The British Chancellor has a fixation with adopting left-wing styles as if he were on the side of the millions he hurts with nearly every decision he makes. Last year, he ended a speech with the final rallying cry of the Communist Manifesto (compulsory reading for any self-respecting intellectual): “Workers of the world unite!”. He has also been known to send memoranda to fellow Conservative MPs addressing them as “comrades”, a word I seldom hear outside Labour Party meetings. With yesterday’s Budget, he attempted to translate this into a series of measures that the Conservatives can point to in the 2015 campaign.
Initially, one might be puzzled by the Chancellor announcing a series of expensive measures (which I shall discuss below) with an election two whole years away. But look at the revised independent GDP and public borrowing forecasts and you see the answer. Keen that the public should not dwell too much on the fact that growth in 2013 will be no higher than 0.6% (and if you ask me, we’re headed for a third recession), and that the budget deficit will remain at £120 billion in 2013 and 2014, George Osborne tried to create a buzz around the tax cuts he’s instituted (and he buried another three years of public sector pay freezes and 1% in spending cuts). To judge from the media reaction, he has succeeded.
Not a load of substance is to be found in these tax and duty plans:
a cut of 1p in beer duty
Corporation Tax to fall to 20% one year earlier than planned
Freezing fuel duty for another year
The Personal Allowance to be increased to £10,000 in 2014, rather than 2015.
But the most eye-catching of all is the massive state intervention in the housing market. No, this doesn’t mean that the government will actually buy or build housing, or regulate costs. As usual, it is an unsatisfactory solution which doesn’t address the root of the problem (the story of housing policy in Britain since the 1970s). Under the “Help To Buy” scheme, anybody wishing to buy a new-build property and has a 5% deposit can get a mortgage for 75% loan-to-value, and the government will loan them the remaining 20%. Only when the house is sold is the loan repayable, and no interest is accrued in the first five years. The scheme has already proved popular with twentysomethings who have as yet been unable to save the massive deposits currently demanded by savers.
Secondly, the Government will underwrite £130 billion of individual mortgages for anybody buying a home with too small a deposit to secure a mortgage.
It is undeniable that, in the short term, this will help many people buy their own home. But it merely encourages risky lending by banks (remember 2007?!) and make debt more accessible. It does nothing to encourage construction, nothing to return house prices to a sensible level, and nothing at all to help the growing number of renters. On top of this, the public balance sheet will be exposed to yet more potentially bad debt.
How much are the cuts in Corporation Tax and the abolition of the 50p top tax rates going to cost us? The massive National Debt is not going to fall as a result of cutting at our most lucrative tax base. And as for beer duty, is the benefit of a 1p reduction in the cost of a point going to be passed on to the consumer, or the pub landlords?
In light of Mr Osborne’s brilliant job in writing this Budget, I shall write my own.