‘TIS barely a fortnight until the 2015 Budget, which falls – for any Martians reading Scot-Buzz – a scant few weeks before the most unpredictable General Election in 50 years.
It does not take a financial Sibyl to prognosticate that Chancellor Osborne will have his eye on persuading voters to favour the return of a Conservative administration.
Equally, Ed Balls’ entire political future rests on being able to pick holes in the Chancellor’s election candy the split second Osborne sits down. I think I am going to enjoy this Budget more than usual.
Mr Osborne has made a career out of saying one thing and doing another For all his schoolmaster invocations regarding austerity and the need to balance the national books, fiscal consolidation in the UK has been comparatively mild by international standards, during Osborne’s stint at Number 11.
That, plus a judicious printing of money to keep share and house prices suspended in mid-air, has generated enough domestic consumer and business confidence to keep the UK economy growing – even if real incomes remain stubbornly flat.
But will the voters give Osborne his reward?
So far, with barely eight full weeks to the election, the UK polls remain curiously inert, giving Labour and Tories roughly a third of the vote each. That spells a hung parliament and the likelihood of a second general election within a short period.
To date the FTSE and the FX markets seem bewilderingly oblivious to this state of affairs. Mind you, they resolutely ignored the probability of a close vote in the Scottish independence referendum till almost the stroke of midnight. So expect a last minute market tizzy in April.
Knowing all this, canny George Osborne is likely to pull a few electoral rabbits out of his red box come Budget Day on March 18. And like any decent political operator (which he is), the chancellor has salted away some cash down the back of the Number 11 sofa that he will triumphantly give away in…er, inducements to vote himself and David Cameron back into office.
The betting in the City is that higher than expected tax receipts, the dip in oil prices and lower inflation have arrived in the nick of time to give Osborne more latitude in cutting the deficit, compared to where he was at the time of the December “Autumn” Statement. By some counts, the chancellor could have an extra £5bn to give away. What will he spend it on?
Based on his track record, Osborne will target the “grey vote” among pensioners, who are most likely to vote and whose instincts are conservative with a small “c”.
Mind you, I wouldn’t put it past Osborne to shoot a few Labour foxes by reforming the already generous higher rate tax relief on pension contributions. With a little finesse, that could scupper Ed Miliband’s plan to fund a cut in English tuition fees, while strengthening the incentive to save among middle-income professionals.
Throw in a commitment to raise the level at which the 40p rate of income tax is paid to £50k sometime in the next parliament, and Ed Balls will be doing a lot of mental arithmetic during his reply to the chancellor.
Given the threat to his right from Ukip, also expect Mr Osborne to fly the flag by upping defence spending in the Budget. The government is already under strong pressure from the US to meet the NATO pledge of spending two per cent of GDP on defence.
Recent MoD cuts threaten to take Britain below that line. The crisis in Ukraine, and Putin’s general bellicosity, give Osborne the chance to mobilise electoral support on a ticket of building more Dreadnoughts.
Given what Cabinet ministers are privately referring to as “the SNP revolution” in Scotland, Osborne will have to get off the fence on supporting investment in the North Sea sector. I suspect his strange reticence to announce tax credits for ongoing oil and gas exploration – which the industry is shouting for – has a lot to do with electoral timing.
On the other hand, London politicians have a notorious habit of misreading Scottish susceptibilities. Expect a few whisky jokes from the Chancellor – but will he accede to the call from the Scotch Whisky Association for a two point cut in spirit duty?
Surprisingly, commentators are predicting relatively little from the Chancellor for business, though I’d bet on an extension of the Annual Investment Allowance of £500,000 for at least another year – it is due to drop back to £25,000 from 1 January 2016.
Yet if we want to transform an economic cycle dogged by low productivity improvements and even lower real income growth, we need to focus on boosting productive investment.
This is where George Osborne has been least successful in the past five years.
That, rather than electoral considerations, should be the true test of his final Budget of this parliament.