There are, at most, 777 days until the next UK General Election. Today’s Budget was the last real chance to introduce measures that will have time to create a real impact before then. This, however, was not a Budget designed to alter the path of the economy in any dramatic way: the Coalition has never veered far from the course set at the Spending Review almost three years ago. Instead, this was a narrow Budget, full of small measures.
That is not to say that this Budget is not important in terms of the next election. Small as its measures were, they are carefully targeted at the voters who will decide the next election. Making it slightly easier to run a car, buy a house or drink a pint are all likely to poll well and this Budget on first glance has avoided the disastrous pratfalls of last year. As such, a small boost to the government’s popularity is possible, and the housing measures in particular may do some real good if properly implemented.
The Budget speaks to the ‘small c’ conservatism of all the government’s most senior ministers, Nick Clegg and Danny Alexander amongst them, when it comes to fiscal measures. They believe the state can do good, but they (and the Chancellor especially) are not convinced that any easing of the predetermined path of government austerity would have much of an impact. As such, Osborne’s Budgets are never likely to be dramatic, most will be small accelerations of already announced policies (see corporation tax cuts) or small targeted handouts (see the fuel duty freeze).
The problem with a small beer Budget is that the policy measures announced are not enthralling enough to prevent eyes from wandering to the macroeconomic picture, figures on which were also laid bare today. The Office for Budgetary Responsibility (OBR) is only predicting 0.6% growth for the UK this year, and only a slightly improved picture the year after. Given the almost irresponsibly over-optimistic forecasts the OBR has put forth in the past, there is a good chance that even these mediocre numbers are optimistic. So there is a significant chance that the economy in 2015 will be smaller than it was in 2010 whilst the deficit will be truncated but a way off elimination.
Few governments survive an election in such circumstances, making this Budget worrying from the Liberal Democrat perspective. Achieving the party’s flagship policy of the £10,000 income tax allowance a year early is impressive, but the Lib Dems run the risk of having little else positive to say on the campaign trail in two years’ time.
Nevertheless, both Coalition partners now have few strategic options left: this Budget has essentially taken a dramatic change of course off of the table. The parties have to now hold tight and hope the global economic headwinds subside in time to lift Britain before the next election.
This Budget may have been mostly small beer measures, but it has determined the course of the remainder of the Coalition.
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* Daniel Wright is a Senior Associate at Cicero Group