It must have been a pretty good afternoon for the Chancellor’s political advisers yesterday, and you can imagine the conversation after the Budget speech was over.
“So, how do you think it went?”
“Yeah, pretty good, I thought.”
“That’s the way I saw it, no real problems.”
“Absolutely, Labour didn’t land any real blows.”
“Job done then.”
Except it wasn’t. This morning, they will have woken up to some universally appalling headlines which transformed what had seem to be an OK performance into a cack-handed raid on a group which no sensible politician should ever willingly offend: pensioners.
Regardless of the rights or wrongs of a decision to freeze the allowances of the elderly (and the sums are far from nightmare territory for a group which tends to spend less), this was an amateurish blunder on two levels. The decision to leave it out of the Budget speech and bury it in the Treasury papers was asking for both trouble and comparisons with Gordon Brown, a past master at parliamentary sleight-of-hand.
And putting yourself in a position where you have to justify taking money off people who have no means of working to make it up leaves you painted into a corner. In PR terms, it was dumb.
The money that George Osborne was handing over by increasing the basic allowance had to come from somewhere because he was committed to not increasing borrowing . And numbers from the independent Office for Budgetary Responsibility suggest that while the economy has probably got enough momentum to avoid another recession, it hasn’t yet latched on to significant growth.
So a straight giveaway would have been politically and economically risky.
This is why many business organisations greeted the Budget with a universal “Is that it?”, with disappointment that there were few tangible measures that either removed a burden from business or gave it a chunky opportunity to pitch for.
The cut in Corporation Tax will be welcome, and raises the question of what businesses are going to do with all the money they are sitting on. In an edition built around signs of recovery in the all-important US economy, The Economist suggested that British businesses are sitting on a cumulative cash pile of around £700 billion, so there is a clear opportunity here for some substantial business investment.
So the corporation tax cut can only help give firms more comfort if they decide they are going to start spending some of the money they have stashed.
As for the decision to cut the top tax rate from 50p to 45p next year, I wonder how much difference it will make. If you have gone to the lengths of setting up a tax structure which minimises your exposure to 50p, will you drop it for 45p? There’s a political calculation at work here: the 50p rate which Labour introduced was gesture politics because few experts reckoned it would yield the revenue Labour had suggested – why pay 50p on income when you can take a dividend for less? The Treasury is betting that 45p won’t bring in any less revenue and that it improves the government’s credentials with business.
This was a transitional Budget. Next year’s will be critical because it will influence what happens to our pockets in the two-year run-up to the next election. If the economy avoids further shocks there should be some solid signs that growth is gaining momentum, in which case tax revenues will rise and the Chancellor can start talking about how he intends to use those gains – both in lower taxes and direct investment.
Budgets always come with a mix of cheers and jeers. Place your bets now that one of the biggest jeers on Budget Day in 2013 will be a measure which puts money back in the pockets of pensioners.
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