Budget reaction: style triumphs over substance

Budget reaction: style triumphs over substance

by Ewen Stewart
article from Thursday 4, March, 2021

YESTERDAY’s budget was a presentational victory over substance.  The Chancellor scattered more sweeties around, £60bn of them to be precise – tax rises were less than flagged and there was a series of bungs. From a new UK Infrastructure Bank – to green savings bonds – to town re-development deals. 

The media will likely lap this all up, leaving Kier Starmer somewhat with his clothes stolen.

Therein lies the problem. While the tax rises were nothing like as draconian as pre-marketed that isn’t saying much. The chart below, from the Government’s own forecasting body, the OBR, shows just how highly taxed we have become. Not since the mid 1950’s has tax been so onerous. I wasn’t even born then. The debate has shifted so far, however, that few murmur. 

The underlying truth is there was an admission of defeat in this budget. 

The long term growth forecasts are highly unadventurous at between 1.6-1.7%.  That the Treasury seems to have accepted this modest long term goal is to say the least disappointing – and when one considers both the extremity of public spending growth and interest rates close to zero, is a damming indictment. Moreover in this technological age growth should be picking up, not declining. The new productivity opportunity is endless. Raise your game Chancellor – trust the people to deliver, not the man from your ministry picking winners in some new infrastructure bank.

But if you tax and spend declining growth should be no surprise. It might plug a short term hole and encourage virtue signalling that the Tories ‘back the public sector’ – but in the real world all it does is crowd-out the productive private sector, reduce the cake in the long term and waste opportunity. 

The other great conundrum is how Her Majesty’s Government gets out of its spending hole. The OBR obliged suggesting a rapid decline in borrowing over the next few years is likely, with new net debt reducing from a current £350bn to just over £100bn by 2022-23. 

I seriously struggle to understand the OBR’s maths here as its spending assumptions seem at significant odds with the Government’s numerous spending pledges, in-built structural escalators, and the significant form the Chancellor now has on throwing confetti at the first sign of trouble. 

I believe the OBR has underestimated the problem by a factor of two. If I’m correct expect public borrowing to continue to be in the £170-200bn pa range, in the medium term, with the state as a share of GDP remaining stubbornly high falling back only gradually from its current staggering 56% of UK activity.

The Chancellor missed a tremendous opportunity. 

Instead of simplifying he made things yet more complex. 

Instead of trusting the market to grow and recover he dulled spirits with grants for this and that and an apparently endless furlough programme that by the day looks more like a universal basic income for some.

Instead of stimulating the private sector with tax cuts he trusted the Treasury and put taxes up. Not a lot, sure, but in the context of where we start from the message is loud and clear. Government knows best, not you the people.

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Ewen Stewart is a City economist whose career has spanned over 30 years. He is director of Global Britain and a co-founder of Brexit-Watch.org 

Photo of Chancellor of the Exchequer and his team in No11 Downing Street courtesy of Reuters.


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