8 Mar 2010

The business vote exposes the false fiscal fight

The voice of the business lobby, the CBI, has put out a typically helpful budget submission this morning. The organisation seems to be hedging its bets on the election.

Yes, the headline of the document is that the deficit needs to be cut more quickly than current government plans, that the budget must be balanced by 2015-16 rather than 2018.

However, the document also warns against cuts this year.

The CBI’s director general pointed out to me that in his view there was already quite a sharp cut to public sector spending pencilled in by the chancellor. The bulk of this additional deficit reduction could come in and after 2012.

So that’s 1-1 between Mr Darling and Mr Osborne.

However, there was acute criticism of changes coming in April 2011, the 1 per cent hike to employers’ national insurance. That is a £4.5bn tax hike, a direct tax on jobs, at a time of concern about job creation, and is payable whether you are a City bank creaming in billions or a broke butcher in Barnsley.

Understandably, the CBI would rather that part of the existing deficit reduction plan instead came from greater restraints on current public spending.

But before George Osborne claims a 2-1 points victory, there was also some heavy criticism for a landmark Tory policy. His idea of lowering the headline rate of corporation tax is broadly welcomed as a target. However, the abolition of the R&D tax credit and other allowances to fund this measure is most definitely not.

So broadly speaking I’d say that from the business lobby’s perspective it is, so far, a high scoring draw.

Indeed scratch the surface of the CBI’s submission and you see that they could have signed either or both of the opposing economists’ letters that littered Fleet Street’s mailbags in February.

In essence they see the main parties’ approach to fiscal policy as broadly interchangeable. The issue of whether to cut in 2010 or not is a “second order issue” says Richard Lambert, the CBI boss.

He even told me that apparent market concerns about a hung parliament were “overblown”, because all three parties had the same approach on reducing the deficit.

So is this a false fiscal fight that we are commentating on ahead of the election? I think of it as a heavily overlapping Venn Diagram.

Yes George Osborne could cut earlier and faster. And Alistair Darling is planning to hold off for a year and cut more slowly. But the bulk of the main parties approach to fiscal policy does overlap.

It is entirely conceivable that if Mr Darling remains chancellor he will announce a more stringent programme of deficit reduction. Likewise, if George Osborne is Chancellor, and there happens to be a double dip this year, I severely doubt that his 2010 cuts will be anything other than token.

It is up to both the Labour and Conservative parties to refine their policies to make the electoral choice more distinctive. At the moment both parties are conniving in exaggerating their differences like two weary boxers clinging on to each other in the closing stages of a long fight.

That means far more detail on spending cuts and tax rises from all sides before the election.