Tuesday, March 29, 2011

Shot at by both sides

 George Osborne has managed to inspire almost nobody with the budget, perhaps because pretty much everything was trailed so far in advance that there were no headline surprises. The morning after, the Sun ran with the 1 penny cut in the duty on fuel and the Daily Express was similarly upbeat, but other papers were far more negative. Even the Daily Mail headlined the duty cut with a 'Shocks Under the Bonnet' qualifier and the Telegraph promised potholes ahead - in tribute to the £100 million fund set aside to fill some of the post-winter holes in the road. 

There was a small bounce in the YouGov tracker poll carried out between budget day and the following evening, with the government closing the gap with Labour to just four points, their best figures in months (although Anthony Wells does point out that the budget bounce is a mythical beast in recent years, demonstrating that where it exists at all, it affects government polling for a very short period).

Even the editor of the Tory-friendly Spectator magazine, Fraser Nelson, runs through the reports and picks out some of the problems ahead - noticing that the much-vaunted OBR rejects Osborne's claims about growth, debt interest (some of which is RPI inflation-linked), wages falling in real terms, high earner tax receipts not matching expectations and additional costs for welfare reform and military expenditure. And this from a right-winger. If he carries on like this, I'll send him a membership pack.

The proof of any budget is how well it survives the analysis, not how the initial spin works (or doesn't) and this budget appears to be under attack from both sides. The right don't see sufficient radical post-Thatcherism and the left are still creating merry hell about the cuts, although Anthony Wells shows that sticking to the Conservative script on cuts is getting a consistent message across to the public. Part of the problem with the budget from the point of view of the ordinary voter focussed on the pound in their pocket is that a 1p per litre cut in fuel duty is largely irrelevant. For all the Chancellor's trumpeting that it would be in place from 6pm on Budget Day, the reality is that the duty is paid when the fuel is delivered into those huge storage tanks underneath the garage, not when you actually fill your car. This means that garages have already paid the higher price until that fuel is replaced and the margin on vehicle fuel is actually quite slim, so only the big supermarket operators could afford to show the price cut swiftly - and even there, there are reports that prices went up on or just before Budget Day and then dropped back again as the price change kicked in. To be fair, I should point out that the garage operators don't seem to make similar arguments when duty goes up - the price goes up immediately, even though no more duty is paid on fuel already delivered (which is why garages like to go into Budget Day with tanks topped off). Meanwhile, the oil companies are screaming that they don't want to have to pay the windfall tax imposed by the Chancellor and it will cost tens of thousands of British jobs. The Liberal Democrat MP Malcolm Bruce has apparently taken up cudgels on behalf of the employers, along with other Scottish MPs, fearful that jobs will not be created in their constituencies.

Mr Bruce was also angered that the Chancellor appeared not to have consulted with oil experts before announcing his plans that will see oil companies being taxed between 62 per cent and 81 per cent of their profits. "I believe this completely undermines the objective of saying this is a budget for growth," he said. "We were expecting substantial new investment in the North Sea and much of this could now come under review"
Ah yes, growth. This is apparently a budget for growth. Growth matters more than anything else - as Ed Balls pointed out, the deficit was not caused by spending on schools, hospitals or the police, it was caused by a collapse in tax revenue from the financial services sector, which has been a huge part of the economy for decades. While cuts are required to close the gap from the top - through reducing expenditure - growth is the only way to make the huge gains required. Yet strangely, the Office of Budget Responsibility has downgraded its forecast of growth, having considered the effect of the new budget and a number of observers consider those forecasts as generous. Osborne offered us a resurrection of the 1980s Enterprise Zones, which were demonstrated to offer little net economic gain - they just saw businesses relocate from other areas outside the zone, and he also made much of the forthcoming changes to the planning regime, as if this is all that is holding back UK plc.
The following morning, much time was devoted on the news programmes to the news that WPP, the advertising and marketing company, was to relocate their executive headquarters from Dublin to London, once the various tax changes planned in and around the budget were in place. They decamped to the shores of the Liffey a couple of years ago to take advantage of the Republic's low corporate tax rates and have been tempted back by a new tax regime that won't tax profits earned outside the UK (90% of WPP's earnings) and will progressively cut the corporate tax bill in the UK. So, what will UK plc gain from the return of Martin Sorrell's WPP? Sadly, the company's main headquarters has remained in London all the time, with a handful of staff relocated to Dublin to support the board meetings that are held there so that the company can legitimately claim Irish tax residency. As WPP's Richard Oldworth said of the move in 2008,
"The presence here will be a very, very tiny part of the operation...The only physical change will be that some board meetings will be held in Dublin... A handful of people, probably from the financial area of the business will be based there."
WPP handles the media buying for government advertising, so the announcement provided some free campaign work in support of government policy.

Osborne has failed to satisfy the bloodlust for tax cuts from the right of his party, just as he has managed to rouse the ire of the left. You wonder how long he can sit on this fence, taking hits from either side. He may have made his name as the man who loves to be hated, but the recent spin in a number of press outlets indicate that somebody, somewhere is making the unlikely case of Osborne being the next Tory PM.

Ever had the feeling that we've been here before?

Time to get the popcorn, settle back and watch the arguments start to highlight fault lines.


Ladywood Conservatives said...

This is pretty threadbare. As far as I can see the budget was fiscally neutral, very well received by business (even former Labourite Duncan Bannatyne endorsing it). Of course there are going to be people attacking a budget from the left and right - sounds like he must have got something right if that's the case. Overall 57% think Osborne made the right decisions for the country as a whole which is an incredible result considering that thanks to your lot's legacy, there isn't any money left. A typically biased piece, sir.

PoliticalHackUK said...

Check out the notorious left wing director of the Adam Smith Institute http://www.guardian.co.uk/commentisfree/2011/mar/23/budget-2011-economists-george-osborne