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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Former Irish premier John Bruton on Brexit: "Britain should pay for our border checks"

The former Taoiseach says Brexit has been interpreted as "a profoundly unfriendly act"

At Kapıkule, on the Turkish border with Bulgaria, the queue of lorries awaiting clearance to enter European Union territory can extend as long as 17km. Despite Turkey’s customs union for goods with the bloc, hauliers can spend up to 30 hours clearing a series of demanding administrative hoops. This is the nightmare keeping former Irish premier John Bruton up at night. Only this time, it's the post-Brexit border between Northern Ireland and the Republic, and it's much, much worse.   

Bruton (pictured below), Taoiseach between 1994 and 1997, is an ardent pro-European and was historically so sympathetic to Britain that, while in office, he was pilloried as "John Unionist" by his rivals. But he believes, should she continue her push for a hard Brexit, that Theresa May's promise for a “seamless, frictionless border” is unattainable. 

"A good example of the sort of thing that might arise is what’s happening on the Turkish-Bulgarian border," the former leader of Ireland's centre-right Fine Gael party told me. “The situation would be more severe in Ireland, because the UK proposes to leave the customs union as well."

The outlook for Ireland looks grim – and a world away from the dynamism of the Celtic Tiger days Bruton’s coalition government helped usher in. “There will be all sorts of problems," he said. "Separate permits for truck drivers operating across two jurisdictions, people having to pay for the right to use foreign roads, and a whole range of other issues.” 

Last week, an anti-Brexit protest on the border in Killeen, County Louth, saw mock customs checks bring traffic to a near standstill. But, so far, the discussion around what the future looks like for the 260 border crossings has focused predominantly on its potential effects on Ulster’s fragile peace. Last week Bruton’s successor as Taoiseach, Bertie Ahern, warned “any sort of physical border” would be “bad for the peace process”. 

Bruton does not disagree, and is concerned by what the UK’s withdrawal from the European Convention on Human Rights might mean for the Good Friday Agreement. But he believes the preoccupation with the legacy of violence has distracted British policymakers from the potentially devastating economic impact of Brexit. “I don’t believe that any serious thought was given to the wider impact on the economy of the two islands as a whole," he said. 

The collapse in the pound has already hit Irish exporters, for whom British sales are worth £15bn. Businesses that work across the border could yet face the crippling expense of duplicating their operations after the UK leaves the customs union and single market. This, he says, will “radically disturb” Ireland’s agriculture and food-processing industries – 55 per cent of whose products are sold to the UK. A transitional deal will "anaesthetise" people to the real impact, he says, but when it comes, it will be a more seismic change than many in London are expecting. He even believes it would be “logical” for the UK to cover the Irish government’s costs as it builds new infrastructure and employs new customs officials to deal with the new reality.

Despite his past support for Britain, the government's push for a hard Brexit has clearly tested Bruton's patience. “We’re attempting to unravel more than 40 years of joint work, joint rule-making, to create the largest multinational market in the world," he said. It is not just Bruton who is frustrated. The British decision to "tear that up", he said, "is regarded, particularly by people in Ireland, as a profoundly unfriendly act towards neighbours".

Nor does he think Leave campaigners, among them the former Northern Ireland secretary Theresa Villiers, gave due attention to the issue during the campaign. “The assurances that were given were of the nature of: ‘Well, it’ll be alright on the night!’," he said. "As if the Brexit advocates were in a position to give any assurances on that point.” 

Indeed, some of the more blimpish elements of the British right believe Ireland, wedded to its low corporate tax rates and east-west trade, would sooner follow its neighbour out of the EU than endure the disruption. Recent polling shows they are likely mistaken: some 80 per cent of Irish voters say they would vote to remain in an EU referendum.

Irexit remains a fringe cause and Bruton believes, post-Brexit, Dublin will have no choice but to align itself more closely with the EU27. “The UK is walking away,” he said. “This shift has been imposed upon us by our neighbour. Ireland will have to do the best it can: any EU without Britain is a more difficult EU for Ireland.” 

May, he says, has exacerbated those difficulties. Her appointment of her ally James Brokenshire as secretary of state for Northern Ireland was interpreted as a sign she understood the role’s strategic importance. But Bruton doubts Ireland has figured much in her biggest decisions on Brexit: “I don’t think serious thought was given to this before her conference speech, which insisted on immigration controls and on no jurisdiction for the European Court of Justice. Those two decisions essentially removed the possibility for Ireland and Britain to work together as part of the EEA or customs union – and were not even necessitated by the referendum decision.”

There are several avenues for Britain if it wants to avert the “voluntary injury” it looks set to inflict to Ireland’s economy and its own. One, which Bruton concedes is unlikely, is staying in the single market. He dismisses as “fanciful” the suggestions that Northern Ireland alone could negotiate European Economic Area membership, while a poll on Irish reunification is "only marginally" more likely. 

The other is a variation on the Remoaners’ favourite - a second referendum should Britain look set to crash out on World Trade Organisation terms without a satisfactory deal. “I don’t think a second referendum is going to be accepted by anybody at this stage. It is going to take a number of years,” he said. “I would like to see the negotiation proceed and for the European Union to keep the option of UK membership on 2015 terms on the table. It would be the best available alternative to an agreed outcome.” 

As things stand, however, Bruton is unambiguous. Brexit means the Northern Irish border will change for the worse. “That’s just inherent in the decision the UK electorate was invited to take, and took – or rather, the UK government took in interpreting the referendum.”