When Chancellor George Osborne stood up to give the last Budget of this government this week, he described a country I really want to live in. One that is working on cutting its risk by bringing the size of the state back to a level that can be financed by its tax take.
One with an economy rebalancing away from financial engineering and towards productive business; away from the south towards the north (apparently a job is being created in the Midlands every ten minutes); and away from humouring the non-productive via the overblown welfare state in favour of rewarding the productive.
And one in which budget gimmicks and giveaways have been dumped in favour of fiscal discipline. The sun is starting to shine on the UK, he said, “and we’re fixing the roof”. It was a pretty good start.
But the actual Budget didn’t live up to the promise. First, look at how much the UK still overspends. In 2014, central government expenditure per person was around £10,000. But revenues came in at only £9,235 per person. So, even in Osborne’s new world of fiscal responsibility, we spend £765 per person more than we get in tax revenues, says the Economic Research Council.
That doesn’t include the state’s unfunded liabilities, and at some point we have to pay down the actual debt too. Osborne has made a good start, but as several commentators have noted, even as he fixes the roof he needs to remember our foundations are still pretty shaky too.
Having been less than 100% clear on the UK’s debt woes, Osborne moved on to the tweaks and gimmicks we hoped we wouldn’t see. He cut the pensions lifetime allowance to £1m, introducing yet more complication and guesswork into pension savings.
Then he announced the help-to-buy individual savings account (which tops up the cash of a first-time buyer saving for a deposit on a house with taxpayers’ money).
This is a shameless attempt to buy the votes of the young rather than actually help them. The policy not only screams administrative nightmare (what if they change their minds?), but is useless for its stated purpose.
If Osborne really wanted to help first-time buyers, he wouldn’t be handing over free money to compensate for rising prices. He’d find a way to cut prices – by giving retirees an incentive to downsize, by doing something to bring small housebuilders back into the market, or by getting interest rates up. That would be real help to buy. This is just help to bubble.
Then came a list of mini bribes – the flexible Isa, the £1,000 savings income allowance, and the reiteration of the attempt to offer pensions freedom to annuity holders.
The end result? Osborne leaves behind a “longer and more complicated tax system than he inherited”, says Gary Richards of Berwin Leighton Paisner. That seems a shame – after such a good start.