Politicising the Budget is bad for public finances

The Chancellor sounds sick and tired of delivering budgets, and the rest of the country is sick of hearing them. Delivering his fourth budget in 12 months, the Chancellor’s latest changes put him at odds with his Conservative predecessors, and make him look much more like his more recent Scottish office holders.

The big news of course is the Sugar levy, which won’t come in until 2018 in order for companies to “reformulate” their drinks, which means make them taste worse, or have artificial sweeteners put in them. This is big news as it makes a lot of people happy (people who publish cookbooks and read the Guardian) and a lot of people groan, and has the added bonus of making sure people won’t be looking at the lowered growth rates. The gimmick really is just a gimmick, and will be withdrawn before it is introduced because it was only intended as a distraction. It was galling to hear the Chancellor talk about teaspoons of sugar in a can of coke like he really has nothing else to do. It will do nothing to reduce childhood obesity; this has been demonstrated again and again.

This money will be spent on an longer school day, and more sports in schools. Linking tax rises to specific spending outflows is a really bad idea, because usually we see tax revenues falling elsewhere as people have to pay the tax over here while they would normally pay it on other goods and services, or not at all. True, these are small figures in the context of the wider economy, but more and more hypothecated taxes are not a good trend.

Disability benefits will be cut by £1.4 billion, which will make good headlines for the opposition. There will be another £2.3 billion taken from ‘elsewhere’ which means that they probably won’t be made at all. The abolition of the petroleum tax isn’t worth mentioning, because it isn’t contributing anything anyway. Raising the personal allowance is a good thing, but national insurance stays in the same place, so neither here nor there. Allowing the poor to keep more of their own money is good, because what the poor need is money (and not fussing over whether they drink Irn Bru or not).

Growth is forecast to be down, this year down from 2.4% to 2%, next year from 2.5% to 2.2%, and the year after 2.4% to 2.1%. This obviously isn’t good, and there isn’t much in the budget to reverse this, although the lowering of corporation tax is welcomed since it is such a bad tax (lowering investment and workers’ wages).

‘The next generation first’ is the Chancellor’s final rallying cry, and it is being spearheaded by the Lifetime ISA. The new ISA is probably good news if you have a spare few thousand pounds (a year) lying around, but like Help to Save, will probably be underused as people simply do not have the extra income to save. £50 a month is a lot of money to get together for the people eligible for Help to Save. Interestingly, after speaking to a couple of tax advisers, they think the Lifetime ISA could be seen as a great way to avoid inheritance tax, as wealthy people pay into ISAs for their children or grandchildren, as they are the only ones who can afford to put £4000 away every year. I doubt there are many 20 or 30 year olds who have the resources to put that amount of money away.

Changes to business rates sounds good, but won’t have much of an effect on reducing business costs because landowners are paying the rates, so they will probably keep rents the same rather than reduce them.

George Osborne has of course failed to reduce the debt as a percentage of GDP, and obviously doesn’t want people to focus on this or the downgrade in growth forecasts. The growth in debt isn’t that bad as long as the country can pay it back, but in sticking to this surplus in 2020 means that huge cuts or tax rises are going to be needed in 2019, of around £30 billion. Since the largest parts of the budget, such as the NHS or pensions, are already protected, the Chancellor will more than likely not be able to find this very large amount of money in order to find his surplus.

This was a tinkering budget, and although we haven’t seen anything as destructive as the National Living Wage, there are a number of quite bad policies that are going through. The repeated politicisation of budgets is not at all a good thing for the public finances, so here’s hoping the Chancellor doesn’t do a repeat of this type of budget in the autumn statement.


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