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Did The Budget Do Enough To See Off The Anti-Cameron Plotters?

Last Updated: Friday, March 22nd, 2013

In 2011-12, Britain’s deficit was £121 billion.  This year, the Office for Budget Responsibility says that it will be £85 billion – the figure that George Osborne uses to support his claim that the deficit has fallen by over a quarter.  But that £85 billion figure isn’t the only one that the OBR cites.  It also says that when the effect of the Royal Mail pension transfer, the transfer of cash from the asset purchase facility, and special liquidity transfers are taken into account, that deficit figure is…£123 billion.  The latter is arguably a more reliable figure, since one-off measures that benefit the Treasury aren’t evidence of successful systematic structural deficit reduction.

Osborne is a long way from being the first Chancellor for whom events didn’t turn out as planned.  None the less, the way they’re turning out is not only painful for the country but perilous for him – and David Cameron.  If this Coalition Government has a foundation stone, it is reducing the structural deficit: Osborne’s original aim was to eliminate it entirely in the course of this Parliament.  He anticipated that previous economic patterns would repeat themselves: that recovery would follow recession relatively speedily.  When he became Chancellor, he believed that recovery would have begun by now, allowing him to room to make election-winning tax cuts and spending increases before 2015.

Instead, his plans have been mugged over the past few years by a fragile world economy, the plight of the Eurozone and, perhaps, by the unique features of the present economic situation, with its frightened banks and fearful consumers.  The economy is recovering more slowly than in any previous recession – including that of the 1930s.  Some economic commentators maintain that the era of growth of above 2 per cent or so is over.  The OBR’s forecasts are all but useless in these unchartered waters.  With future growth and tax receipts uncertain, it is possible to believe that come the next election there will have been almost no progress in deficit reduction at all.

Conservatives who are optimistic about their party’s election chances in 2015 will say that this doesn’t matter – that voters don’t grasp the difference between the deficit and debt (which, incidentally, may have doubled by 2015), and that offered the choice of David Cameron or Ed Miliband they will stick to the devil they know.  Furthermore, they can claim that the Osborne didn’t repeat his “omnishambles” budget of last year, with its sudden cut in the 50p income tax rate and all those disastrous VAT changes.  This year, the Chancellor concentrated on the task in hand, and his budget was nothing if not artful.  Much of Fleet Street gave it a reasonable reception – despite this week’s press regulation vote.

Osborne amplified the aspiration theme of Cameron’s conference speech – a move that ConservativeHome has called for – and pleased the cost of living caucus on the Tory backbenches with its beer and fuel duty wheezes.  His NIC move, further corporation tax cut and capital spending increase were all welcome (though the latter doesn’t kick in until 2015).  But there is a more stark way of looking at the budget.  It holds that the Chancellor has run out of ideas for how to help get the economy moving again – that he has fallen back on gambling with taxpayer subsidies for some home buyers, and on the Bank of England abandoning its previous approach to inflation targeting.

This spring’s political timetable has two main staging-posts – this week’s budget and May’s local elections.  Both present opportunities to the band of Conservative backbenchers who, for reasons that Tim Montgomerie and I have repeatedly outlined, want rid of David Cameron.  Backbench speeches in the budget debate so far have been mainly supportive of Osborne.  But the floor of the Chamber is not the place where plots against the leadership are hatched.  I am not convinced that the numbers are there for a challenge to Cameron: after all, there is no obvious replacement.  But memories of the glitter of the annual budget day spectacle are already fading.  Ahead lies a likely future of deficits and debt.  If Cameron hoped that the budget would see off the danger to his leadership, I think he will be disappointed.

By Paul Goodman

 

FIVE DAYS OF BUDGET AND PRE-BUDGET COMMENTARY ON CONSERVATIVEHOME

Andrew Lilico: We are not targeting inflation and “not targeting inflation” has a long and inglorious history: “We have seen over the past six years that whenever the economy isn’t actually shrinking, inflation goes to 5% and rising.  How much inflation do you suppose there will be if growth actually gets going?  8%?  10%?  Once inflation reaches these sorts of levels and interest rates are still down at 2% or below (as the new inflation targeting regime implies should be permitted), will policy be able to catch up?  As I pointed out nearly three years ago, once inflation reaches these sort of levels, if the economy were healthy we’d need to have interest rates at least a couple of percentage points above inflation in order to get it down.” Read more: http://is.gd/1TZrFj

Tim Montgomerie: Osborne gambles Britain would rather vote for a political party that cuts the price of beer than a government that solves Britain’s debt problems. He might be right.
“Overall, however, – despite some very good policies like the super-competitive corporation tax rate – it’s hard to argue that this Government is addressing the country’s fundamental economic challenge. My own view is that Cameron would actually be in a better electoral position if he was seen to lead a rescue administration with a credible plan. It’s clearly not the Chancellor’s view. What we have is a government that is mounting a half-hearted rescue plan and hopes that the world economy might come to Britain’s aid and, in the meantime, some well-targeted, populist tax cuts of the kind announced yesterday will persuade voters that it’s worth re-electing.” Read more: http://is.gd/CsQz9j

Peter Hoskin: Five must-see budget graphs (from ConservativeHome’s rolling budget day coverage)
“A weird, wobbly sort of a speech, which began with uncomfortable truths about the state of the public finances, dipped as Osborne’s voice strained and croaked in the middle, and then recovered towards the end, with the tax cut announcements. As for the measures contained within it, the interest is in the detail. So much here – the Bank of England remit, the limits to AME spending, the fiscal forecasts – requires extra consideration. And what about the state-backed loans for homebuyers? It turns the Coalition into one grand mortgage-broker, and that ain’t necessarily a good thing.” Read more: http://is.gd/mfqL9V

Greg Clark’s weekly letter from a Treasury Minister: National growth requires local growth – that’s why we’re backing Lord Heseltine’s plans: “Each Local Enterprise Partnership – covering the whole of England – will be invited to negotiate a Growth Deal with the Government. There will be competitive tension: the better and more ambitious the proposed deal, the more will be available from a single, unringfenced pot of money put together from budgets that are, at the moment, centrally determined. As we reform the national economy – paying down the deficit, keeping interest rates low, creating the most competitive tax system in the G20, reducing regulatory burdens – we also need to transform our local economies, to make them places where everything possible is being done to attract and nurture growing businesses.” Read more: http://is.gd/zvcH0A

Paul Goodman: A chance to boost capital spending, cut NICs & freeze fuel duty. And tear a strip off the LibDems: “There at least three important measures Osborne could take within the framework he has set himself. 1) Speed up the shift back to capital spending…Building houses, roads, railways (though I have my doubts about HS2), and nuclear plant (if only) may not provide high-end employment but it would provide more jobs to help Britain move towards sustained recovery.  2) Cut Employers National Insurance contributions. The debate about whether the Osborne should raise thresholds or restore the 10p to help poorer voters enlivens this site.  But given the limited options that the Chancellor’s framework provides I would plump for business rather than income tax cuts this year. 3) Scrap the fuel duty rise. I expect that Osborne will do this anyway, but cheaper energy costs are even more of a priority for worse-off voters than lower taxes.” Read more: http://is.gd/RcMCgT

 

TWO PIECES FROM CONTRIBUTORS TO CONSERVATIVEHOME’S VICTORY 2015 CONFERENCE:

Lord Bates: Don’t underestimate the strength of the Conservative base in the North of England: “The strength of the Conservative base in local government is often underestimated in the North (see graph). This shows that the Conservative still control 17 councils in the North compared to the Lib Dems with just 1 and our representation is more widely spread than that of Labour with only six councils not having a single Conservative representative, compared to 8 councils where labour is not represented and 18 where there isn’t a single Liberal Democrat. The most recent electoral test was the Police & Crime Commissioner elections when Conservatives won 4 of the twelve contests compared to Lib Dems who didn’t win any and most notably Matthew Grove the Conservative candidate in Humberside defeated the Lord Prescott.” Read more: http://is.gd/lHHK2E

Philip Davies MP: Win the Blue Collar Vote or prepare for Opposition: “I believe that the average blue collar voter agrees that we need to tackle the deficit.  They know they cannot live beyond their means, so why should the Government?  But they need to hear more from us on what it means for them in their everyday lives.  We also need to be talking more about things which matter to them.

We need to move away from issues like ring-fencing international aid (while telling people there is no money for other things); minimum alcohol pricing (which gives the impression that it is OK for only those with money to drink) and green energy (when what most people really want is cheap not green energy).  We need to talk their language on tax and on welfare, and we should be making a virtue out of ensuring work pays, not apologising for what we are reducing.” Read more: http://is.gd/tnxICY

By Paul Goodman

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