Wednesday, 23 March 2011

Budget sweeteners don't mean the Government has changed course

The Chancellor's rhetoric today lauded a 'Budget for jobs' and a 'budget for growth'. Which would have been nice.

In fact, what this really represented was a stand-still budget that held to the general course mapped out in last year's Comprehensive Spending Review, with a few sweeteners thrown in. Taxing oil companies to pay for an immediate small cut in fuel duty was smart politics - if not particularly advanced economics, since the price of those taxes will have to be passed onto consumers somewhere and at some time. Ministers have spent the day denying this, which strains credulity and is one reason why everyone in the Treasury should at least have some form of economics training.

As a historian, I'd compare it to James Callaghan's nautically-themed 'steady as she goes' Budget of 1967 - which ran the economy straight into devaluation when the Labour government of the time refused to accept the reality that the pound was overvalued. Instead of deflating more sharply, adopting selective interventions that might have helped the foreign balance, or indeed announcing an orderly revaluation of the pound, Callaghan shut his ears to all advice and tried to shout down the doubters. It didn't work. It never does.

Some of the measures announced today may indeed speed economic growth a little - a bit of tax simplification here, and some speeding up of the planning system there. From a micro-economic point of view, there's nothing wrong with that. Flat rate pensions may end the 'incentives trap' for people in their 50s - meaning that there's no point saving more, because your pension won't be topped up through the labyrithine Pension Credits system. Mind you, the sums involved won't be very generous whoever's in power. The Green Investment Bank, though shorn of some of the Liberal Democrats' more innovative ideas, is one hopeful sign that innovative thinking still goes on behind the Treasury's black door. More money must be welcome. Keynes' great biographer Lord Skidelsky recently called for a National Investment Bank that would leverage private sector spending and, though the examples of the 1960s Industrial Reorganisation Corporation is no recommendation, the Green Investment Bank may one day turn into such an institution.

But the strategy, as opposed to the tactics, is still the same. It still involves ploughing straight into an iceberg-laden stretch of water with as much aplomb and as much speed as the Chancellor can muster. And it's still going to hurt. A lot.

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