For me it is a microcosm of Osborne’s time in No. 11 – a smattering of politically calculated and superficially populist measures, masking a dangerously thin grasp of what an economically successful Chancellorship looks like. Moreover, his claim that his mini-budget is fair because it is fiscally neutral doesn’t hold much water.
Leave aside the sneaky transfer of the Bank of England’s surplus from quantitative easing into the Exchequer’s coffers – at least George was honest enough to publish borrowing figures with and without them. Osborne has gone further, counting his chickens from the 4G spectrum auction income before they’ve hatched, assuming it will raise £3.5bn (£2bn more than Ofcom’s reserve price). He also visits the “magic money tree” of “efficiency savings” and slices a further 1% off departmental budgets – only then are the books remotely balanced.
There’s more: the certainty of ‘saving’ £3.7bn from annually managed expenditure by capping benefit rises to 1% per year is fiscally balanced by the hoped-for extra revenue from anti-avoidance measures and reforms to tax-free pension allowances.
No, leave these quibbles aside. Ask whether, assuming the announcements do in fact raise as much from revenue and real-terms benefit cuts as they give away in tax threshold increases and cuts to corporation tax, can they be considered fair? Can they even be considered economically sound? I suggest not.
Uprating benefits by significantly less than inflation hits the vulnerable – and not just the shirking curtain-twitchers but the deserving strivers too. It directly hits their ability to make ends meet, to put food on the table, to pay the rent and energy bills. Crucially, those who miss out through these changes have already missed out for years because of stagnating incomes, rising childcare costs and joblessness – hence their meagre or non-existent earnings are topped up, albeit inadequately from next April, by the state. Instead of taking the time to fix our deep-rooted economic dysfunction, Osborne has kept calm and carried on cutting – offering the scant consolation of the richest having to pay more tax on their pensions.
So no, the measures aren’t fair even if they are fiscally neutral – the marginal utility someone on the breadline has for £1 of income, whether from benefits or work, is so much higher than that for someone fortunate enough to be putting away £30k a year for a pension that it’s barely credible the Chancellor thinks we’re still “all in this together.”
Are the measures at least economically sound – will the pain be worth it? Dubious at best, given the sheer stupidity of cutting the spending power of those whose marginal propensity to spend is highest. Yes, we Lib Dems tried our best to sooth the pain through the balm of tax threshold increases and some welcome incentives to invest in capital – but overall we have signed off on a regressive package, with the threat of much, much worse to come in next year’s CSR in the absence of a new economic narrative. That’s entirely deliberate – this was the opening salvo in the 2015 general election, not a strategy to revive our ailing economy.
The party political consequences of this statement cannot be over-stated – from elephant traps laid for Labour on benefit uprating, to the toxicity of the very same for Liberal Democrats, Osborne’s chicanery leaves Westminster in a pickle, and the economy in just as big a hole as before.
* Prateek Buch is Director of the Social Liberal Forum and serves on the Liberal Democrat Federal Policy Committee