Osborne's missed opportunity to boost growth

The measures announced today will increase GDP by just £0.51 billion.

The Chancellor missed an opportunity to boost growth today with his Budget. Analysis by IPPR shows that an Alternative Budget could have increased the impact of GDP by a factor of five.

The Office of Budget Responsibility set out the fiscal multipliers of different forms of tax and spending changes in Table C8 of the 2010 Budget. Using these estimates it is possible to assess the impact of the Budget measures announced today that will take effect in 2013-14. Policy decisions for that year came to £1.71 billion.

The chart below shows that, taken as a whole, the measures announced by the Chancellor today to boost growth will increase GDP by just £0.51 billion. By contrast, alternative measures proposed by IPPR would increase GDP by £2.66 billion.

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IPPR's Alternative Budget would include a mixture of tax cuts and spending increases paid for through Osborne's new tax avoidance and stamp duty proposals as well as an additional "mansion tax" of 1 per cent on properties worth more than £2 million. Our Alternative Budget would have the same fiscal effect as Osborne's. IPPR's preferred tax cut is an Obama-style cut in payroll taxes. Our original proposal, set out by Eric Beinhocker in last week's Times (£), was for a 2p cut to employee National Insurance Contributions to be paid for over six years. But in order to ensure that all costs are paid this year, we set out here a 1p tax cut at a cost of £2.75 billion.

Our second priority is a jobs guarantee for young people out of work for more than one year. This would cost £400 million and help address the scarring effects that long-term unemployment can cause, particularly for young people. There are currently over 1,042,000 young people aged 16-24 out of work the second highest since comparable records began in 1992, and a rise of 67,600 in the last year. There are now 253,000 young people who have been unemployed for more than a year, an increase of 24,900 over the last year. Osborne's Budget did nothing to address this.

Our final priority is increased infrastructure spending. The OBR's analysis shows that the most effective way to boost growth is to increase infrastructure spending. But the Government is planning to cut its capital spending by 29 per cent between 2010/11 and 2014/15, largely following the path set out by Labour when it was in power. This was, perhaps, Labour's biggest fiscal policy mistake. Not only does infrastructure spending boost growth, it has the advantage of adding to the UK's productive capacity over the longer-term. The money raised from the various tax increases allows for a £2.9 billion boost to infrastructure spending.

As the chart above shows, these three measures combined would increase GDP by £2.66 billion, which is close to five times the stimulative impact of Osborne's Budget. The Chancellor claimed today that his Budget was "growth-friendly". But analysis from the OBR, which he established, shows that it is no such thing.

Will Straw is Associate Director at IPPR

Will Straw was Director of Britain Stronger In Europe, the cross-party campaign to keep Britain in the European Union. 

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Brexit is teaching the UK that it needs immigrants

Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past.

Why did the UK vote to leave the EU? For conservatives, Brexit was about regaining parliamentary sovereignty. For socialists it was about escaping the single market. For still more it was a chance to punish David Cameron and George Osborne. But supreme among the causes was the desire to reduce immigration.

For years, as the government repeatedly missed its target to limit net migration to "tens of thousands", the EU provided a convenient scapegoat. The free movement of people allegedly made this ambition unachievable (even as non-European migration oustripped that from the continent). When Cameron, the author of the target, was later forced to argue that the price of leaving the EU was nevertheless too great, voters were unsurprisingly unconvinced.

But though the Leave campaign vowed to gain "control" of immigration, it was careful never to set a formal target. As many of its senior figures knew, reducing net migration to "tens of thousands" a year would come at an economic price (immigrants make a net fiscal contribution of £7bn a year). An OBR study found that with zero net migration, public sector debt would rise to 145 per cent of GDP by 2062-63, while with high net migration it would fall to 73 per cent. For the UK, with its poor productivity and sub-par infrastructure, immigration has long been an economic boon. 

When Theresa May became Prime Minister, some cabinet members hoped that she would abolish the net migration target in a "Nixon goes to China" moment. But rather than retreating, the former Home Secretary doubled down. She regards the target as essential on both political and policy grounds (and has rejected pleas to exempt foreign students). But though the same goal endures, Brexit is forcing ministers to reveal a rarely spoken truth: Britain needs immigrants.

Those who boasted during the referendum of their desire to reduce the number of newcomers have been forced to qualify their remarks. On last night's Question Time, Brexit secretary David Davis conceded that immigration woud not invariably fall following Brexit. "I cannot imagine that the policy will be anything other than that which is in the national interest, which means that from time to time we’ll need more, from time to time we’ll need less migrants."

Though Davis insisted that the government would eventually meet its "tens of thousands" target (while sounding rather unconvinced), he added: "The simple truth is that we have to manage this problem. You’ve got industry dependent on migrants. You’ve got social welfare, the national health service. You have to make sure they continue to work."

As my colleague Julia Rampen has charted, Davis's colleagues have inserted similar caveats. Andrea Leadsom, the Environment Secretary, who warned during the referendum that EU immigration could “overwhelm” Britain, has told farmers that she recognises “how important seasonal labour from the EU is to the everyday running of your businesses”. Others, such as the Health Secretary, Jeremy Hunt, the Business Secretary, Greg Clark, and the Communities Secretary, Sajid Javid, have issued similar guarantees to employers. Brexit is fuelling immigration nimbyism: “Fewer migrants, please, but not in my sector.”

The UK’s vote to leave the EU – and May’s decision to pursue a "hard Brexit" – has deprived the government of a convenient alibi for high immigration. Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past. Brexit may have been caused by the supposed costs of immigration but it is becoming an education in its benefits.

George Eaton is political editor of the New Statesman.