Osborne’s new, softer cuts

George Osborne has today done some massive juggling. It wasn’t a Budget for jobs after all, but a Budget to help people cope with the soaring cost of living. North Sea oil companies and banks were stung for various income, fuel and corporation tax cuts. The Chancellor spotted — immediately — that cost of living was the No.1 issue and turned on a sixpence. His skills as a politician were again demonstrated. But let’s not fool ourselves. Fiscally, today’s is not a big Budget. What movement there has been is to make the cuts programme even milder than it already was.

The “total cuts” figure is, oddly, not printed in the Budget. Perhaps because it’s so embarrassingly small. After the Autumn Statement, it was 5 per cent over four years. Now it’s back to 3.7 per cent over four years: that is to say, total cuts of just 0.9 per cent a year. The Chancellor’s cuts are mild — milder than Denis Healey’s now-forgotten cuts. Over the next five years, the spending total has risen: in 2014-15, we’ll be spending £744 billion, an extra £11 billion. A relatively small figure, but you get the overall direction. Remember this next time Ed Balls talks about “deep and fast” cuts.

Next, Osborne has back-shifted a lot of the pain. Originally, total spending was going to be down 1.7 per cent this year. Now, it’s just 0.6 per cent. This is in the margin of error so it can be said that there are, in effect, no cuts in total spending this year. Pain has been shifted to the end — so the tax burden for 2015-16 has been revised up by £335 million. But this would be the first year of the next government.

Giveaways to cope with inflation are an expensive business. Osborne could deal with inflation by dismantling the failed Monetary Policy Committee model. But if he is going to accept high inflation (he matter-of-factly announced that it won’t come back to target for at least two years), then he’s going to keep needing to do these handouts to cope with inflation’s effects. And how will he fund them? Not by going any easier on deficit reduction: if his does, he’ll be back to Alistair Darling’s trajectory. So, the obvious thing to fund the next round of tax cuts by finding deeper savings in government. By being more ambitious. Given that this year’s total cuts have now been reduced to 0.6 per cent this year, that’s not hard.