Spare a thought for George Osborne and Danny Alexander. They had their own
budgetary magic show planned for Wednesday, and were yet again planning to be the Paul Daniels and Debbie McGhee of British politics. Now, it looks like they’re going to be competing with
exploding Libyan MiGs for the national attention. This Budget was, as James says in his cover story this week, the government’s great hope
for getting itself back on track. Grabbing the newspaper headlines, resetting the narrative etc. Now, the budget will be overshadowed by war. These Tomahawks don’t come cheap and Osborne has
pitifully few cards to play. He knows that his budget will not live up to David Cameron’s deeply unhelpful description of it as the “most pro-growth in a generation.” I suspect it
will be more of a Paul Daniels budget: you’ll like it, but not a lot. For what they’re worth, here are predictions – an elaboration of my News of the World column today.
1) “Osborne’s “Want you back” initiative. In recent months, Osborne has been a-wooing Sir Martin Sorrell, head of WPP, asking what would make him move his HQ back to
London. Sorrell, I’m told, is a proving a tough negotiator. He wants lower tax on foreign profits (WPP makes about 2 percent of its wonga in Ireland so its low domestic corporation tax isn’t much
of a pull). I suspect Osborne will deliver on overseas profits, and this gives him a powerful narrative: companies who fled under Brown are returning under Cameron. Now, we’re talking primarily
about tax registration here – so it’s no great job-creator. But still symbolic.”
2) Osborne’s success means he’ll have £8bn-£10bn extra. His medicine is working, tax revenue has been sharper than expected and the result is more cash in the coffers. I suspect he’ll put most of this towards deficit reduction. It is hardly a war chest. It just means that his government will be reducing our national debt borrowing to £5,200 a second, rather than £5,500 a second. So, a better situation than he inherited, but still a pretty appalling state of affairs. Osborne had best be careful saying (as he does) that he’s paying off the nation’s credit card, because he’s not. There’s a couple of trillion on that card and the amount is going up all the time.
3) Emphasis will be on words, and direction. There will be a ‘Lawsonian’ focus on regulation, or reducing it (ie, simplification of the tax code) and a ‘Heseltinian’ approach to enterprise (ie, the enterprise zones).
4) Fuel – Osborne will budget on the fuel price escalator. Petrol is 132p a litre, or which 79p is pure tax. So he can’t very well blame it on OPEC. He’ll make hay out of this, saying he’s stopping yet another Labour tax.
5) Cost of Living will be addressed by reminding the world of the (LibDem) policy of lifting the bottom rate of tax so everyone on less then £35,000 is given a tax cut of about £17 a month. That’s real help. Even on today’s fuel prices, it’s enough to get another 100 miles out of a Mondeo. It’s coming into effect on April, and the world needs reminded about this tax cut, although the ill-timed VAT rise will lessen its effects).
6) The 50p tax will be a 52p tax because the so-called “National Insurance” super-tax (unlike NI, it’s not capped) is going up. This will speed up the steady exodus of Britain’s largest taxpayers, making everyone worse off and having the effect of balancing the budget on the backs of the poorest. James Forsyth says in the Mail on Sunday today that Osborne will merge NI and Income Tax – this means we’d move from having a de facto 52p rate to an official 52p rate
7). I doubt there will be any stimulatory tax cuts, because Osborne does not believe in them. This dates back to the Tory wars, when David Davis’ opponents accused him of ‘punk tax-cutting’ – ie, JFK’s belief that lower taxes would lead to higher growth and more revenue. I still hope, however, that as Osborne sees stimulatory tax cuts work in countries like Sweden, now celebrating the highest economic growth in Europe, he will cut tax further for the low-paid. The Swedes take a novel approach: that the problem is the demand for jobs, not the supply of them. So by making work compete better with welfare, they increased the demand for jobs. Britain is getting there with the IDS reforms, but not fast enough. A move in this direction would, in my view, be the most efficient way of speeding up the recovery and reducing dole.”
8) There will be plenty I can’t predict because Osborne is a showman, and has been asking colleagues to hold back announcements for the Budget. I’d be amazed if he doesn’t have a surprise, or a bit of drama for us. Paddy O’Flynn has been speculating that he’ll abolish the NI rise altogether. I can’t see how he has the fiscal room to do so, but Osborne is nothing if not a man of surprises.
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