What would a Conservative Chancellor of the Exchequer announce in a Budget, were his Party in government alone and he to take economic decisions on their merits?
His approach would surely be the same as that announced by David Cameron and George Osborne in opposition – that sustainable prosperity requires ending the structural deficit.
The principal means of doing so would be curbing the rise in public spending and seeking to boost economic growth.
Such a Chancellor would also want to set out a longer-term view for the economy – as Osborne did before 2010 when he suggested a German model for the economy.
For the short-term – assuming the ring-fencing of the NHS and aid budgets – this plan would mean a real zero-based spending review, the abolition or merging of whole departments, a freeze or cut in public sector pay (with a move to regional pay), and a cap on public sector headcount. It would also be accompanied by an Affordability Commision, in order to tackle the problem of rising spending on health, pensions and social services; provide political cover for necessary decisions, and ensure that social justice was served by the spending reductions not falling disproportionately on younger people. Those decisions would include suspending the pensions “triple lock” and ending benefits enjoyed by richer older people – such as the Winter Fuel Allowance, free bus passes and free TV licences. Spending reductions on this scale would allow room for some tax cuts aimed at boosting employment and targeted at poorer workers – such as the phasing out of Employers’ National Insurance Contributions, starting with those paid on behalf of under-25s on the minimum wage, and raising the threshold on Employees’ National Insurance Contributions. There would also be a big capital spending programme, perhaps through a Northern Infrastructure Fund, over which local authorities would have a big say.
For the medium-term, the plan would seek to raise the growth rate through the main means – a better educated and skilled workforce. This would entail continuing the Gove and Duncan-Smith education reforms and welfare reform, plus the present Government’s drive to create more apprenticeships, but it would mean wider measures too. Sponsorship money would be used to endow every school with the seed capital for an investment portfolio – with pupils studying its progress and contributing to investment decisions as part of their financial education. A future Conservative Government should seek a major shift in funding from the Universities to vocational education by ending the expensive student loans and grants system and replacing it with a commissions-based system. A better-skilled workforce, plus welfare reforms aimed at the hardest to help, would result in a gradual fall-off in demand for labour from abroad. Connecting northern cities with better road and rail links (and ditching HS2 in the process) would help to rebalance the economy, and revenues from shale gas would go into the Northern Infrastructure Fund as they came onstream. While the right to strike would remain, strikes would have the backing of a minimum threshold of union members.
For the longer-term, the Chancellor would be pondering how to get the economy off the drip-feed of quantitative easing and end financial repression – so injurious to savers and unjust in principle. With growth foundering in the Eurozone, a troubled world economy and our export markets shrinking, this is not the moment to be seeking to raise interest rates. But the Chancellor would be thinking about how best to ensure that new growth doesn’t repeat the familiar boom/bust cycle – in which house prices rise, private debt soars, and housing and asset prices bubble…only for prices to plunge and repossessions mount when interest rates rise. He would also be mulling some big questions. Why are tax revenues so low? Are they simply a lagging indicator, or evidence of a long squeeze on living standards? What has happened to productivity? He would be seeking to put in place measures to support sustainable recovery – which an incoming Labour Government couldn’t scrap without embarrassment. These would include what the ConservativeHome manifesto called “Fiscal rules that stand the test of time” – a Balanced Budget Plus rule, a debt ceiling defined in law, zero-based budgeting, income growth measurements that exclude the distorting effects of the richest one per cent of households.
There will be no such plan in the Autumn Statement, for both good and bad reasons (quite beside the effect of being in Coalition with the Liberal Democrats).
The good reason is that it would lose the next election. Public sector pay cuts, proposals for cuts in provision for the elderly, regional pay….goodbye to those midland and northern marginals.
The bad reason is that Osborne tends not to think in this way – that’s to say, fit the politics around an economic strategy. He usually acts the other way round.
For both reasons, then, we will get something much more modest. And even the Chancellor’s best and boldest plans, such as his annuities reform, give the Tories temporary poll boosts only.
Osborne will do his best on Wednesday with what he’s got. He will lay deficit traps for Ed Miliband and make NHS pledges for the voters – attack and defence: the Parliamentary ju-jitsu in which he revels. There will be bits and pieces of the above, even of this site’s manifesto; the Northern Hub; a sovereign wealth fund. He will speed through marginal seats on new roads, like some latter-day Dick Dastardly from Wacky Races. It is in character for him to spring a surprise – find a bit of money from a sell-off here, unearth a pot of money there. Watch for it.
But the facts of the matter remain. “Essentially, over the next Parliament you’re going to need to see cuts at least at the level that we have seen over this Parliament in order to meet the fiscal objective that [Osborne has] got,” Paul Johnson of the Institute for Fiscal Studies said yesterday in an interview with the Sunday Telegraph. Osborne, Balls, Clegg, Farage – none have cast light on where reductions on this scale would come from. Next May, we will find out. Which is more than we will do on Wednesday.