Today, the country needed the Chancellor to put aside the soap opera of the Tory leadership to focus on securing the foundations of the economy in the face of global economic turbulence, to boost UK growth and competitiveness, and to ensure the prospects of our young are not constrained by the circumstances of their birth. He needed to do this at the same time as providing the support society rightly demands be provided to those in need.
To achieve these goals – as we also seek to get the public finances back into balance – requires investment and some flexibility, when the debt to GDP ratio stands at 83.3 per cent, and we are still spending almost £40bn a year paying debt interest – money that could be better spent building homes and investing in people.
George Osborne set a target for the Budget to be in surplus from 2019-20 and for debt to fall in relation to GDP every year between now and then. The Office for Budget Responsibility said in its economic outlook following the Budget that it believes the first of these targets will be met, though Osborne did not spell out how he will achieve this. But the second target will be missed to such an extent that he will borrow £35.6bn more than he expected back in November.
The announcements on sugar tax and further academisation were essentially a public health and an education announcement inserted into the Budget to distract from this big embarrassment for the Chancellor.
Of course, Osborne sought to blame a weak global economy for all of this but he can’t have it both ways: during Labour’s time in office he denied us the defence of global economic weaknesses and now seeks to use just such a defence himself – hypocrisy of the highest order.
The truth is, to secure our economic foundations to withstand global economic shocks, we should invest in the productive capacity of the economy and growth-inducing measures that pay for themselves in the long term. That is why Osborne should change his fiscal framework to aim for a “current” budget surplus instead of an absolute budget surplus, to allow borrowing not for day-to-day spending but for investment.
Very few serious economists argue against allowing borrowing for investment when interest rates are at a record low. This would still require efficiencies to be made to get a current budget surplus by 2019-20. The OBR or the National Infrastructure Commission could be asked to rule on which investment to allow borrowing for now, which would pay for themselves in the future (as the IFS, the ICAEW and my Labour colleague, Rachel Reeves, have argued).
One area where it makes sense to invest in the future is in the skills of our people. Employers persistently tell us there is a chronic skills shortage, particularly technical and vocational skills, and with regard to take-up of STEM (science technology, engineering and maths) subjects by young people.
I welcome the government’s mandatory levy to pay more for apprenticeships, but the levy is supposedly for big companies only, when it’s the small companies who need more help to invest in training. Disappointingly little appeared in the Budget statement or Red Book on this, despite promises that further details would be provided. Further education – where a real terms cut of 9.4 per cent in funding per student is down the line – ominously merited just one mention in the Red Book.
Another area for productivity-improving investments is in science and innovation. At the moment, I hear that Innovate UK (formerly known as the Technology Strategy Board) – the UK’s innovation agency, which funds, supports and connects innovative British businesses through a mix of programmes and people to accelerate economic growth – appears to be being scaled down and is laying people off. We saw no signs of a reversal of this today.
And, it was welcome that in the Spending Review last autumn, the Chancellor said he would protect the science budget in real terms, but what this actually means is that science will be no better off in real terms than in 2010 – at a time when our investment in R&D is already among the lowest in the G7.
There is also the ongoing issue of the UK’s very large trade deficit. This underlines the continuing importance of our membership of the European Union and the tariff-free EU single market, to which almost 50 per cent of our exports go – which Osborne nodded to in his statement. This, of course, is not only our nearest and biggest market, but is the key that unlocks the door to new emerging market economies with trade agreements that we have, while remaining in the European Union.
However, here at home we need the government to be doing a lot more to assist our businesses and encourage them to export if we are to turn a corner in the continuing trade deficit – again, precious little was said about this by the Chancellor earlier.
Finally, on our housing infrastructure, it is all very well announcing piecemeal help to the homeless, but the ultimate way to do that is by building more affordable and social homes, and we still have the lowest rate of new builds since the 1920s. In fact, the OBR tells us today that it expects government measures “to affect housing associations’ future housebuilding decisions, reducing total residential investment”.
Of course, this would not be a Tory Budget if it were not regressive in nature. The well-respected independent Resolution Foundation helpfully pointed out that, yes, we all like paying less tax, but the higher rate threshold and personal allowance rises announced today are regressive – 85 per cent goes to the top 50 per cent of earners, while a third goes to the top 10 per cent. As the saying goes, a leopard never changes its spots.
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