It seems like only yesterday I was commenting on the last budget and here we go again with smoke, mirrors and rhetoric from both sides. The conservatives, in particular, seem to be trying to steer a middle course, they're trying to please all the people all the time, they're trying to achieve growth without investment and trying to achieve deficit reduction without cuts.
These impossible goals open the door for Labour party criticism. I still trust the coalition ahead of the current opposition, but could they do better – you bet, could they be more transparent – absolutely. This will be controversial but I believe getting rid of the debt is absolutely the most important thing.
The reason I say that is that when you look at the chancellor's biggest actual COST to the government in this budget it's probably £1billion in National Insurance reduction for small employers, a very positive move for business and jobs by the way. The rest looks like even smaller potatoes although I also absolutely applaud the rise in personal allowance and haven't yet found a figure for the cost to the treasury in any of my research, but I'm writing this pretty much straight after the speech.
The obvious point is that the Chancellor has hardly any room for manoeuvre and the reason for that is debt. Interest payments are crippling us. An illustration of how little room he has is that one of his flagship announcements, guarantees and loans for house buyers are just that guarantees and loans, so they don't effectively show on the government's balance sheet as a cost. Nonetheless what he's doing for house buyers and the construction industry is moving in the right direction and construction company shares have already risen on the back of the budget.
In a moment we'll look at what's good and what's bad, but lets look at my smoke, mirrors and transparency point. The budget impacts everyone in the country and politicians have a duty to explain things fully and clearly in plain English. Instead they score points, muddy the waters and deliberately create confusion. Both sides are strong on rhetoric, strong on heckling and shouting and bad behaviour in the house, whilst being weak on communication, duty and responsibility.
Osborne tells us the deficit is reduced by a third, Miliband tells us borrowing is up, how can they both be right? Well, in their last year in government (just their final year) the previous government borrowed £159 Billion, a mind boggling sum. In 2012/13 this government plans to borrow £114 Billion, some £45 Billion less. So compared with the nation's income borrowing IS down. However, as I understand things the Office Of Budgetary Responsibility says DEBT is going up and will peak in 2016.
Now any normal person who's ever borrowed money knows that the greater the debt, the more you pay in interest, which is why Messrs Balls and Miliband can claim borrowing is increasing. (It is folks, it is and that's a fact.) Unfortunately Balls and Miliband's party created the debt in the first place, their party created the huge interest bill that's crippling us AND if that weren't enough they want to borrow even more, at the same time that they hypocritically criticise Osborne for actually borrowing more than the Tories originally wanted to. In my alternate universe the coalition would have stuck to their guns and got the debt and interest down so that they would have had room to manoeuvre today.
So, lets call eggs, well eggs. Borrowing is up, the debt will only peak in 2016 IF growth and income forecasts are correct and just recently they've been horribly off. If anyone thinks they will suddenly become accurate they're living in a dream world. The income we anticipate may not actually happen; in fact I think it won't. What if Greece and Cyprus go bust, Spain? Portugal? Forty percent of our exports go to the Eurozone – safe income? Hardly!
We live in a consumer driven world and to achieve growth we need people to spend. That means we need people to be employed and one bit of good news in the gloom is that unemployment is down and record numbers of people are in work, partly fuelled by a growth in population. So there are plenty of people earning money in the UK who could spend money in the UK. The less good news is that those people see their wages are flat whilst prices rise all the time, throw in the FEELING of insecurity and people hold off on spending and make things worse. That's the reality.
So what's good in the budget – lets inject some cheer! The two most important positives I've touched on.
- The £10K personal tax allowance is paramount. It's an absolute nonsense to tax people before they've earned enough to house, clothe and feed themselves and stand on their own feet and then give it back to them in income support or benefits; the admin is bonkers and actually much government admin is bonkers, simplifying everything cuts costs AND helps transparency, so the £10K allowance is a move in the right direction but it's still not enough.
- The next positive regards employers' NI contributions. As a former small businessman I fully understand the reticence of small business to employ people, the costs and bureaucracy are daunting, any improvement there is welcome and will help us move towards full employment, a lower benefits bill and more people earning money they can spend.
- Lower Corporation Tax – already down from 28% to 21% therefore, already lower than key competitors like France Germany and the USA it's coming down to 20%, making it the lowest in the world. If I was an overseas company wanting to expand into new countries that really would affect my thinking – so yes, that's good for Great Britain PLC. Our not very popular Chancellor was actually right to say that under the previous government we had the worst of both worlds, an uncompetitive tax regime and taxes that were being aggressively avoided. In many cases in history tax cuts have seen revenue increases which is win win.
- Help for house-buyers – not actually a cost to the government as mentioned above, since loans get repaid – even if it's only when properties get sold, but no one has actually revitalised the housing market in recent years, certainly not since the sub prime mortgage nonsense. Will this do it? I THINK that in a modest way it will and the market seems to think so too.
- In at number five 1p a pint cut in beer duty. Which shows how little things actually change! It is a good measure though. Ten thousand pubs have been lost in recent years and duty on beer has risen by about 42%. Those two things have to be related and since it's a big part of our way of life and since we have a large (but declining) brewing industry which creates employment and a product we can enjoy and which at the very least offsets imported beers in the balance of trade, it's not before time some relief was given to that industry. Are we also aggressively exporting British Beer? I don't know but we should be.
Five positives, what about the negatives then.
- The scrapping of the fuel duty increase – how can that be a negative, not a positive I hear you ask? Well fuel duty in this country is simply too high, it needs to be CUT, not frozen; at the same time as encouraging more environmentally friendly vehicles. High transport costs affect the prices of everything that get's delivered, which is virtually everything in practice. So if increasing prices are a deterrent to spending when wages are flat, then reduce prices. A fuel price cut not only affects the price index on its own, it also allows supermarkets and other businesses to be more competitive. Of course there's no room for cuts to fuel duty currently, not without cuts in government spending, which is what they should have done in the first place.
- Shale gas incentives. Fracking is dangerous and not environmentally sound. When oh when will politicians turn problems into opportunities? Renewable energy, clean energy is the future, incentivise industries that produce solar and wind power and in particular help research and development in these areas and in things like hydrogen fuel cells etc. We cannot compete with China and India and other economies on labour costs but we have great companies and great universities, we can compete by being better.
Five positives and just two negatives – well no, that's not the whole story by a long way. There are some more small positives like Capital Gains Tax relief when businesses or parts of businesses are sold to employees, that's great, really good, we want people to share in the benefits of their hard work, but it affects a very few. Interest free loans for commuters needing season tickets, that's also great. EXCEPT that it fails to address the underlying problem which is too high transport costs, over inflated fares. It's treating the symptoms and it's political window dressing.
The main problems with this budget are; one a lack of a genuine strategy to deal with what is frankly a crisis and two an over reliance on forecasts, which basically amount to over optimistic guesses.
Ordinary people know that if they're in debt they can only get out of debt by spending less than they earn and paying the debt off. When income is uncertain the sooner you rid yourself of debt the better, even if interest rates are low. Lose your job and the more you're in debt the sooner your world caves in.
The government isn't so very different, they just think they are. Greek and Cypriot people are seeing their worlds collapse and their governments are in crisis. Could it happen here? Yes it could. I don't believe it will, but it could. To make sure it doesn't and to have money to invest in the country we need to cut spending and we need to do it yesterday, we need to take some pain now to avoid the possibility of disaster later and on a more positive note to create a better future.
No one wants to cut the health service or education, no one wants to see rubbish uncollected in the streets, no one (except a few criminals) wants to see cuts in policing, the fire brigade, libraries, museums, road maintenance et al, but cuts are better than loss, less is better than nothing left at all.
Less now also means more later, something for the future, something for the next generation instead of putting their future in hock. We are so lucky in this country, so lucky to have a health service, education, a safety net of benefits and much more. Our forbears created all this largely through damn hard work and going without; we need to protect it, for ourselves and for those who come after us and no one in parliament has a viable plan to ensure our prosperity.
Some of the provisions in the budget should be good for our economy and and IF a competitive tax regime is enough to give us the growth we need and lets not mince our words we really NEED growth to balance the books and get out of debt, then, if it happens, yippee. However, if overseas markets decline or collapse only the fittest will survive; we need to chase the numbers and the coalition should have done it long before the next election started to loom. Now they're scared to and if Balls and Miliband take over, then all I can conclude is that a country gets the government it deserves. We voted in a coalition that wants to please all the people all of the time. That's bound to be a fudge, if we then invite back the party that thinks it can borrow its way out of the debt it created then we deserve all we get.
Not a happy conclusion, but there is room to hope. This nation is full of talented and resilient people, entrepreneurs, inventors and great thinkers, now we just have to get some of our most talented people to get involved in government!
On that subject I can write this sort of stuff now and publish it online, but if Cameron and co get their way something Leveson told them expressly not to meddle with, blogging, will become regulated. The chairman of the Tory party can go on television and say they're expressly not interested in bloggers whilst what's written down expressly does cover bloggers. I feel terribly sorry for the Dowlers and the McCanns and not at all for celebrities, but phone hacking is a crime and it's punishable. Freedom of speech is a cornerstone of a free and fair society.
One final thought on the quality of the people who govern us, a large proportion of them have no idea how to behave as evinced by the appalling behaviour in the house during the presentation of the budget and the subsequent reply. Furthermore, much of the reply was vitriolic, personal, rhetorical and without much substance. Milband scored highly with his attack on the P.M. and members of the cabinet regarding their personal tax status, but scraped the barrel with his personal remarks about George Osborne.
That's all for now. Thank you and goodnight!