George Osborne faces three immediate problems in defending his Budget from those who claim he wants to go too far, too fast in meeting his goal of balancing the nation’s books.
The first is that the Office for Budget Responsibility (OBR) — a body he set up — has made a lower forecast for growth and higher prediction for unemployment than it did when it examined Alistair Darling’s plans.
At first sight it might appear that the immediate effect of Mr Osborne’s Budget is to delay the recovery with more people heading for the dole queue, at least in the short term.
But his aides insist that the OBR made an “over-optimistic” assessment of Labour’s plans to reduce the deficit. Because interest rates have fallen, the previous forecast “does not provide a firm basis for comparison to produce an estimate of the effects of the Budget measures”, according to Sir Alan Budd, in a commentary. That mild caution is likely to be widely ignored, however.
The second area of battle in the coming days is Mr Osborne’s claims that his Budget is fair and has protected the most vulnerable.
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Ahead of today’s statement, the Treasury briefed that it had modelled the effects on the ten income bands and found that the richest paid most in tax increases. When the graphs were revealed when Mr Osborne sat down, however, they showed the poorest tenth of households pay more than the second, third and fourth tenths. This awkward fact is explained in part, says the Treasury, by the fact that the lowest tenth includes students and those between jobs whose consumption is high, relative to their income, and will therefore suffer from the increase to VAT.
This is a claim that will come under minute examination, as will the contention that Mr Osborne has ensured that there will be no increase in the levels of child poverty over the next two years. By increasing the child element of the child tax credit by £150 a year, the Chancellor bolsters his claim to have delivered a progressive Budget that protects the vulnerable. The trouble is that the Treasury can only make the claim that child poverty won’t go up until 2013. Aides said it was “reasonable” to stick to a two-year horizon, but tables clearly showed that welfare cuts bite deepest in the years towards the end of Parliament.
Frank Field, the Labour MP, who has agreed to review child poverty-reduction strategy, is likely to recommend a change in the way it is defined. Mr Osborne clearly hopes that change will be in place and accepted by the time poverty soars under the old measures.
The last tricky area is the mix of tax and spending cuts that this “big bang” Budget delivers. Mr Osborne has for months been insisting that the correct mix is 80 per cent spending reduction to 20 per cent tax rise. In fact, even by the end of the Parliament, the proportion will be 77 per cent spending, 23 per cent tax and the average over the whole five years will fall well shy of what he has said is ideal.
Mr Osborne and his coalition partners justify this more gradual mix — which they say necessitates the VAT rise — on the grounds that Britain must avoid a sovereign debt crisis like that endured by Greece. But some will suspect that the Chancellor has outfoxed his partners again by getting them to agree to an unpopular tax rise early in the Parliament, locking them more securely into sitting out as much of the five-year term as possible.