The most heartening part of George Osborne’s Budget was perhaps one of its least glamorous proposals.
The most heartening part of George Osborne’s Budget was perhaps one of its least glamorous proposals. In his speech, the Chancellor started to bemoan the regional disparities within Britain. Ten jobs in the private sector are created in the south for every one in the north, he said — all too true. One was braced, next, for some doomed proposal for a new Silicon Valley in Teesside, or a harebrained attempt to incubate green energy forms in the Welsh valleys. But no: he would cut the taxes of companies starting up in these areas. And that was it.
It was wonderfully refreshing. Rather than pour yet more taxpayers’ money into parts of the UK where spending has already reached Soviet levels, why not just kick government out of the way? Such a formula has transformed Hong Kong and has made wealth spring from the deserts of Dubai — so why not Dunstable? Mr Osborne’s regional tax cut was modest, but the philosophy was sound. All he needs to do now is apply this fiscal medicine more widely.
The Chancellor cut no more, and no less, than had been expected. There was nothing ideological about the level of the cuts, and his critics in the press missed several points. First, had Mr Osborne not made the extra cuts Britain would be facing a sovereign debt crisis — or another IMF bailout. There was no other route. The markets will not lend to an irresponsible government, as the Greeks have found out. Next, the coalition government is not cutting total state spending — it is rising from £697 billion to £757 billion, broadly in line with inflation. The cuts are necessary because of the soaring costs of debt interest payments — the shameful legacy of Gordon Brown.
Had Labour been in power, the cuts would have been only slightly less sharp. The plans Mr Osborne inherited showed that unprotected departments would have to be cut by about 20 per cent under Labour’s plans. Under Mr Osborne it is now 25 per cent. Are we really to believe there is a gaping ideological divide between these two figures? The bond market would have forced any Chancellor down the road to fiscal sanity. This Budget is not a gamble. It is, by some margin, the surest route back to stability.
The truth is that Britain is emerging from, rather than entering, a period of ideologically driven government. Over the past decade, Gordon Brown embarked on an unfunded spending binge, expanding the state at a faster rate than any other country over any other decade. A Prime Minister, mistrustful of the people and what they might do if left to spend more of the money they earned, funded this expansion through debt, which will (according to one of the more sobering Budget graphs) take 30 years to undo.
This was not a savage Budget — it means the extra cuts amount to just 5 per cent of government spending. Most households and businesses have had to cut far more. It is the way the cuts are allocated that inflicts pain. And this will not be what causes the most problems for Mr Osborne. These will come in the spending review, when he explains precisely why policing, defence and education must be cut by 25 per cent while the wasteful health budget — the largest budget not just in Whitehall but in Europe — is left untouched. If we’re all in this together, why should the bloated NHS bureaucracy be force-fed even more money? The more one considers this question, the harder it is to defend the government’s position.
The 25 per cent cuts, when they come, will represent a colossal swing of the axe over the affected areas. This will mean heavy job losses, radical reductions of provision in higher education and policing. It will mean that the coming defence review will be an agenda for downscaling the military at a time of war. This is likely to provoke public anger. How will Mr Osborne justify cutting £3 billion from military spending, if he would increase international aid by the same amount? Pledges made in election time will boomerang.
There is no option of soft-pedalling on deficit reduction. Greece’s collapse demonstrates what happens when countries refuse to face reality. The problem had to be addressed, within a credible, one-parliament timetable. If the coalition is to last five years, then things should become progressively better for Osborne. His intelligent measures to assist private-sector growth through corporation cuts should heap fertiliser on to the green shoots of recovery that have been in evidence over the past two months. The course he has charted to prosperity — to reduce tax on all businesses — is simple, credible. Even the capital gains tax grab, another concession to the Lib Dems, is less swingeing than the City feared.
For 13 years, Britain has been governed by a party that was sure society would be fairer and more prosperous if a supposedly enlightened political elite vastly increased state spending. This ideological experiment failed, calamitously. It is time, at last, for common sense to return. The process will be painful, and will take some years to complete. The situation is dire, and many perils lie ahead. But Britain is, at last, on the road to recovery — a road clearly signposted by Mr Osborne this week. We commend him for his clarity and resolve.
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