Dangerous, unfair, verging on kleptomania: the bailout deal proposed by the EU at the weekend and rejected by Cyprus MPs on Tuesday is everything it has been described as over the past few days, and worse. Now it has been established that the EU views bank depositors as a potential piggy bank to be raided at whim, it is hard to see why anyone would keep significant quantities of cash on deposit in European banks. We are back where we started in 2007, with the threat of Northern Rock-style bank runs across the Continent.
Yet the proposed raid in Cyprus is really only different in perception from what is being imposed by stealth on British savers. In his Budget, George Osborne admitted how badly his plans are going: he’s spending far more than he intended and receiving far less. The national debt has risen by a full 38 per cent since the election and will have risen by £10,000 in the time it takes you to read this sentence. What began as a crisis in the banking sector is now a crisis of government: it has run out of places from which to find money. So politicians are using ever more imaginative tools to extract it, including lowering borrowing costs at the expense of British savers.
As always, the moves that Osborne did make were in the right direction. Extending his planned corporation tax cut to 20 per cent in two years’ time will perhaps be the single most effective proposal in his Budget. There is also a holiday for employers’ National Insurance to encourage smaller companies to hire. This is well-intentioned tinkering, but it will make those on the minimum wage only 4 per cent a year cheaper to hire — that’s not likely to dent our scandalous youth unemployment rates.
A 1p cut in beer duty is also welcome, but what would be more welcome would be a 1p cut in the basic rate of income tax. The Prime Minister boasted before the Budget that it would bring ‘tax cuts for 24 million people in the country’ but he didn’t say — and never says — the amount. It adds up to £1.51 a week, barely enough to fight off the impact of inflation. We need a shift: away from policies that sound good in speeches and towards those which make an economic impact. Best of all would be a serious tax cut for the low-paid, one which amounts to an extra month’s salary every year. With enough savings in the government budget, this would be eminently affordable.
The Budget was, as we expected, an empty Budget. That is not to say that the Chancellor had no policies; he announced plenty to excite and annoy the press. He was right to justify his refusal to give tax cuts to stay-at-home mothers by saying his priority is to help workers. The problem is that he’s not doing enough for either. His adjustments will make no almost impact on the pitiful trajectory of the economic recovery — this was the official verdict of the Office for Budget Responsibility. The OBR’s figures also showed that, rather than eliminating the budget deficit in 2015, we will be shouldering the worst deficit in the western world. Rather than cutting the government down to size, the Budget revealed that total spending is not even 3 per cent down from its peak.
Smoke and mirrors, of course, emerge from every budget box. But it is depressing to see Mr Osborne rely on them after only a few years. The most telling part of his speech was his cryptic reference to ‘monetary’ reform. And this, of course, is where most of his hopes are placed. The assumption is that Mark Carney, who starts as Bank of England governor in June, will keep the Bank’s printing presses rolling as much as they have been under Sir Mervyn King. The cheap debt party will continue.
It is hard to remember now that early on in the crisis Sir Mervyn made the term ‘moral hazard’ his own. In September 2007, in the immediate wake of the Northern Rock crisis, he wrote a ten-page letter to the Treasury Select Committee explaining why it would be wrong to advance emergency loans to the banks. Do that, he warned, and their appetite for risk would only increase, as they counted on always being able to come back for more. But Sir Mervyn went on to demonstrate exactly the same addiction. At first, we were all told to expect a one-off round of QE, printing £80 billion. Then it rose to £200 billion. As of this Budget, the expected sum is £400 billion.
Four years after the worst of the banking crisis, it is hard to identify any measure which will prevent another feast of reckless borrowing in future. We are still living in the bubble — as is evident to anyone who is offered a mortgage at a rate below that of inflation. This means the bank is paying us to borrow — a far stranger policy than the 110 per cent mortgages now blamed for the crash. Far from eliminating boom and bust, as Gordon Brown promised to do, the effect has been to supercharge boom and bust.
The Chancellor’s future now stretches out to reveal deficits as far as the eye can see. His plan to balance the books has been abandoned. It was a low-key Budget because there is not much he can do to varnish a basic truth: that Britain’s economic recovery has stalled and the government has run out of ideas about how to start it again.