budget

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We're all George Osbornes this afternoon
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The Commentator
On 20 March 2013 14:39

George Osborne this afternoon announced his budget for 2013. The Commentator brings you five experts with five opinions...

 

SIMON MILLER, Contributing Editor to The Commentator 

First things first, the good news is that the deficit has been reduced by a third, which, since our AAA went the way of the States last month, is to be welcomed. But spending is still a problem.

For Osborne, this is still a major issue as borrowing is still going up - £114bn this year compared with a forecasted £108bn.

But not to worry, apparently it is set to fall to as low as £42bn in five years time. Unfortunately, I have a major issue with this - hasn't he forecasted this all before?

Oh, and there's the debt. The Labour-endowed gift to the nation will increase as a share of GDP from 75.9 percent to 85.6 percent in 2016-2017.

The Office for Budget Responsibility has predicted that the UK will escape recession this year, with growth of 0.6 percent, growing to a whopping 2.8 percent by 2017 - again this is vaguely familiar.

Indeed, the initial feeling towards this budget is a sense of deja vu. Haven't we been here, every year since the first coalition budget? Sure there are some snippets for the taxpayer and beer drinker but with inflation going up, these minor tinkerings will not turn this boat around.

The storms clouds over Europe are rising again, and as Osborne himself has pointed out, the weakness of Europe is dragging us down - so why is he still persisting in this fallacy that is the EU?

Oh, and why cut AIM stamp duty? Why not FTSE? Or is it more the case that he has conceded over the FTT and just hasn't told us yet?

 

JOHN PHELAN, Contributing Editor to The Commentator

George Osborne ties his hands in these situations by insisting on ‘fiscal neutrality’ so that every pound of tax cuts has to be offset by a pound of spending cuts. Given how hard the coalition has found cutting spending this doesn’t leave them with much wriggle room.

In that context the budget contained more efforts to reinflate the housing bubble with more spending and lending made available for first time buyers. This is, of course, just a poor substitution of phantom wealth increases based on asset appreciation instead of real wealth increases based on increased production.       

In this direction Osborne gave a cut of 1 percent in Corporation Tax, a cut in employers National Insurance contributions, and £3 billion new infrastructure spending funded by cuts in Whitehall spending.

These aren’t bad measures given the circumstances but they aren’t bold. The most fuss this morning was about the 1p being taken off beer duty. The fact that this will be remembered, if its remembered at all, as the Booze Budget tells you a lot about just how ambitious it is and how likely it is to help the economy get going again.   

 

JAMES DOWLING, former Treasury official and public affairs consultant

25 minutes in, Osborne had said barely anything. In fact, until that point, the most interesting thing was when he nearly expired at the podium.

The Chancellor sounded hoarse and drank a lot of water. He also faced considerable barracking right from the start. Given all of this, why he decided to stretch out a speech so devoid of content for nearly an hour is beyond me.

He began by saying that this was "a budget for people who aspire to work hard and get on". It was, he said, taking "longer than anyone hoped ... but we must hold to the right track".

The entire first half of his speech was spent justifying this – and setting the scene for what followed. The borrowing figures were awful – and the OBR has, again, revised down growth expectations. Osborne used this to develop a theme that the UK was doing relatively well in extraordinarily punishing conditions – and that the Government was doing all it could to help.

That, 25 mins after he started, he had barely announced any substantive policies spoke volumes about the extent to which the Government is constrained. Osborne therefore concentrated his fire narrowly on a few key priorities. His Budget was squarely aimed at middle-Britain, with nods to business. 

Much was predictable – the cut in corporation tax to 20 percent in 2015 (and the corresponding attack on the banks, who are still effectively paying 28 percent, thanks to multiple tweaks of the bank levy since it was first introduced in 2011). Redirection of current spending  to capital was also widely expected – although this is clearly still the subject of a spending review negotiation. 

More interesting was Osborne announcing caps on the use of large elements of the welfare budget (also subject to the spending review – the discussion in Government is clearly ongoing). The increase in the personal allowance to £10,000 was also well-trailed. The avoidance package – apparently the biggest ever announced – was largely a rehash of initiatives already public and in train.

His rabbits were few but totemic. The cut in beer duty (an actual cut!) abolished a tax rise introduced by Darling and much-hated ever since (although wider alcohol duty is still going up). The extra funding for home ownership went rather further than expected. And the NICs employment allowance was interesting, unexpected, and nakedly political – one of the most expensive measures in the Budget, this basically created a personal allowance for National Insurance. A nakedly political throw-back to the ‘jobs tax’ calls of the last election, and a measure close to Treasury Ministers hearts.

Overall, this felt like a minimalist exercise in which Osborne aimed to do a few things well, rather than many things poorly. The pared down nature of it suits the times – and will hopefully avoid it all unravelling in the cold light of day, as last year’s one did.  

 

RYAN BOURNE, Head of Economic Research at the Centre for Policy Studies

The story of this Budget is not the measures contained within it, but the miserable growth and borrowing forecasts which accompany it.

Once all the one-off factors are stripped out, underlying borrowing will have fallen by just £1 billion to £120 billion between 2011/12 and 2013/14. Despite the talk of strong spending control, the Office for Budget Responsibility shows that real spending will fall by just 2.2 percent between 2011/12 and 2014/15.

Our critique of the Coalition’s deficit plan remains the same: it is reliant on a return to fairly strong sustainable growth in future, but so far the OBR’s forecasts on our medium-term prospects have proven hopelessly optimistic again and again.

Whilst there were some welcome supply-side and tax changes today, and an understandable focus on living costs, these were largely dealing with the symptoms of stagnation rather than the root causes.

What we need is an agenda to raise our potential growth rate – reducing the burden of spending and tax, and implementing robust supply-side and pro-competition reforms

 

JOHN O'CONNELL, Research Director, the TaxPayers' Alliance

There were a number of welcome measures to ease the spiralling cost of living for struggling families. Cutting beer duty by 1p and abolishing the beer duty escalator will be a relief for those who enjoy a hard-earned pint after work.

It’s a major victory for the TPA’s MashBeerTax campaign, which we ran with the help of other organisations. Our grassroots network put on events across the country and distributed hundreds of thousands of beer mats, too. Thousands wrote to their MP asking them to put pressure on George Osborne to scrap the punishing annual price hike of a drink.

We also saw another freeze in fuel duty. Rob Halfon MP has campaigned tirelessly on this issue and last year our FreezeFuelTax campaign helped generate even more support to end the war on motorists.

Another increase in the Personal Allowance is especially good news for those on lower incomes. It is a far better solution than introducing a new 10p tax rate and it’s fantastic to see the £10,000 target outlined in the Coalition Agreement will be met more quickly than anticipated.

Other tax cuts will end up increasing people's wages, too. A cut in Employers’ National Insurance was the big unexpected measure of the day. We’ve done a lot of work campaigning to abolish National Insurance – it’s really just an accounting trick to hide another tax on income. But for now, this is a decent measure that will help British businesses.

A cut in the main rate of Corporation Tax to match the small profits rate of 20 percent will end the need for fiddly rules and help make potential business projects more likely to get the go ahead. As well as boosting growth and employment, much of this cut will also be passed on to workers in higher wages, which again will be welcome by struggling families.

Overall though, the Chancellor is still relying too much on complicated measures to help specific industries, rather than making fairer and simpler changes to the overall tax structure. We’re also seeing an expansion of corporate welfare, with Chancellor too willing to accept Michael Heseltine’s proposals to hand out taxpayers’ cash to selected companies and industries. This is no substitute for lowering the overall tax burden so that businesses have more of their own cash to reinvest, expand and create jobs.

Furthermore, fiddly interventions into the housing market run the risk of recreating the housing bubble that burst so spectacularly in America a few years ago. Why no action to cut stamp duty dramatically instead?

This is perhaps the kind of Budget we should have seen last year. Budget 2012 was an unmitigated disaster and there’s no doubt that today’s offering contained some decent measures to ease the pressure on taxpayers. But in truth it's too little, too late.

We needed something bolder: simpler, strategic tax reforms that reduce the overall burden do more to produce the stronger economy Britain needs.

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