Those looking for any kind of economic logic from yesterday’s budget will look in vain. The budget had one goal, and only one, goal - the election of George Osborne as David Cameron’s successor. Now that mayor of London Boris Johnson has come out in favour of leaving the EU, a position also favoured by the majority of Conservative Party members who will elect the next leader, Osborne has a real fight on his hands.
Once upon a time Osborne could have actually played the prudent Chancellor role for real, but those times are gone. Getting the deficit down no longer appears (to the media and Conservative MPs and party members) the overriding priority it once was. So it has to be tax cuts designed to benefit most those in the upper quarter of the income distribution, plus yet more cuts to corporation tax. (As I noted in a piece for The Independent, the OBR’s downward revision to expected productivity growth suggests the extra dynamism these cuts were meant to induce stubbornly refuses to materialise.)
That is why a Budget where the main external news was a deterioration in the outlook for the UK economy, and where the centrepiece is a (ludicrous) target for the budget surplus at a fixed date, could end up being all about tax cuts. (Apart from the new sugar tax, which is welcome and long overdue.) It is achieved by a combination of more cuts to welfare (the disabled) and spending. Yes there is a lot of creative accounting as well, but when those chickens come home to roost you can be sure that the response of this government will be how public spending has become unaffordable and more cuts are required.
Cut taxes, and use the deficit as an excuse to cut spending. For the Conservatives it has proved to be a winning formula, and Osborne intends to milk it for as long as mediamacro lets him get away with it.
Another good rule with this Chancellor, apart from it is always about the politics, is that whatever phrase he keeps repeating tells you where he thinks he is vulnerable. Hence 'long term economic plan' to cover decisions made to achieve short term political ends. That is why the current slogan is ‘putting the next generation first’, because everything Osborne has done so far has achieved the opposite. The slogan is not meant to signal a sudden change, but just to distract from more of the same. Climate change? He failed to raise fuel duty, and more. Public investment? As I say in The Independent, lots of talk but the OBR numbers tell us he plans in this parliament a level of net public investment almost 25% below the level in the previous parliament. The rhetoric may be enough to win the votes of (generally old) Conservative party members, but the next generation will not thank him for it.