To be sure, there was some good stuff in the budget, and I probably feel more positive about it than I expected to. The additional 1 percent cut in corporation tax, above and beyond what had already been announced, was perhaps the high point, although it will be the 1p cut in fuel duty (replacing a planned 5p rise) that draws the most favourable headlines. The rise in the personal allowance, meanwhile, is something the Adam Smith Institute has advocated for a (very) long time.
Still, there were, as always, downsides. The goal to make UK corporation tax the most competitive in the G7 is a laudable one, and the Chancellor should be saluted for it. But as welcome as the corporation tax cuts are, they are only one part of the picture. Britain’s personal taxes, both on income and (particularly) capital gains, are extremely unattractive by international standards. Without more movement than the Chancellor felt able to offer on these taxes, the pro-growth impact of a low corporation tax rate will be muted.
I’m similarly ambivalent about the announcements on regulation. The Chancellor said nothing I would disagree with, and unveiled a series of useful measures. But I can’t help thinking that we’ve heard it all before, and that the approach to regulation is likely to remain ad hoc, unfocused and – in the long run – unsuccessful. The government really needs to do three things. First, stem the flow of new regulation. Second, rationalize existing regulation and eliminate barriers to competition and innovation. Third, reduce the costs of compliance. Without that kind of strategic, cross-departmental approach, the regulatory state will keep growing, and our growth prospects will continue to suffer.
And that brings me to my greatest concern – not just about the budget, but about the government’s whole fiscal plan. To put it bluntly, eliminating the deficit depends far more than the Chancellor is likely to admit on higher tax revenues springing from higher economic growth. But given how overloaded with debt the economy is, and given the continued fragility of the banking system, the OBR’s growth forecasts (2.5 percent next year, 2.9 percent the year after) look strikingly optimistic. If they fail to materialize, the government could be in trouble. And I’m not convinced Osborne has done enough to boost the economy that much.
One last point. When he stood up this afternoon, the Chancellor said this would be a budget to boost growth, reduce the cost of living, and create jobs. On the first two items, the Chancellor can give himself a heavily qualified pat on the back. Business confidence will be up on the back of the budget, and petrol prices will be down. But on the third point, there didn’t seem to be much of substance, especially when compared to the rise in employers’ national insurance contributions coming into effect. Changes to thresholds do little to help matters, and whichever way you slice it, raising the cost of employment at a time like this is madness. If I could only make one criticism of today’s budget, that would be it.
Published on Spectator Coffee House here.