Leader: This was an ordinary Budget for extraordinary times

The Chancellor's "fiscally neutral" Budget will do little to revive Britain's anaemic economy.

Future historians will record with amusement that, in his first "emergency" Budget in June 2010, George Osborne promised a "steady and sustained economic recovery, with low inflation and falling unemployment". Since then, the Chancellor has failed on every count. Growth in 2011 was just 0.8 per cent - one of the worst performances in the European Union - and is forecast to be the same this year. As a result, Britain, unlike the United States, Canada and Germany, has yet to recover all of the lost output from the recession. Indeed, GDP remains a remarkable 3.8 per cent below its 2008 peak. We remain as a nation much poorer than when we entered recession in 2009 and the road ahead is long and gloomy. Meanwhile, unemployment, which stands at 2.7 million, continues its relentless march towards three million. Mr Osborne's promise that private-sector job creation would "far outweigh" the job losses in the public sector (his fabled expansionary fiscal contraction) has not been fulfilled. In the past year, 270,000 public-sector posts have been cut but just 226,000 private-sector posts have been created. An anaemic economy and a stagnant labour market have left Britain's cherished AAA credit rating - which Mr Osborne adopted as the metric of success - once more under threat. The Chancellor is failing on his own terms.

Mr Osborne's third Budget was intended to rectify all of these problems, but his rhetoric about bold "reform" could not disguise the essential conservatism of his response. This was an ordinary Budget for extraordinary times. To improve the UK's growth and employment prospects after the economy has already fallen back into recession, he needed either to engage in fiscal stimulus or to restructure the tax system boldly in a pro-growth direction. He did neither.

By delivering another "fiscally neutral" Budget, banking any savings to reassure the markets, the Chancellor failed to reduce the pace of austerity and his tax changes, though of considerable political significance, amounted to low-level tinkering. The accelerated increase in the personal allowance, which will rise from £8,105 to £9,205 in April 2013, was neither as reforming nor as progressive as the coalition would have us believe. The policy does nothing to help the third of the adult population too poor to pay income tax and, partly for this reason, it is an ineffective fiscal stimulus. The Office for Budget Responsibility has calculated that higher infrastructure spending, increased spending on benefits or a cut in VAT would all do more to boost the economy in the short term. Economic logic tells us that tax cuts targeted on low earners, who are more likely to spend any windfall rather than save it, are the most effective stimulus. Yet, contrary to the Liberal Democrats' claims, the biggest winners from the rise in the personal allowance are not the poor but the rich.

Research by the Institute for Fiscal Studies shows that those in the second-richest decile gain the most in cash terms, followed by the richest tenth, who gain marginally less because of the gradual removal of the personal allowance after £100,000 (an inspired piece of stealth redistribution by the former chancellor Alistair Darling). It is middle earners who gain the most as a percentage of income, those at the bottom gaining by far less. The government has adopted a policy that, at a cost of £3.3bn a year, does little to advance either economic growth or social justice.

The biggest tax cut of all, however, was reserved not for low- or middle-income earners but for the top 1 per cent. Mr Osborne's regressive decision to cut the top rate of tax from 50p to 45p, with a further reduction to 40p scheduled to follow, signalled definitively that we're not "all in this together".

Until recently, both the Conservatives and the Liberal Democrats appeared to recognise that it would be unacceptable to abolish the top rate - an important symbol of "solidarity" - at a time of austerity. In January this year, defending the policy, David Cameron remarked that "when you're taking the country through difficult times and difficult decisions, you've got to take the country with you. That means permanently trying to make the argument that what you're doing is fair and seen to be fair." More strikingly, the Chief Secretary to the Treasury, Danny Alexander, declared that anyone advocating a cut in the 50p income-tax rate was "living in cloud-cuckoo land". Only in return for a "mansion tax", we were told, would the Liberal Democrats even consider agreeing to the abolition of the top tax rate.

Yet the 50p rate has gone and a mansion tax is no closer to becoming reality. Instead, the Chancellor announced a rise in stamp duty from 5 to 7 per cent on properties worth more than £2m, a welcome move, but one that does not compensate for the abolition of the top rate. True, the Treasury may have found that the 50p band is raising significantly less revenue than expected. But this is an argument for reducing tax avoidance, not for cutting taxes for the highest earners at the present time.

Mr Osborne was right to act to close a few tax loopholes, such as the one allowing individuals to put their homes into companies to avoid stamp duty, but he has missed an opportunity to shift the burden of taxation away from earned income and towards unearned wealth. As the New Statesman has long argued, property taxes are fair, easy to collect and economically beneficial. By shifting investment away from housing and into wealth-creating industries, they boost growth and, consequently, are rated as less economically harmful than taxes on consumption, income and corporations. Some of the more enlightened figures on the Conservative back benches recognise as much and yet, for fear of alienating his party's Home Counties base, Mr Cameron has vetoed any move towards a mansion tax.

The Prime Minister and the Chancellor are fond of describing themselves as "fiscal conservatives" but "monetary activists". Indeed, interest rates have remained at a record low of 0.5 per cent for three years and the Bank of England's quantitative easing programme now stands at £325bn. Though policy is formally determined by the independent Bank, Mr Osborne has consistently signalled his approval of its monetary expansionism. And with good reason. By artificially suppressing bond yields, the Bank's QE programme has allowed the Chancellor to boast that his austerity programme is responsible for the UK's "safe haven" status. But at a time when the economy is suffering from a crisis of aggregate demand, low interest rates alone are not enough to stimulate investment. As John Maynard Keynes once observed, relying on monetary policy only to do the heavy lifting at a time of recession is like "pushing on a string".

In our recent "Plan B" special issue, the Nobel economics laureate Christopher Pissarides, the development economist Jeffrey Sachs and Robert Skidelsky, biographer of Keynes, called for measures including a VAT cut, a National Investment Bank and the suspension of the immigration cap to revive growth. A properly "reforming" Budget would have included some or all of these policies. For reasons that are essentially political, however, Mr Osborne has rejected one final opportunity to change course. By falsely claiming that borrowing for growth would "bankrupt" the British economy even as he borrowed £147bn more than expected, the Chancellor tied his own hands long ago. And the country will pay in the form of higher unemployment and ever greater inequality.

This article first appeared in the 26 March 2012 issue of the New Statesman, Mission impossible

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The strange death of boozy Britain: why are young people drinking less?

Ditching alcohol for work.

Whenever horrific tales of the drunken escapades of the youth are reported, one photo reliably gets wheeled out: "bench girl", a young woman lying passed out on a public bench above bottles of booze in Bristol. The image is in urgent need of updating: it is now a decade old. Britain has spent that time moving away from booze.

Individual alcohol consumption in Britain has declined sharply. In 2013, the average person over 15 consumed 9.4 litres of alcohol, 19 per cent less than 2004. As with drugs, the decline in use among the young is particularly notable: the proportion of young adults who are teetotal increased by 40 per cent between 2005 and 2013. But decreased drinking is not only apparent among the young fogeys: 80 per cent of adults are making some effort to drink less, according to a new study by consumer trends agency Future Foundation. No wonder that half of all nightclubs have closed in the last decade. Pubs are also closing down: there are 13 per cent fewer pubs in the UK than in 2002. 

People are too busy vying to get ahead at work to indulge in drinking. A combination of the recession, globalisation and technology has combined to make the work of work more competitive than ever: bad news for alcohol companies. “The cost-benefit analysis for people of going out and getting hammered starts to go out of favour,” says Will Seymour of Future Foundation.

Vincent Dignan is the founder of Magnific, a company that helps tech start-ups. He identifies ditching regular boozing as a turning point in his career. “I noticed a trend of other entrepreneurs drinking three, four or five times a week at different events, while their companies went nowhere,” he says. “I realised I couldn't be just another British guy getting pissed and being mildly hungover while trying to scale a website to a million visitors a month. I feel I have a very slight edge on everyone else. While they're sleeping in, I'm working.” Dignan now only drinks occasionally; he went three months without having a drop of alcohol earlier in the year.

But the decline in booze consumption isn’t only about people becoming more work-driven. There have never been more alternate ways to be entertained than resorting to the bottle. The rise of digital TV, BBC iPlayer and Netflix means most people means that most people have almost limitless choice about what to watch.

Some social lives have also partly migrated online. In many ways this is an unfortunate development, but one upshot has been to reduce alcohol intake. “You don’t need to drink to hang out online,” says Dr James Nicholls, the author of The Politics of Alcohol who now works for Alcohol Concern. 

The sheer cost of boozing also puts people off. Although minimum pricing on booze has not been introduced, a series of taxes have made alcohol more expensive, while a ban on below-cost selling was introduced last year. Across the 28 countries of the EU, only Ireland has higher alcohol and tobacco prices than the UK today; in 1998 prices in the UK were only the fourth most expensive in the EU.

Immigration has also contributed to weaning Britain off booze. The decrease in alcohol consumption “is linked partly to demographic trends: the fall is largest in areas with greater ethnic diversity,” Nicholls says. A third of adults in London, where 37 per cent of the population is foreign born, do not drink alcohol at all, easily the highest of any region in Britain.

The alcohol industry is nothing if not resilient. “By lobbying for lower duty rates, ramping up their marketing and developing new products the big producers are doing their best to make sure the last ten years turn out to be a blip rather than a long term change in culture,” Nicholls says.

But whatever alcohol companies do to fight back against the declining popularity of booze, deep changes in British culture have made booze less attractive. Forget the horrific tales of drunken escapades from Magaluf to the Bullingdon Club. The real story is of the strange death of boozy Britain. 

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.