The politics of Wednesday’s Budget pull one way – the economics the other.
At the last election, the one message that the Conservatives did get across was that they had a “long-term economic plan”. By maintaining growth at steady levels and prudent management of the public finances, they would wipe out the annual deficit – still running at a whopping £75 billion – by the end of the Parliament. The accumulated national debt, now heading for an unimaginable £1.8 trillion by 2020, would at last be on a downward path. The disastrous legacy of Labour’s financial crash of 2008/9 would be but a distant memory by the time a grateful nation went to the polls again in four years time.
That was the theory. But theories don’t always work out in practice. And that is the Chancellor’s dilemma as he approaches Budget day. Back in 2010 he promised to eliminate the deficit and get the national debt under control. Six years later, he is still struggling to balance the books.
The economic imperatives are clear enough – a further squeeze on spending and tax rises designed to minimise the pain while fattening the Treasury’s coffers. But this is where the politics kicks in. The critical poll is not in 2020 – it is this summer when the country votes on British membership of the EU. The vote is about Europe, of course, a decision of historic importance, but it is also about something more immediate and visceral – whether David Cameron and George Osborne remain in power. If they lose to the Brexiteers in June, they are almost certain to be out of office as the Tories seek new leaders to settle the terms of the divorce with Europe.
In his autumn statement last year, Osborne was surprisingly free with the cash. In the face of a backbench rebellion, he cancelled plans to save £4.5 billion through cuts to tax credits, struck a generally optimistic note about the performance of the economy, and found £27 billion down the back of the Treasury sofa to ease his spending squeeze.
But that was all of a few months ago. Now we are being told by the Chancellor that the economic outlook has not been so uncertain since the crash and that “hard graft” will be needed to see us through the next few years. Economically, the skies have darkened. Even worse, scrabbling around at the back of the Treasury sofa has produced a nasty surprise – an IOU of £18 billion that will have to be met now through tax rises, spending cuts or a combination of the two.
The Treasury has been toying with a tax raid on pensions. Restricting tax relief on pension contributions for higher earners could save as much as £6 billion – even £25 billion if the Chancellor opted for the most radical (and unpopular) option.
But hang on? Who are the most eurosceptic of Britain’s voters? Who are most likely to vote on June 23 in the referendum? The grey vote, that’s who. Bashing pensioners and the middle-aged in March and expecting them dutifully to vote for Remain in June is just about the most stupid idea to come out of the Treasury since the “pasty tax” crowning the “Omnishambles” Budget of 2012.
Shrieks of agony from No 10 have killed off the madcap idea of an assault on the not so young. Dave wants a boring Budget, preferably with a few goodies for the middle classes and wobbly Tory MPs to steady the ship. Expect some upward movement in the threshold for 40 per cent tax payers coupled with a puritanical assault on “sin taxes” clobbering smokers if not drinkers. Now that petrol is cheap, an increase in taxes offers a way of raising a decent slice of revenue without frightening the horses too much.
The referendum overshadows all else these days. Dave and George are fighting for their lives. Politics has trumped economics and the nation will suffer as a result.