By Julian Jessop
So, what’s the verdict on the Spring Budget? Some small steps in the right direction, but nothing much to move the dial either on the economy – or the opinion polls, writes Julian Jessop
This was a boring Budget – a verdict which will be reassuring for some and frustrating for others.
It was certainly a fiscal non-event in terms of the overall impact it will have on the economy. The boost to demand from another cut in National Insurance (NI) was mostly offset by a bitty package of small and often irritating tax increases – giving with one hand and taking with the other – resulting in a net stimulus of just a few billion pounds.
This is at least unlikely to rattle the bond markets or worry the Bank of England, which now has one less excuse to delay the much-needed cuts to headline interest rates. So that is one bear trap avoided.
The Chancellor stuck to the government’s existing expenditure plans too. These allow for some real-terms growth but should still see departmental spending fall as a share of national income, which will be a stretch given ever-increasing demands.
Instead, he focused on measures to boost productivity, doing more with about the same amount of public spending. The NHS rightly took centre stage on the same day that the Office for National Statistics revealed that the number of people working in the health service has risen by more than a third since 2013.
The Chancellor’s stated aim is a ‘more productive state’ rather than a ‘bigger state’. Unfortunately, any ambition for a ‘smaller state’ still seems to be wishful thinking.
The Budget blockbuster – such as it was – was the additional 2p cut in NI. This was well trailed in the press, which old Treasury hands like me find annoying. Budget details are potentially market sensitive, Parliament should hear first, and leaking to selected political hacks increases the risks of favouritism.
But that grumble aside, it does make sense to cut NI – a tax on employment income and jobs – rather than income tax. This is more likely to encourage people back into work, or to increase their hours, and therefore ease labour shortages. The Chancellor has also set out a path to lower tax by signalling that NI will be cut further as the public finances allow.
However, this welcome tax cut was partly funded by a blizzard of tax increases, and of course the overall tax burden is still set to rise even further. This Budget did nothing to address the problem of ‘fiscal drag’ from the freezing of personal allowances, although the threshold on the high-income child benefit charge was raised.
It will take a while to wade through all the details – and fresh horrors may emerge. One already is yet another change to the ‘Energy Profits Levy’, which has been extended for a further year. You can just about make an economic case for a ‘windfall tax’ which is genuinely a ‘one off’, but this is not that. The continual tweaking only adds to business certainty.
Some serious thought does at least seem to have gone into the decision to reduce the higher rate of capital gains tax on property, with a rare nod to the ‘Laffer curve’. Some other proposals – such as the changes to non-dom status, and the plans for a ‘British ISA’ – seem more gimmicky.
Overall, there were some small steps in the right direction, but nothing much to move the dial either on the economy – or the opinion polls. Jeremy Hunt will be hoping that slow and steady wins the electoral race. However, while he is preparing for a marathon, the sprint for the finishing line may already have begun.
