20 Mar 2013

Budget 2013: gloom, sweeties and beer

The government’s borrowing about £56bn more than it thought it would as recently as December’s autumn statement.

Growth is now forecast to be 0.6 per cent this year rather than the 1.2 per cent forecast as recently as December. The Coalition’s much proclaimed “public sector net debt debt will be falling by 2015” target, which was bust as recently as December and extended to 2016/17 is, three months later, bust again and extended to 2017/18 (though you’d have been hard-pressed to notice from a Brownian piece of opaque prose). That’s 105 days ago or 15 weeks ago.

To lighten the mood, the chancellor’s offering free beer to all voters. Well, not quite.

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The “inflation plus 2 per cent” escalator is scaled back to “inflation only” with a 1 per cent cut in duty for this year. George Osborne’s hoping to catch the eye of the man by the one armed bandit in the pub (see http://dpmcbride.tumblr.com for the former Treasury adviser’s template on this).

And we’ll see in tomorrow’s Tory supporting newspapers whether they’ve forgiven the government’s press regulation plans sufficiently to oblige the chancellor with the expected headline. No wonder they thought minimum alcohol pricing needed to be killed off formally before the budget. (This makes you suspect that the Treasury and not Theresa May was behind that particular leak. The September fuel duty rise, as expected, bites the dust too.)

The public sector workers picketing outside Whitehall departments and Parliament today will have even more to feel fed up about having heard that their 1 per cent pay cap now carries on into 2015 and their “Progression Pay” guaranteeing some regular pay increases is going to be overhauled (or abolished). The Spending Round for 2015-16, to be finalised by June this year, just got tougher. The chancellor wants to extract £11.5bn from departments’ spending rather than the £10bn originally announced. Some of that will go to boost capital spending which was, by implication, hacked back too much in the original 2010 spending plans.

The chancellor couldn’t deliver the cut in basic rate income tax some on his benches wanted. He’s brought forward the £10,000 allowance to 2014 but that had almost been discounted it was so strongly expected. Lib Dems waved their order papers – most Tories didn’t. His surprise measure is that businesses won’t have to pay the first £2,000 of their national insurance bill which the chancellor hopes will have some impact on smaller companies – maybe even have an impact on the mood of Tory MPs who chat to a lot of smaller businesses in their seats. The chancellor got his biggest cheer for that. He called it an employment allowance and said it would mean 450,000 companies now wouldn’t pay national insurance.

By a whisker (£100m), the chancellor avoids the humiliation of borrowing actually going up this year. That appears to be thanks to the bigger than usual underspend in some departments. That, the Treasury says, has been achieved in part thanks to a clampdown on last minute, end of year spending splurges when departments (the Treasury thinks) spend more than they need to so they can guarantee a bigger settlement in the next negotiation.

There’s no “plan B” but there is still more freedom of movement for the Bank of England. George Osborne has chatted with Mervyn King and incoming Governor Mark Carney about what Britain can learn from the US and elsewhere about how central banks can help growth. There’s some uncertainty around the monthly interest rates announcement from the Bank (though a lot less than there used to be in normal times). The chancellor sounds like he’d like less uncertainty. We could see the Bank in future giving broader and more long term commitments to keep interest rates where they are until, say, unemployment starts coming down or reaches a certain level.

The chancellor struggled to be heard (at least by me) for the first 15 minutes of his speech as Labour heckled and Ed Balls waved a print-off of the Evening Standard front page which he was claiming contained a leak of the entire Budget.

Analysts, gilt buyers and ratings agencies will be studying how much of the pain George Osborne announces is the other side of the 2015 election and how much is based on avoidance measures. At first glance it looks like a chunky amount comes from both.

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