Beware the first budget of a new parliament. Especially this one
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Version 0 of 1. The first budget of a new parliament tends to be the most dramatic and influence the agenda for years ahead – even decades, in the case of Anthony Barber (chancellor 1970-74), Sir Geoffrey Howe (1979-83) and Nigel Lawson (1983-89). The impending July budget of the new chancellor – sorry, folks, but not really so new – will almost certainly fit the traditional pattern. On this occasion, however, it will be a true blue Conservative budget, not watered down by a coalition partner. And how those Liberals who deserted their own party in the recent election are going to regret it! Now, the important point about next month’s budget is that it was not expected, even by the chancellor, to be delivered. But, for all the protestations of my vociferous old friend Alex Salmond, it will be. And it could well be an intrinsically absurd occasion. Let me explain: as that great American humorist and versifier Ogden Nash put it: “Discretion is the better part of virtue; Commitments the voters don’t know about can’t hurt you.” But the voters do know about the wild spree of commitments on which Messrs Cameron and Osborne embarked in the closing phase of the election campaign. They even had their cheerleader, the Financial Times, complaining about the way they were suddenly becoming “fiscally irresponsible”, putting at risk their (always overblown) reputation for economic competence. It will be shameful if, as expected and indeed promised, he goes ahead with his attack on welfare and public services As I have said before, the party that blamed its Labour opponents for being enemies of “wealth creation” – a false charge anyway – has presided since 2010 over the most miserably slow period of national wealth creation, outside wartime, since records began. But, pace the FT and the criticism by the Labour party, those commitments did the Tories no electoral harm whatsoever. Enough electors took their eyes off the austerity ball, which is almost certainly destined to inflict serious, and entirely unnecessary, damage to this nation’s public services and defences. Instead they focused on those tax cuts that the FT and even Conservative supporters in the City complained were “unfunded”. Funnily enough, however, Cameron and Osborne may be in luck. With the British economy slowing down to an annual rate of growth of 1.25%, and Stephen King, the eminent chief economist of HSBC, warning that, in addition to the danger of “a major weakening of the Chinese economy”, there is the prospect of another US recession, there could in my view (not King’s) be an old-fashioned case for fiscal stimulus – or, at least, no further austerity cuts. It would require some chutzpah on the part of the chancellor to proclaim this, because he remains wedded to a pre-Keynesian view that, at a time of economic sluggishness, the budget deficit is the major problem. Thus, in spite of the widespread view that he has been in practice more relaxed about cutting the deficit in recent years than his rhetoric proclaimed, he has nevertheless entered his second term with plans for another burst of severe austerity. But back to those predecessors and their lasting influence. Most of the younger generation will not have heard of Tony Barber, who became chancellor in the summer of 1970 after the early death of Iain Macleod, the champion of genuine one-nation Conservatism. It was under Barber’s chancellorship – some would say Ted Heath’s, because as prime minister Heath was considered to be “his own chancellor” – that VAT was introduced. This proved to be a tax that was going to give his successors lots of leeway. When Howe became chancellor in 1979, his abolition of exchange controls had a lasting effect; and, when he ran into trouble financing his promised income tax cuts, the main rate of VAT was hoisted from 8% to 15% in one fell swoop. Howe’s 1979 budget reduced the top rate of income tax from 83% to 60%. It was the first budget of Nigel Lawson’s second term, in 1988, that also had lasting effects. Since he reduced the top rate to 40%, there has been panic in the ranks at the very thought of raising it. You can see what an outcry there was when Labour, in the wake of the banking crisis, dared to raise it to 50%. It matters not that the British economy grew for many years at a respectable pace when tax rates were much higher: the mantra these days is that low tax rates promote economic growth – although there has not been much evidence of that in recent years. It is a cliche that the British seem to want Scandinavian levels of public service financed by US levels of taxation. Unfortunately what Osborne wants is lower taxes financed to some extent by bashing the poor. Well, we shall see whether the first budget of his second term has as much historic significance as those of certain predecessors. It will be shameful if, as widely expected and indeed promised, he goes ahead with his attack on welfare and public services generally. The chancellor could do worse than read the wonderful recent book by John Hills, professor of social policy at the London School of Economics. Entitled Good Times, Bad Times – The Welfare Myth of Them and Us, it explains in vivid detail just how important the welfare state is to the majority of the population over their life cycles, and what a minimal proportion of welfare spending actually goes to the people the Daily Mail and Murdoch press go on about. |