Wednesday, 20 March 2013

Budget 2013

This afternoon George Osborne presented his 4th budget to parliament. Let us have a little look at the numbers.
               
               This     Last    Year     First
               Budget   Year    Before   Budget
-----------------------------------------------
Taxation       £612bn   £620bn  £588bn   £548bn
Borrowing      £108bn   £91bn   £122bn   £149bn
===============================================
Spending       £725bn   £711bn  £710bn   £697bn
===============================================
(In the 'last year' numbers the £28bn Royal
Mail Pension fund is counted as borrowing.)

As you see spending is up and borrowing is up and most prudence is out the window.

This year Osborne was not a confident speaker. He seems  to have adopted the Gordon Brown tactics of gabbling and missing out bad news. He rose and started with a litany of factoids showing how the UK was doing better than other countries before admitting that GDP was forecast only to be 0.6% this year. Last year he told us growth would be 2.0% this year.

For the record his new forecasts are:

            Year     GDP
            --------------
            2013/14  +0.6%
            2014/15  +1.8%
            2015/16  +2.3%
            2016/17  +2.7%
            2017/18  +2.8%

As Miliband rightly pointed out in his response - the recovery always seems to be four years in the future, every year retreating by a year. In previous years Osborne has indicated when he expected the deficit to fall to zero and the budget to be balanced. In his first ever budget in 2010 he said balance would be achieved in 2015. There was no confirmation of this today. That particular goal seems to have flown out the window.

The deficit will be £108bn this year. That's a hefty chunk up on last year (£91bn) and will feel worse because the transfer of the Royal Mail pension fund to the government cushioned the blow to some extent last year.

Osborne then proceeded with some irrelevant waffle about the remit of the MPC, including the slightly disturbing revelation that they will be using "unconventional monetary instruments" in the future. What these are he did not say. Hopefully not a Cyprus style cash grab.

Then he covered spending: all departments will have a 1% cut in their budgets, apart from the usual schools & 'ospitals. Foreign aid is also protected. Public sector pay rises will be limited to 1% - apart from the military and police who can have more.

The give-aways comprise: 1p off a pint of beer (effect on consumer - nil) corporation tax reduced by 1% to 20% starting next year (effect on companies - nil if they are already using a good accountant) tax-free childcare for parents (effect - nice!) stamp duty cancelled on the AIM market (effect - actually could be good for small businesses) first £2,000 of employer's national insurance to be cancelled (effect - very good for very small companies; hiring employee number one could effectively be tax free, effect on most employers - nil) and some improved allowances about how much savings you can keep if you need social care.

The big spending commitment was a two-pronged plan called "Help to buy" which is clearly intended to stimulate the housing market. First, for new build houses only, £3.5bn will be allocated for shared equity interest-free loans. The buyer puts 5% down, the government then puts 20% down and a bank supplies the remaining 75% as a mortgage. When you sell you pay back the 20% government loan. (The interest-free period is only 5 years though.)

The second prong is for new build houses and also old houses. Osborne said the government will guarantee £130bn worth of mortgages, thus allowing the unmortgageable to get a home loan. However a perusal of the small print indicates he is not being quite that generous. The government is actually going to guarantee the first tranche of these mortgages with a £12bn bail-out fund. They think this will then enable £130bn of mortgages to be written which would not otherwise happen.

The first prong, which should stimulate house building, seems like an OK idea. The second prong (not available until next year anyway) looks like subprime is back in business. Giving mortgages to people the lenders don't think are credit-worthy can end badly!

That pretty much wrapped it up. Osborne did quite a lot of mumbling, garbling his words, stopping for a drink and name-checking other MPs to get some cheap cheers. This was not the polished peformance of previous years. And this year he was using verbal sleights-of-hand to conceal bad news. And he never even mentioned tobacco.

The Deputy Speaker than rose and messed up the resolutions. Some things had to be agreed without debate and the Speaker called for "ayes" which he got. But he forgot a second resolution and called Miliband before telling him to sit down again for some more "ayes". In fact Osborne omitted so much from his speech that the MPs saying "aye" didn't really know what they were voting for.

Eventually Miliband was up and at them. After pointing out that the news was bad not good he launched into his party trick from last year: pointing at the government front bench and asking them to nod if they were benefiting from the abolition of the 50p tax rate. He played this out for several minutes to the delight of his own MPs while the government sat there in embarrassed silence. They really need to work out some sort of response to this or he will just keep doing it.

All in all, the budget was lackluster and the response funny but insubstantial.

Red book

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