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imageBuilding a power base. Osborne plays the game.Will Oliver/EPA

If a week was once a long time in politics, George Osborne’s summer 2015 budget has once again demonstrated that four months is a long time in Treasury politics. While all chancellors of the exchequer are by necessity political animals, Osborne has also shown that he is perhaps the most political of all recent incumbents.

Back in March, in his final budget statement on behalf of the coalition government, Osborne had diluted the pace of austerity. He relinquished the ambitions from his December 2014 Autumn Statement, for total public spending in 2019-20 to fall to 35.2% of GDP, its lowest share of national income since 1957-58 and 1999-00. Also dropped was a target for government consumption on goods and services to fall to 12.6% of GDP in 2019-20, its lowest share of national income since 1948.

Then, in the run-up to the May 2015 general election campaign, Osborne diluted the scale of future projected cuts in “non-protected” departmental spending for reasons of electoral expediency, no longer assuming that expenditure would need to be cut as a percentage of national income in 2019-20.


Now, in his July Budget, Osborne has made a similar, quintessentially political choice to avoid the “rollercoaster profile for implied public services spending” forecast for this parliament by the Office for Budget Responsibility (OBR) at the time of Osborne’s March budget, which would have seen major post-election spending cuts followed abruptly by significant pre-2020 general election spending increases.

As the OBR has noted: “The new government has used its first budget to loosen significantly the impending squeeze on public services, financed by welfare cuts, net tax increases and three years of higher borrowing. The government has also delayed the expected return to a budget surplus by a year to 2019-20.”

imageDoors of perception.Michael Garnett, CC BY-NC

Osborne claimed: “This is a big budget for a country with big ambitions”. In practice, what he have witnessed is a budget delivered by a chancellor with big ambitions to succeed David Cameron, but as prime minister, and not as leader of the opposition.


To this end, Osborne has further diluted the scale and pace of cuts to departmental spending. Thus, the forecast return to a budget surplus has now been delayed by a year until 2019-20. The OBR has calculated that Resource Departmental Expenditure Limits, covering day-to-day central government spending on public services, administration and grants, will be a massive £83.3 billion higher during the current parliament than forecast in the coalition’s March budget.

As the OBR has further observed, this means that under these new plans, no year in the current parliament will see spending cuts as severe as in 2011-12 and 2012-13.

Furthermore, the Cameron government will now have to identify further real cuts in public services spending, rising to a peak of £17.9 billion in 2019-20, rather than the £41.9 billion in 2018-19 implied in Osborne’s March budget statement. In short, public services spending will now fall by an average of 1.5% a year in real terms during this parliament as a whole, a slightly slower pace of decline than the 1.6% a year cuts implemented over the lifetime of the coalition.

Osborne has also front-loaded in this parliament the bad news about real living standards for workers on lower incomes and attempted to disguise its true impact with some politically spun political sweeteners. Thus, total tax increases raising £47.2 billion over the parliament, have been offset by the announcement of tax cuts costing £24.6 billion over the same period.

The security of cuts

However, not even Osborne’s skills as a spin doctor and political tactician can disguise the economic impact of the planned welfare cuts which will raise £34.9 billion over the lifetime of the current parliament by imposing a four-year freeze on the uprating of most working-age benefits, cuts in the generosity of tax credits and reductions in work allowances in universal credit.

Osborne has attempted to sweeten the bitter political and economic pill of these major cuts to income for working people and their households by rebranding the minimum wage as the National Living Wage.

imageCoining it in?Caroline, CC BY

Even now, for those employers who voluntarily choose to pay it, the current London living wage is £9.15 per hour, and £7.85 per hour for the remainder of the UK. Osborne’s plans for the living wage are for it to commence at £7.20 per hour (compared to the current minimum wage of £6.50 per hour) and then to eventually rise to £9 per hour in 2020.

It is therefore unlikely that for millions of workers on average or lower incomes, the pay rise which Osborne trumpeted will be sufficient to compensate for the much greater loss of income from cuts in working-age benefits.

If there is to be an economic recovery which helps deliver Osborne into his next door neighbour’s house, it will once again be built upon further household borrowing and private debt. Indeed, the OBR has confirmed that household liabilities will rise from £1.7 trillion, or 145% of income, at the end of June 2015 to £2.4 trillion or 168% of income by the end of June 2020.

With public net debt projected to be £1.6 trillion or 71.5% of GDP at the end of March 2020, it means that two terms of austerity will have added nearly £700 billion to the national public debt, while failing to cut it as a share of national income to below that which was inherited from Gordon Brown’s government, while adding more than £800 billion to private household debt.

Osborne began Wednesday’s budget speech by claiming:

This is a Budget that puts security first.

Well, it may have put the security of Osborne’s long-term political plan to succeed David Cameron as Conservative Party leader. But in its further dilution of the pace of fiscal consolidation, it has also highlighted how the scale and pace of austerity have always been ideological and political choices – and, for George Osborne, choices which have not necessarily been dictated by the presence or absence of coalition partners.

Simon Lee does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

Authors: The Conversation

Read more http://theconversation.com/budget-2015-a-big-budget-from-a-chancellor-with-big-ambitions-44330

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