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| George Osborne's budget provides cold comfort as green shoots fail to emerge | George Osborne's budget provides cold comfort as green shoots fail to emerge |
| (17 days later) | |
| Many had suggested this was George Osborne's last chance to get the economy growing by the time of the election. Yet the net effect on growth of the measures in this budget is precisely zero, the Office for Budget Responsibility (OBR) declared. On the first day of spring, the green shoots remained stubbornly unwilling to stir from the frozen ground. | Many had suggested this was George Osborne's last chance to get the economy growing by the time of the election. Yet the net effect on growth of the measures in this budget is precisely zero, the Office for Budget Responsibility (OBR) declared. On the first day of spring, the green shoots remained stubbornly unwilling to stir from the frozen ground. |
| Voters will remain shivering in the longest economic winter right up to the 2015 election with every likelihood that Britain will have, by polling day, the largest debt-to-GDP ratio of any major western economy. | Voters will remain shivering in the longest economic winter right up to the 2015 election with every likelihood that Britain will have, by polling day, the largest debt-to-GDP ratio of any major western economy. |
| In 2014, the year leading up to the election, wages will be rising by 2.7%, but inflation will be at 2.4%, leaving real disposable income rising on average by just 0.4% after a paltry 0.2% rise this year. Growth is now forecast to be 1.8% in 2014 and the jobless claimant count will have risen to 1.63m. | In 2014, the year leading up to the election, wages will be rising by 2.7%, but inflation will be at 2.4%, leaving real disposable income rising on average by just 0.4% after a paltry 0.2% rise this year. Growth is now forecast to be 1.8% in 2014 and the jobless claimant count will have risen to 1.63m. |
| Asked the classic question at the next election – has he made voters better off? – Osborne will have to level with the British people and answer no. Real wages will have fallen by 2.4% over the parliament. If it is, as many predict, to be an election fought on the subject of living standards, Osborne loses. | Asked the classic question at the next election – has he made voters better off? – Osborne will have to level with the British people and answer no. Real wages will have fallen by 2.4% over the parliament. If it is, as many predict, to be an election fought on the subject of living standards, Osborne loses. |
| But will Osborne be able to argue that the consumer's pain was worthwhile? Will they agree that fixing the roof while the rain poured was a painful business, but at least the roof is finally repaired? Again the answer would be a negative. In the next two years alone, deficit reduction will have stalled. There is no real expected improvement in borrowing between 2011-12 and 2013-14. | But will Osborne be able to argue that the consumer's pain was worthwhile? Will they agree that fixing the roof while the rain poured was a painful business, but at least the roof is finally repaired? Again the answer would be a negative. In the next two years alone, deficit reduction will have stalled. There is no real expected improvement in borrowing between 2011-12 and 2013-14. |
| Over the parliament, borrowing will have been £244bn higher than Osborne predicted in his now notorious emergency budget in the summer of 2010. Moreover, he will have missed both his fiscal targets. | Over the parliament, borrowing will have been £244bn higher than Osborne predicted in his now notorious emergency budget in the summer of 2010. Moreover, he will have missed both his fiscal targets. |
| In the first two years after the election, debt as a percentage of GDP will still be rising. In 2017-18, borrowing will be £10bn more than he predicted just four months ago. As one cabinet minister admitted ruefully: "The numbers just keep running away from us." | In the first two years after the election, debt as a percentage of GDP will still be rising. In 2017-18, borrowing will be £10bn more than he predicted just four months ago. As one cabinet minister admitted ruefully: "The numbers just keep running away from us." |
| Such is the gloom that the business secretary, Vince Cable, was unable to say the age of austerity would be over by the end of the next parliament. | Such is the gloom that the business secretary, Vince Cable, was unable to say the age of austerity would be over by the end of the next parliament. |
| Nor will the cuts be over by the election. This summer's spending review covering 2015-16 will have located an extra £11.5bn of cuts in current spending, and Osborne will be imposing a new austerity lock on some welfare spending: if some welfare budgets, such as housing benefit, are forecast to rise unacceptably, the Treasury for the first time will be able to impose a cap. | Nor will the cuts be over by the election. This summer's spending review covering 2015-16 will have located an extra £11.5bn of cuts in current spending, and Osborne will be imposing a new austerity lock on some welfare spending: if some welfare budgets, such as housing benefit, are forecast to rise unacceptably, the Treasury for the first time will be able to impose a cap. |
| Given this horrendous record, Ed Balls, the shadow chancellor, may feel he can take the next two years off, focus on his piano lessons and simply refer the electorate to his 2010 Bloomberg speech in which he argued that cutting spending, as the government planned, would cripple growth. "Back in 2010, we weren't thinking what they were thinking," may be a sufficient Labour election slogan. | Given this horrendous record, Ed Balls, the shadow chancellor, may feel he can take the next two years off, focus on his piano lessons and simply refer the electorate to his 2010 Bloomberg speech in which he argued that cutting spending, as the government planned, would cripple growth. "Back in 2010, we weren't thinking what they were thinking," may be a sufficient Labour election slogan. |
| But, of course, the politics is nothing like that. The precise numbers shift around, but a large tranche of the electorate stubbornly do not blame the coalition for the austerity. They blame Labour's recklessness and the eurozone crisis. It was not a coincidence that Osborne began his remarks by saying: "This is a budget for people who realise there are no easy answers to problems built up over many years." | But, of course, the politics is nothing like that. The precise numbers shift around, but a large tranche of the electorate stubbornly do not blame the coalition for the austerity. They blame Labour's recklessness and the eurozone crisis. It was not a coincidence that Osborne began his remarks by saying: "This is a budget for people who realise there are no easy answers to problems built up over many years." |
| That phrase matches the fatalistic mood of the electorate. But the OBR agrees with the government that the lower-than-expected forecasts are not their fault but due to a collapse in demand for exports. The OBR will not buy the argument that the fiscal consolidation has been as damaging as some other economists suggest. | That phrase matches the fatalistic mood of the electorate. But the OBR agrees with the government that the lower-than-expected forecasts are not their fault but due to a collapse in demand for exports. The OBR will not buy the argument that the fiscal consolidation has been as damaging as some other economists suggest. |
| Above all, Balls cannot fight an election with a counter-factual view – that growth would have been higher if his prescriptions had been followed. | Above all, Balls cannot fight an election with a counter-factual view – that growth would have been higher if his prescriptions had been followed. |
| The point is coming at which Balls will have to be more specific about his own spending plans. The chancellor's aides were on Wednesday starting to pose the 2015 questions to Balls. Will he accept the 1% pay cap for public sector workers from 2015-16 ? Will he accept that 80% of welfare should be subject to controls, instead of the current 50%? Why does he want to restore the 10p rate of income tax? Will he accept the pace of deficit reduction set out for the next parliament? Will he restore the 50p top rate of income tax due to be abolished in a fortnight? | The point is coming at which Balls will have to be more specific about his own spending plans. The chancellor's aides were on Wednesday starting to pose the 2015 questions to Balls. Will he accept the 1% pay cap for public sector workers from 2015-16 ? Will he accept that 80% of welfare should be subject to controls, instead of the current 50%? Why does he want to restore the 10p rate of income tax? Will he accept the pace of deficit reduction set out for the next parliament? Will he restore the 50p top rate of income tax due to be abolished in a fortnight? |
| Nick Pearce, the director of the left-of-centre IPPR thinktank, is pressing for greater clarity from Balls: "The worst thing Labour can do is give the impression that it will reverse the cuts only to do a handbrake turn in its manifesto and sign up to the coalition spending plans." | Nick Pearce, the director of the left-of-centre IPPR thinktank, is pressing for greater clarity from Balls: "The worst thing Labour can do is give the impression that it will reverse the cuts only to do a handbrake turn in its manifesto and sign up to the coalition spending plans." |
| The Liberal Democrats can claim that their policy of raising personal allowances to £10,000 has been met, a year earlier than planned. They are also armed with polling data showing that voters in their market audience credit Clegg, not Cameron, with the policy by roughly two to one . | The Liberal Democrats can claim that their policy of raising personal allowances to £10,000 has been met, a year earlier than planned. They are also armed with polling data showing that voters in their market audience credit Clegg, not Cameron, with the policy by roughly two to one . |
| But there is a fundamental difference within the party on macroeconomic policy. Cable made absolutely no progress in this budget in his call for a large-scale capital injection into housing. Restrictions in council investment in affordable housing were not lifted. | But there is a fundamental difference within the party on macroeconomic policy. Cable made absolutely no progress in this budget in his call for a large-scale capital injection into housing. Restrictions in council investment in affordable housing were not lifted. |
| Instead, Osborne's dramatic Help to Buy scheme, echoing Thatcher's right to buy, is arguably likely to fuel demand and prices rather than supply. It is designed to help anyone (not just first-time buyers) looking to buy a newly built property worth less than £600,000. But many say the housing crisis is not being caused by a lack of finance or dynamism in the market, but a lack of supply. | Instead, Osborne's dramatic Help to Buy scheme, echoing Thatcher's right to buy, is arguably likely to fuel demand and prices rather than supply. It is designed to help anyone (not just first-time buyers) looking to buy a newly built property worth less than £600,000. But many say the housing crisis is not being caused by a lack of finance or dynamism in the market, but a lack of supply. |
| The election will ultimately turn on whether voters agree with Ed Miliband that Osborne has broken the deal he made with the British public when the coalition came to power; that all the pain of austerity would be worth it when the "good times" returned. | The election will ultimately turn on whether voters agree with Ed Miliband that Osborne has broken the deal he made with the British public when the coalition came to power; that all the pain of austerity would be worth it when the "good times" returned. |
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