Ian Mulheirn

A Budget response

A Budget response
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The Chancellor’s projections for economic growth look to be on the sanguine side. Having said that, the Treasury’s economic forecasts have tended to be closer to out-turn than has the independent consensus over recent years. Whether they will continue to be so in these uncharted economic waters remains to be seen.

In terms of the state of the public finances, the Treasury’s recent borrowing projections have consistently been over-optimistic and many will consequently take them with a pinch of salt. If this again turns out to be the case, it will have consequences for the sustainable investment rule, which will come perilously close to being broken even on yesterday’s central projections.

The Chancellor’s focus on green issues is to be welcomed. However, rather than targeting just a few specific polluting activities such as driving gas-guzzlers the government should focus on bringing all CO2 emitting behaviour within the EU Emissions Trading Scheme.

• The shift away from air passenger duty to a per-plane charge is a sensible shift in policy. This should now pave the way for aviation emissions to be brought within the ETS.

• The Government should consider scrapping fuel duty, with it’s murky mixture of aims, and replacing the revenue by other charges dedicated to tackling the policy’s two key purposes: road-user charging to reduce congestion; and bringing transport emissions within ETS, through auctioned permits, to tackle CO2 emissions.

• Proposals for phase III of the ETS to involve auctioning all CO2 permits for electricity producers are a step in the right direction. The government should work with European partners to find ways to auction all permits for heavy industry also, without greatly disadvantaging UK industry.

• The government’s proposals to hold an international conference on developing a global carbon market are to be applauded. However a positive judgement will ultimately require that actions follow these important words.

• The government is being too cautious in efforts to reduce plastic bags usage. Waiting for the industry to take voluntary action risks letting some free-ride on the green actions of others (such as M&S). Imposing a charge would therefore be fairer to all retailers as well as being more effective.

The Chancellor’s commitment to continue to look at ways of implementing road user charging is a positive development, coming in the wake of recent coverage suggesting that this policy might be abandoned. A recent SMF publication set out an action plan for how road user charging could be taken forward.

The government’s decision to disregard Child Benefit in Housing Benefit and Council Tax Benefit awards from October 2009 is to be welcomed. This will continue the government’s good work in this area by further strengthening work incentives for low-income families with children and hence tackling in-work poverty.

However, the government should now drop its 2010 child poverty target and focus on the 2020 target to abolish child poverty. A further £2.4bn each year will need to be found and spent on tax credits to hit the 2010 target. But higher tax credits will do little to solve the underlying drivers of inequality. The government should find that cash but instead urgently invest it in services such as Sure Start to ensure that every child has the same chance in life.

Ian Mulheirn is Chief Economist at the Social Market Foundation think tank.