Thursday 9 July 2015

Budget 2015: Could be better, expected worse.

Yesterday's budget reminds us of the potency of gesture over substance. Much of what is in the budget has been misreported or misinterpreted, sometimes wilfully. Personally, I don't quite know what to make of it - which is unusual for me. As a rule I'm not a fan of labour market interventions, especially on price but this latest measure is not without merit when not viewed in isolation.

We're looking at a reduction in the tax burden, help for small businesses, an end to the senseless money go round of tax credits and a very clear message that work will pay more than benefits. Economists tend to discount the potency of the message in such gestures. It's not quantifiable. But that in itself just get people thinking about how they are going to manage in future and whether or not to have children they can't afford. It will be interesting though to see if the child benefit measures are challenged on human rights grounds.

What the living wage measure does do, which nobody has yet mentioned is make low wage work competitive with migrant labour. (if properly enforced). All the usual arguments apply in that floor prices necessarily drive inflation, but this can be mitigated by growth, which I believe this budget will bring. It's as much about mood and message than the more tangible metrics. Britain is the fastest growing economy in Europe at the moment, which is a stark contrast to the regressive socialist policies of France which has seen their economy shrink.

I also think that the withdrawal of support for under 25's, and the lower wage threshold will do more for young people than any government has done for over two decades. There is now a fiscal incentive to hire younger people - and an incentive kids to work to earn their independence. I believe that will make for more capable adults which is an investment in the future. Certainly the Tories have binned the idea that universities can be used as a storage warehouse for young people to keep them off the dole. Young people will learn what I did. Experience and knowledge will open up a great many more doors than a worthless degree.

I would have to do a detailed study to call anything hard and fast on it, and even then one can enter a state of déformation professionnelle - and get it completely wrong from a position of expertise. I just have to go with my gut instinct that insofar as we can expect from centrist conservative party, this is a good budget and the overall vibe is that Labour's welfare client state is dead.

The third sector is reporting that the less well off will be worse off. In the next couple of years I have no doubt this is true - but the hardships they will endure will get them out of the welfare habit and will give them a chance of a life they would never have had with permanent subsidised poverty.

I'm also quite enthused by the extension of the Climate Change Levy on wind turbines. This effectively kills the industry stone dead along with the removal of ROC subsidy for onshore wind. The economies of scale basically ensure that kills offshore too. A ban without actually having to publicly call it a ban. It also shafts the SNP's fantasy economic vision. What's not to like?

Further to this we can expect to see more council cuts which is never a bad thing. Blair's third sector will have to get out of their office chairs and into neighbourhoods rather than whining about what the government should do for people. I would be more enthused if I thought we would see a corresponding reduction in council tax - but sadly we still have Labour era public sector pensions to pay for the next couple of decades.

All in all, it's more radical than I would have expected but not nearly as radical as I would have liked. Perhaps this administration will gain confidence next year after realising how popular good old fashioned conservatism is - and remember that it used to win them elections. If that be so, and we can secure our exit from the EU, Britain is going to boom.

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