A Budget blunder and the big issue of business investment

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.

When the A453 speeds up, so will the economy

The reporting of the Chancellor’s Autumn Statement (that’s the mini Budget he said he was getting rid of) has been almost ritually gloomy
Growth worse than forecast, borrowing worse than forecast, cuts worse than forecast, unemployment worse than forecast (that’s enough worse than forecast – ed.)
There are a couple of reasons for the headline gloom-fest. For starters, this is not what George Osborne said would happen, and it lands him in a suspiciously similar position to his political opponent, Nottingham High School old boy Ed Balls. So some would say he is properly being held to account, others that it’s political schadenfreude.
The second reason is that we appear to have a fixation with news agendas:
“I think it’s grim, what do you think?”
“Well, yeah – it does sound grim, doesn’t it?”
“Terrible, pretty grim really.”
Now, it would be a brave person to stand up and suggest anaemic UK growth and the euro zone horror story signal that happy days are here again.
But I’ll try to dial in a little bit of perspective.
Besides a potential hiccup in this quarter and the next (that’s the R-word or the Double-D phrase), the economy is likely to grow a little bit over the next year.
As that’s a national average, some regions of the UK are likely to grow more than others.
The East Midlands looks like it’ll be one of them.
I says that because I saw a piece of research towards the end of last week from the Institute for Public Policy Research which analysed when employment in the regions was likely to get back up to its pre-recession peak.
Some of its research does sound, ahem, grim. Northern regions may not see employment peak again until 2018 or beyond. That’s a lost decade.
But other regions will see it return to the high by 2014. And we’re bracketed together with the south, south east and east of England in this group.
One more point of perspective. Whether it was courage, confrontation or carelessness, the Chancellor chose the day before the public sector pensions strike to announce that these workers could also look forward to pegged pay increases and more job losses.
In total, the Office for Budgetary Responsibility is now estimating that more than 710,000 public sector workers will have lost their jobs by 2017.
In isolation, that’s a huge number. But, as I’ve blogged before, it is a proportionally small part of the economy – of the UK workforce of 30 odd million, 6 million are employed in the public sector. So the job losses would amount to less than 2.5% of our total workforce, and over that length of time at least some of those jobs will be replaced by private sector growth (not as many as George Osborne would hope, though).
Besides the raft of measures aimed at encouraging lending to small and medium-sized businesses, the major headline for us was that we finally appear to have dragged the A453 widening project over the line.
After only 30 years of trying...
This single carriageway link between Nottingham, the M1, East Midlands Airport and the East Midlands Parkway railway station has accurately been described as the biggest car park in Nottingham.
Beyond the jokes, it has cost the local economy millions in delays, and Boots dropped some heavy hints in private that it regarded progress on this project as a factor in future investment – especially after the decision to turn part of its sprawling and under-utilised campus into an enterprise zone.
While we don’t have a definite start date, that project will now begin before 2015, which is earlier than expected. Turning it into a four-lane road should reduce congestion and cut journey times.
More significantly, it is also likely to open up swathes of land for residential and commercial development, and I wouldn’t be in the least bit surprised to see land transactions and planning applications start to shift in this area.
We can’t kid ourselves – it’s going to be slow progress for a while now. We could well have a situation where, when the A453 finally speeds up, so does the economy.