George Osborne delivered his eighth Budget in the full knowledge that it could be his last. Should the UK vote for EU withdrawal in 99 days’ time, he, along with David Cameron, will be forced to leave frontline politics.
Osborne’s Budget was in no small part designed to forestall this fate. He avoided the unpopular tax rises that are the hallmark of Chancellors at this stage of the parliament. He warned of a further £3.5bn of spending cuts but made no mention of where they would fall. And rather than playing nice with the Brexiters, as some suggested, he launched a full-frontal attack.
The OBR’s forecasts for reduced but sustained economic growth were conditional on the UK remaining in the EU, he warned. While noting that the independent body refrains from “political debate”, he did his best to drag it in, citing its warning that a Leave vote could “usher in an extended period of uncertainty” and “result in great volatility in financial and other asset markets”. Tory MPs bridled at the Chancellor’s deployment of the institution he founded. “I believe we should not put at risk all the hard work that the British people have done to make our country strong again,” he continued, binding the fortunes of the fastest growing major economy to a Remain vote.
Osborne’s defining pledge of a budget surplus endured but at the cost of a fiscal path that immediately looks unachievable. The UK will supposedly move from a deficit of £21.4bn in 2018-19 to a surplus of £10.4bn in 2019/20. As in the past, Osborne will surely climb off this rollercoaster in future statements – if he gets the chance. Elsewhere, he again demonstrated a pragmatism at odds with his iron rhetoric. His promise to reduce the national debt as a share of GDP will not be kept. The previously breached welfare cap means Osborne has now broken two of the three fiscal rules he announced less than a year ago. He could yet make it a hat-trick if worsening economic conditions or a full-blown recession eliminate his projected surplus.
All the advance briefing suggested that this would be a “safe” Budget. And in many respects it was. But Osborne ensured attention-diverting headlines by unexpectedly announcing a sugar levy on soft drinks producers. In a smart act of hypothecation, he added that the anticipated £520m revenue would be used to double the level of primary school sport funding. To a momentarily silent Commons, an emotive Osborne declared: “I am not prepared to look back at my time here in this Parliament, doing this job and say to my children’s generation: ‘I’m sorry. We knew there was a problem with sugary drinks. We knew it caused disease. But we ducked the difficult decisions and we did nothing.”
Osborne did not want his potential valediction to be remembered for nothing more than political calculation. With the first-ever sugar levy (one that, after the National Living Wage and the Apprenticeship Levy, continues his partial conversion to interventionism), he was straining for a legacy. He also accelerated and entrenched his defining tax reforms: corporation tax will fall to just 17 per cent in 2020 (22 per cent below the headline US rate), fuel duty will remain frozen despite the collapse in oil prices (which, as Osborne rightly noted, would have imperilled an independent Scotland) and the personal tax allowance will rise to £11,500 from 2017.
With an eye to Tory backbenchers, whose support he needs as a leadership hopeful, he also raised the 40p tax threshold by £2,000 to £45,000 from 2017-18 – the largest real-terms increase since the rate was introduced by Nigel Lawson in 1989 (the former Chancellor was watching from the gallery). Though the move will be written up as a cut for “middle-earners”, only the top 7 per cent will benefit.
But while again rewarding the affluent, Osborne wanted this Budget to be remembered as one for the “next generation”, their life chances improved by a sugar tax, extra sports funding and lifetime ISAs. The question that loomed, as the Chancellor repeated his slogan, was whether he will soon be forced to make way for their political equivalent.