George Osborne and Political Risk

And so the Tories' self-described political genius got up to deliver his budget speech this afternoon, he probably knew his announcement about added tax on sugary drinks would attract disproportionate coverage. It's more likely to be an audience question on tomorrow's Question Time than the hammering disabled people have taken, which of course was not part of Osborne's calculations at all. Apart from that it was an interesting budget. It was one part decadent, just like last summer's statement, because it still does not address Britain's underlying economic weakness, and one part gamble - just like winter's - because it could bite them on the arse in the long-run.

Strivers vs the skivers is the most risible nonsense, but it's proven fertile for Tory divide-and-rule politics and we find that playing through here. He wouldn't dare label the disabled as skivers, but the Tories' robbing of hundreds of thousands of £30/week (and more in some cases) is more contemptuous than any rhetoric. Meanwhile, preferring not to dwell on this, Osborne unveiled a budget self-consciously tipped toward "the workers". So, yet again, Middle England can look forward to another tax cut next April as the basic rate threshold is raised by another 500 quid. Nearly everyone will benefit, except those who earn so little that they are already out of tax. The threshold for the top rate also goes up, giving the better off even more of a cut (much easier to do it that way then fiddle with politically problematic income tax rates). There's the new saving wheeze for the under forties which offer effective interest rates of 25 per cent(!).

And how about the unexpected business rate cut for the smallest of small businesses? Unexpected because you'd have thought that if Osborne truly gave one about their fate then surely action would have come already. This kind of cut is certainly something Labour would have supported, and I believe was in the last manifesto (someone call the lawyers). It will certainly remind small business that their traditional party does listen from time to time - a message that won't hurt as we enter into EU referendum season. But the big problem here is how it's going to be paid for. Okay, so a pledge for a bigger crackdown on tax avoidance and evasion by altering rules about what big businesses can and can't do with their balance sheets upset some, but there's no indication those monies will cover the cut. Business rates, as readers may or may not know, are a major revenue stream for local authorities. If the government declares a cut and doesn't compensate the councils, many of those small businesses will pay less as some of their customers - public sector workers based in local government - see their jobs disappear to pay for it.

As a piece of political theatre, today's budget may prove attractive to those looking askance at these matters. If you work, why shouldn't you pay less tax? If you're having a hard time scraping money together for a deposit, why shouldn't the government throw something into your kitty? If you have a small business, why shouldn't the government give you a break? But there are two big problems with Osborne's statement. Despite announcements around infrastructure, a number of which were pre-announced anyway, there is nothing in today's package that can get British capitalism properly moving again. Private investment is static because prospects for decent returns remains low, which is why property and financial alchemy continue to do well. They help drive the GDP figures and turn in a flattering picture of economic performance, but in reality they're symptomatic of economic weakness. And Britain remains horrendously exposed to any global economic shocks, simply because Osborne and the Tories have done nothing to rebalance and diversify the economy. Well done.

The second is more politically problematic for Osborne. Various commentators have pointed out a £55bn gap in the chancellor's figures and announced, and the tens of billions in extra borrowing his spending plans require. Also, Osborne's own fiscal rules mean the elimination of the deficit before the next general election. This effectively means backloading a further round of austerity to 2019-20. Conventional political wisdom about such things entails getting the painful stuff done early in a Parliament and share out the goodies the rest of the time. In 2020, we're going to have a lead up to an election characterised by more cuts, most likely at the expense of the voiceless and powerless as per, followed by tax bribes and magic money trees galore. The tawdriness is enough to make me wince four years out. But it is a massive risk for Osborne and the Tories. They can look at the polls now and think they're fine and dandy, but the winds can change. Osborne has been lucky so far, but the risks will eventually find him out.