This afternoon’s Budget 2016 was a far cry from George Osborne’s triumphant Autumn Statement and Comprehensive Spending Review 2015 just a few short months ago, where he ringfenced numerous government departments, u-turned on tax credits and spoke proudly of the UK fixing the roof “while the sun was shining”. Since then, he has warned that the storm clouds are gathering and the UK faces a “cocktail” of economic risks and is “not immune to slowdown and shocks.” Despite this, he made some bold announcements and proclaimed this as a budget for the “Next Generation.”
Economic risks – with a nod to the potential for instability surrounding Brexit – formed a key part of Budget 2016’s narrative, and plans have been drawn up to spend £3.5bn less a year in this Parliament. Having scrapped plans for pensions reforms, which had been promised in the Tory Manifesto, the Chancellor was in need of a big new idea that wouldn’t create further divisions in his Party, already very much split over Europe. With one eye on the Tory leadership, this budget was as much about reaching out to Conservative Party members, where support for the beleaguered Chancellor as next Tory leader has plummeted recently, as giving the UK economy a shot-in-the-arm.
The Chancellor announced tax reforms to shore up businesses that were widely expected, and included tax relief for the struggling North Sea Oil industry to stimulate growth, which reported tax revenues of close to zero for the first time since the 1970s following the collapse in the price of crude oil. He also announced a number of tax simplification measures for SMEs and reasserted his ambitions to create a “Northern Powerhouse”, much of which would be driven by Lord Adonis and the National Infrastructure Commission. Other significant measures include extending the school day for secondary pupils; backing large transport infrastructure schemes and further devolution in the UK.
Osborne’s political pragmatism was evident once again, where he committed to the controversial plan for the total roll out of academies, an initiative that begun under Tony Blair in 2002 and has continued under the Tories, which will likely stir more division among the current Labour leadership and the Blairites in the PLP.
While there was some welcome news in UK unemployment figures falling to 1.68m between November and January the burden of expectation on Osborne to deliver something for hardworking families was significant, and his announcements on a new generous ISA scheme for the under 40s will be trumpeted as exactly that. However, a big question remains, “where is all this giveaway money going to come from?” His fiscal forecasts imply a large improvement in the finances between 18/19 and 19/20, a basically unbelievable £30bn swing in one year, as well as further cuts of £8bn in the next Parliament. Overall, George Osborne has come up with enough gimmicks to paper over the cracks, at least as far as day one is concerned.
For Labour, Jeremy Corbyn gave a reasonable parliamentary performance, but then he has set himself a low bar. The main charge unsurprisingly was the unfairness of it all. As always the Opposition has very little time before the response to really understand the detail. The more thorough analysis of Business and the City over the next few days will reveal whether Labour has any fundamental arguments that can make any inroads into the public consciousness about their views of Osborne and his economic performance.