Whatever Ed Miliband says, the story of the Budget is not the change in the growth forecasts. With the scale of the international crisis, and the generally stuttering nature of recoveries from financial crises, the revision isn’t much of a shock. As I’ve written before on ConservativeHome, we are having a pretty average recovery by European standards. We should expect to do better as a thrusting Anglo-Saxon economy, and there is a pressing need for a long term plan for growth, but the Budget forecasts aren’t the right test of whether the Government are getting that right.
There was some good news for those hoping to drive to work or take a holiday without getting a second mortgage. The straight cut in Fuel Duty is exactly what motorists need and is fair given how wildly overtaxed motorists are. Air Passenger Duty is frozen for now but it is important to bear in mind that aviation’s inclusion in the EU Emissions Trading System is coming soon and will mean flights are double taxed. Finally, the increase in the personal allowance is great and hasn’t been matched by sucking more people into higher marginal rates for once.
Unfortunately they are paying for all this in some quite ugly ways. Not the bank levy, that’s a bit of a distraction and makes little lasting difference to the tax burden on financial institutions. The biggest tax hike is the new floor on the carbon price. In other words, a £1.4 billion tax by 2015-16 added to electricity bills for families and struggling manufacturing industries. That won’t help rebalance the economy away from reliance on financial services and is a tax on the poor.
There is also the new tax on oil production. Do we really want to reduce the incentive to invest in the North Sea? When every bit of oil or gas extracted there doesn’t have to be imported from a fractious global market? George Osborne suggested this wasn’t a problem as it would be axed if the oil price fell. But even with oil prices this high companies need to decide where to invest more or less; the North Sea or Alberta or US shale gas deposits, for example. This tilts the balance against investment in the UK and domestic production.
Finally there is avoidance. We’ll see if they can get £1 billion by trying to limit it. They might think they have, but actually have just pushed people to different forms of avoidance, perhaps even to the avoidance strategy of last resort: leaving.
The pledge on national insurance was extremely vague. We didn’t get anything but a promise to consult on merging it with Income Tax, and even that was hedged with a promise to save the contributory principle which seems a little unrealistic. Some reliefs were abolished to reduce tax complexity but they were matched by lots of new fiddly sticking plasters.
There were plenty of measures to like in this Budget. The cut in corporate tax is most welcome and a good signal to investors. But the only really bold stroke was the cut in Fuel Duty.