The government has fallen short on nearly all economic measures but its budget is unlikely to remedy this

By Shamik Das

—This month’s budget provides a good opportunity to reflect upon the present government’s economic record in the 22 months since the coalition came to power. Despite George Osborne’s best intentions of setting out clear aims and sticking to them with an iron will, the results, as even his supporters will admit, have been poor.

In the June 2010 ‘emergency budget’, with the coalition basking in its rose-kissed midsummer glow, and Labour on its knees and leaderless, the chancellor confidently forecast year-on-year increases in growth and decreases in borrowing. He has missed these targets, with each quarter seeing downward revisions in the Office for Budget Responsibility’s growth forecasts, and borrowing steadily rising. Indeed, the government is now forecast to borrow more than Labour was projected to under the ‘Darling plan’ to halve the deficit over four years.

Since the election there has been little gain but plenty of pain, especially for those at the bottom. While it is true that the top decile has contributed more than any other group, this is only because of the effect of the 50p top rate of tax that Labour introduced. But as the small print of the autumn statement showed, for nearly everyone else, the poorer you are, the greater the impact of the tax, tax credit and benefit measures. Indeed, after the top 10 per cent, those in the lowest income decile are the next worst hit by the totality of the government’s measures. Benefits for the poorest people in society are being slashed, with not even cancer patients or disabled children spared. Meanwhile, FTSE 100 fat cats wallow in 49 per cent pay increases, with the bonus culture heading back to pre-crash days.

Osborne’s ‘we’re all in this together’ and ‘tough but fair’ rhetoric looks ever more hollow – and we are not even near the end of the beginning of feeling the impact of the cuts. Ninety-four per cent of Osborne’s departmental spending cuts and 88 per cent of the planned benefits cuts are yet to come. A sobering thought.

Looking ahead, the chancellor appears paralysed by rightwing orthodoxy on deregulation and tax cuts for businesses, which prevent him from implementing expansionary growth policies, such as Labour’s five-point plan that would include a tax on bank bonuses to create jobs and build homes, or temporary VAT cuts to stimulate the economy. On the positive side, however, the government has recently shown a genuine interest in infrastructure projects, with investment in road, rail and broadband, including High Speed Two, the Silvertown-Greenwich tunnel, and the Northern Line extension, raising the possibility that the chancellor might announce another big infrastructure project in the budget.

The chancellor will not, however, consider going more slowly on the cuts – he has staked far too much political capital to perform a U-turn on this now, no matter what the cost to the economy. If he does swallow his pride, though, there is a case for him to implement a temporary cut to national insurance contributions to help boost jobs, or to do more to help tackle the structural roots of youth unemployment by boosting apprenticeships and manufacturing, as proposed by David Miliband’s commission on the problem last month.

Raising the quantity and quality of jobs and apprenticeships available to young people requires measures to help firms rethink their current strategies that underpin weak demand for skills. With more than one million young people out of work, the government needs to do more to help firms create opportunities. Until this is addressed the increasingly well-qualified next generation will continue to compete for limited opportunities.

Another policy which we are unlikely to see in the budget is a National Investment Bank – currently being examined by Labour – which would raise investment from its current poor levels for important infrastructure and innovation projects where the market is currently failing.

Gordon Brown always had a surprise at the end of budgets, a trait shared by Osborne. Could it be something on childcare, likely to be one of the issues of the 2015 election? Certainly, after a terrible couple of months of economic news the chancellor will want to regain the policy initiative – this could be one way of achieving this.

—————————————————————————————

Shamik Das is editor of Left Foot Forward

—————————————————————————————

Photo: HM Treasury