Wednesday, 20 March 2013

Where did it all go wrong for George Osborne?

Harold Macmillan said that he thought Budget Day to be "rather like a school Speech Day: a bit of a bore, but there it is" and I expect fellow toff George Osborne takes a similar view.  As he enjoys a hearty breakfast and takes his throat tablets this morning in preparation for his budget speech (normal about 90 minutes long to a packed and noise House of Commons) George knows that his head is on the block.  Any repeat of last years 'omnishambles' could see him dispatched back home to his Cheshire constituency.




Happy days - June 2010

Osborne started with confidence in 2010 but has spent the last three years missing opportunities to simplify or taxes, reduce spending and energise the economy.  We can expect another tinkering budget today as this is the lot of a coalition chancellor.  Having been reduced to fiddling with fuel duty and salami slicing corporation tax he has, repeatedly,  missed the 'wood from the trees'. The OBR chart below show where it has all gone wrong for Mr Osborne.


The main problem has been flat lining of private consumption, given that 63% of GDP comes from consumer spending a poor performance here is going to kill the overall effort. Linked to this has been a terrible performance on Trade and insufficient cuts to public expenditure, all of which missed their targets on the wrong side.  This means GDP is nearly 5% lower than his forecast in 2010.

The second chart shows that he hasn't helped matters by allowing inflation to rise well above the Bank of England target of 2% p.a, this has further squeezed the life out of our all important consumer spending and making our exports less competitive abroad.



Today's budget only needs to do a few things.  Firstly put some money back in people's pockets and secondly start to tackle government spending in a much more aggressive manner.  How he does this is up to him but I would:

  1. Cut the general rate of VAT to 15%
  2. Zero rate VAT on building work
  3. Start cutting government spending from ring fences departments - Health and Welfare
  4. Pay for VAT cuts by privatising the restructure banks and tie this to stricter targets (linked to bonuses) for lending.
To announce this would take less than 45 minutes - the shortest ever budget speech given by Disraeli's in
1867.

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