This was not the radical reforming budget it had been billed as. But its heart was in the right place
“THIS is not a tax-raising budget. But nor can we afford a giveaway.” Thus George Osborne, the chancellor of the exchequer, drew the narrow parameters of his second budget on March 23rd. The broad sweep of the coalition government’s fiscal policy was set in Mr Osborne’s emergency budget last June, and in October’s four-year public-spending review. His task then was to fashion a deficit-reduction plan of tax increases and spending cuts to reassure bond markets of Britain’s creditworthiness. This time the chancellor was restricted to finding small pockets of extra revenue to finance modest but eye-catching tax breaks or subsidies.
At least he did not come back for more money from taxpayers and spending departments. Nine months in, the plan to eliminate the structural deficit during this parliament is broadly on track. Public-sector net borrowing will be ??146 billion ($237 billion) or 9.9% of GDP this financial year, a few billion less than the Treasury estimated in June. The deficit in 2011-12 and beyond will be a shade higher as a share of GDP than on previous forecasts, but not much.
This higher path reflects a slower pace of economic recovery rather than any let-up in the chancellor’s zeal for fiscal austerity. The Office for Budget Responsibility (OBR), the fiscal watchdog set up by Mr Osborne last year, has revised its forecast for this year’s GDP growth to 1.7% from 2.1% (the forecast for 2012 was nudged down to 2.5%). That change reflects the momentum lost in the 0.6% fall in GDP in the final quarter of 2010. The OBR reckons some of the drop in output will have been recovered during a sprightly first quarter in 2011 (it forecasts a 0.8% increase), though it has not revised up GDP growth in subsequent quarters. The OBR judges that the chancellor will meet his self-imposed fiscal targets.
With the big-picture stuff in place, Mr Osborne could administer a few small balms to the economy’s sorest spots. The costliest measure—and the one designed to capture the headlines—was the suspension of planned real-term increases in fuel duties for the life of the current parliament, together with an immediate one-penny per litre cut. That change will cost the Treasury ??1.9 billion in 2011-12, but will be more than paid for by an increased levy on North Sea oil producers, to capture the windfall gains from high crude prices. Mr Osborne justified this transfer from producers to consumers by noting that other oil-producing countries have tax systems that squeeze profits harder when oil prices are high. He said a sustained fall in the oil price below, say, $75 a barrel would prompt a reversal in the balance of taxation towards consumers.
Taxing the flush to help out the hard-pressed was a theme. The ??1 billion or so that will be raised by stopping businesses paying high earners in ways that sidestep income tax will be used to increase the personal tax-free allowance next year by a further ??630, to ??8,105, shielding more low-paid workers from tax. The revenue raised from an increase in the levy on bank assets will be used to fund a ??250m scheme in which the government will take an equity stake alongside house builders in newly built homes. The aim of the scheme is to bridge the gap between what homebuyers can offer as a deposit and what mortgage-lenders demand. Billed as support for first-time buyers, it is likely to help the depressed construction industry more.
This sort of mild populism is mostly harmless—and understandable given the scale of the pre-announced spending cuts and tax increases that begin next month. But Mr Osborne had bigger ambitions for his package of measures. “Today’s budget is about reforming the nation’s economy,” he declared. “Britain has lost ground in the world economy and needs to catch up.”
这种温和的政策大部分是无害，会前宣布的削减开支规模以及宣布下月实施的增加税收方案亦是被公众所接受的。但奥斯本先生对整套措施信誓旦旦 “今天的预算案是为了改革国家的经济体制。”他宣称 “英国已经失去了在世界经济中的应有地位，我们必须要迎头赶上。”
The chancellor’s biggest anxiety is that Britain is no longer seen as a first choice for international businesses looking for a European base. To address this, he used what little money he could find to accelerate the cuts in business taxes announced in his first budget. The main corporate-tax rate will be cut by an extra percentage point in 2011-12 (from 28% to 26%), with further reductions bringing it to 23% by 2014-15. There will be more favourable tax treatment of the foreign earnings of British-based businesses, to help persuade footloose firms to stay.
It seems to be working: WPP, an advertising firm that moved to Dublin in 2008, has indicated it will return. On personal tax, Mr Osborne said that the 50% tax rate on incomes above ??150,000 a year “would do lasting damage” to the economy if it became permanent. He gave no timetable for its abolition but said he would ask Her Majesty’s Revenue & Customs to assess how much money it actually raises.
The budget’s pro-enterprise message was strengthened by the extension of (fairly inexpensive) tax breaks for capital directed at new businesses. A three-year moratorium on new business regulations is promised for start-ups and firms with fewer than ten workers. Britain’s strict rules on development of new buildings will be relaxed; there will be extra perks in 21 new designated enterprise zones (see article). The chancellor also set aside ??275m to help improve the skills of young workers, by funding 80,000 work-experience placements, 50,000 new apprenticeships and extra investment in technical colleges.
These initiatives are unlikely to transform the economy. But their thrust is laudable. The cuts to corporate taxes sent the right signals, as did Mr Osborne’s invocation of Nigel Lawson, a tax-reforming chancellor of the 1980s.
Yet he seemed rather cool on big changes to the tax system. The Treasury will scrap 43 of the 47 tax reliefs identified as ripe for abolition by the Office for Tax Simplification (OTS), a body set up by Mr Osborne last year. That will remove over 100 pages from a tax code that has grown larger than India’s. But those reliefs are mostly redundant: they enlarge the tax code but do no real harm. The more radical OTS proposal to merge the tax and national-insurance systems will require “a great deal of consultation”, said Mr Osborne; it could take years to implement. Such wholesale reform is easier when there is money to throw around to compensate losers, as Lord Lawson once noted.
The shortage of cash means this budget was a limited one. The size of the deficit and Mr Osborne’s commitment to shrinking it tied his hands. The deficit-reduction plan is front-loaded: more of the pain of adjustment is planned for the coming fiscal year than any other. Given the economy’s fragility, he could have postponed some of the discomfort and settled for higher borrowing in 2011. Instead he made a spirited defense of his plan A. Long-term interest rates are close to those of thrifty Germany, he said proudly, even though Britain’s budget deficit is bigger than in Portugal, Greece and Spain, countries that face far higher borrowing costs.
He did not mention that a run of bad inflation figures (up to 4.4% in February) has made a fiscal U-turn trickier. Anxiety about the impact this year’s fiscal tightening will have on the economy is one factor that has so far deterred the Bank of England from raising interest rates. Three of the nine-strong monetary-policy committee voted for an increase this month. Any easing in the fiscal squeeze could easily tip the balance towards a rise.