Party groups respond to the Budget

As one might expect, groups within the Lib Dems are united in welcoming George Osborne’s announcement that the coalition will deliver the Lib Dem policy of a £10,000 income tax personal allowance next year, earlier than previously expected. Both the Social Liberal Forum and Liberal Reform also agree that the chancellor needs to be more ambitious when it comes to stimulating economic growth, though the groups diverge somewhat on how to do so.

First up, here’s the SLF’s response:

The Budget contains some welcome measures, especially on childcare costs and raising the personal tax allowance to £10,000 next year. The latter is a Liberal Democrat commitment being delivered in government, and will go some way to ease the spiraling cost of living faced by millions of households, but it’s nowhere near bold enough to tackle the deep economic problems the UK faces.

This should have been a budget for growth – where was the action required to get the banks lending, builders building and investment flowing? The small increase in capital spending(to begin not now but in 2015) is on nothing like the required scale, as it is funded by cuts elsewhere in the budget – not borrowing at low rates as we’ve advocated, nor new monetary instruments, which could have provided a significantly bigger investment boost. Of particular concern is the new limit on ‘annually managed expenditure,’ which signifies further painful reductions in the welfare budget are to come in the spending review this June – the consequence of a misguided attempt to remain fiscally neutral.

The Office of Budget Responsibility confirms that substantial growth will not return to the UK economy for some time yet, prolonging the squeeze on living standards until well after 2018. Without a significant change in public policy to restore investment and confidence, even this seems unlikely. Instead of an attempt to boost sub-prime mortgage spending through yet more loans and guarantees, we should have had a huge programme of house-building, as Vince Cable recently advocated.

The Social Liberal Forum is keen for Liberal Democrats in government to continue to press for a macro-economic policy suited to boosting the economy – there is widespread appetite within the party for a significant change of approach. Only by tackling the vast underlying challenges we face – that this budget skirted around – will we ensure prosperity returns to those who’ve been hit hardest by this ongoing crisis.

And here’s what Liberal Reform had to say:

The Chancellor’s reaffirmation of the government’s commitment to bringing down Britain’s unsustainable deficit is welcome. However, nobody could accuse the coalition of not being flexible when it comes to balancing the books: as a result of harsher economic winds, primarily from the eurozone, the government is borrowing tens of billions of pounds extra for many more years.

While relaxing the deficit reduction target in the short-term is sensible to avoid compounding the economic difficulties, this should not mean elongating the process any further. The country’s borrowing binge needs to end, and the pain involved in doing so should not be continually prolonged.

It is of course extremely welcome to see the Lib Dem policy of allowing people to keep more of the money they earn by raising the income tax threshold being implemented faster than previously planned. Those on low and middle incomes are over-taxed, and it is the Liberal Democrats who are committed to reducing this burden.

We also welcome the shifting of further funds from current to capital spending, but we think the government can do more. There are many areas of day-to-day government spending which can be reduced further, with the savings used to fund both deficit reduction and infrastructure projects. Welfare spending on the wealthy is a prime area for such savings.

We are sceptical as to whether the Chancellor’s measures to help people purchase houses will really work: the key thing standing in the way of greater house-building is an overly-restrictive planning system.

This was a budget with Liberal Democrat fingerprints all over it, but we once again urge the Chancellor to be more ambitious when it comes to deficit reduction, tax cuts, supply-side reform and infrastructure spending.

* Nick Thornsby is a day editor at Lib Dem Voice.

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  • Bill le Breton 21st Mar '13 - 10:36am

    Where is the dog that did not bark in the night?

    This was, when all is said and done, a fiscally neutral budget – £3.5 billion of extra infrastructure that doesn’t enter the budget until 2015 doesn’t count. The emergency freeze to 12th month spending merely postpones certain spending issues.

    Some supply side reform, yes, but a good deal of supply-side stuff was done in the first early on.

    The OBR waffles about the size of the structural deficit and can’t decide. Is it bigger or is it smaller than previously thought? Has capacity been destroyed in the last five years or is it still there, an unutilized capacity, a sleeping potential? Was capacity overestimated before the crisis? And if not, it is there to propel an inflation free recovery.

    So, (and as the spin this morning suggests) the significant ‘change’ in this budget is the change to the regime set for the Bank of England

    It is strange therefore that both these statements are silent about monetary policy.

    Steff Flanders and others have clearly been told that there is sufficient scope for the new Governor of the Bank of England to raise aggregate demand.

    What a tough job they have given him. They will say that the rather opaque changes actually give him the same powers as given to the Chair of the Federal Reserve – the so called Bernanke/Evans Rule.

    But yesterday Bernanke was able to find 10 colleagues to vote with him and only one against to keep up the highly stimulatory monetary policy that is sustaining the US recovery. £85 billion of asset purchases a month until further notice and unchanged interest rates until 2015/16.

    Yet Carney is to do this with a Monetary Committee on which the present Governor could find only two colleagues willing to vote with him for more stimulus.

    The Quad lacked the courage to give the MPC a very clear target form raising aggregate demand, but nevertheless expected ‘their man’ to deliver it – and with it increased output, increased taxes, and the reduced deficit:GDP levels for which they yearn.

    No wonder few heard the dog barking.

  • Paul Pettinger 21st Mar '13 - 2:51pm

    Great that the SLF and Liberal Reform have commented, but it would be wrong to treat the groups as having equivalence – Liberal Reform are a fringe group.

  • Andrew Tennant 21st Mar '13 - 7:52pm

    @Paul Pettinger
    A bit disappointing to see you be so dismissive of your fellow Liberal Democrats.

    @Nick Thornsby
    I’m inclined to agree more with the Liberal Reform perspective – we need to switch spending from revenue to capital so that long term government spending can be more in-line with tax revenues.

    I’m somewhat unimpressed by the distortions to the housing market, which will only have the effect of maintaining unaffordable prices, still inaccessible to the many, and potentially reinflating the housing and toxic credit bubble saving up a repeat of the credit crunch problem we all should have learnt from.

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