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Wednesday, March 20, 2013 

The depression must continue.

How then has austerity been working out for you?  Are you enjoying the umpteenth year of a cut in pay in real terms?  Does life seem to be getting progressively more miserable and onerous with each passing month?  Aren't you at least somewhat appeased by how all this will be worth it in the long run?

George Osborne must certainly be hoping that you are, as today's budget does next to nothing to ease the pain at any level.  Indeed, if you're a public sector worker, he's just announced another year where your pay won't meet the rate of inflation.  As for everyone else, he's managed to find some money from somewhere through the usual tricks to be able to abolish the beer duty escalator altogether, as well as reducing the price of a pint by one single new penny.  Also cancelled was the planned rise in fuel duty in September, although anyone who imagined it was going to go ahead when it's been apparent for some time now that the lobby against is just too powerful is living in a country only slightly adjacent from the one Osborne occupies.

For this was the budget that spelled out plain and clear that his plan hasn't only failed, it's done so catastrophically.  The economy has effectively not grown since the coalition came to power; growth last year was 0.2%, all of which was down to the Olympics and counting the sale of the tickets in the third quarter.  The Office for Budget Responsibility forecast at the budget last year that the economy would grow in 2013 by 2%; at the time of the autumn statement they downgraded this to 1.2%; now they predict growth of a pathetic 0.6%, and some of that will depend on the economy not slipping into a triple dip in the current quarter, which will be very touch and go.  Osborne claims that the deficit has been cut by a third, yet as Duncan Weldon points out, on a like for like basis excluding the taking on of the Post Office pension book and the receipts from quantitative easing, it has in fact not even fell by the much lauded quarter, rather by 22.5%. Moreover, over the next two years the OBR predicts it will barely move, remaining around the £100bn level, rather than coming down to £37bn as the OBR originally predicted following Osborne's "emergency" budget of 2010.

Similar smoke and mirrors tactics seem to be at work when it comes to Osborne managing to avoid borrowing actually increasing this year compared to last.  He's only succeeded thanks to departmental underspends, as tax revenue fell £5bn short of what was expected.  Whether as Faisal Islam suggests this was down to Osborne ordering departments to hold back we can't know, but it certainly looks suspicious that his figures are only £100m away from there being no change.  Those same departments are now being called upon to make further cuts to finance the £3bn increase in infrastructure spending, which isn't going to kick in until 2015 anyway.  Little wonder that the OBR suggests that broadly this was a budget that will do absolutely nothing to encourage growth, something Jonathan Portes concurs with.

Whether there are any nasty surprises lurking will doubtless be confirmed by the IFS tomorrow, but what's apparent today is that Osborne is once again betting that a gamble will pay off in order to ensure the budget is "fiscally neutral".  The almost £5bn being spent on reducing beer duty and cancelling the fuel price rise is all to be made up through dealing with tax evasion, something which is notoriously difficult.  Last time he counted on the 4G auction to pay for his spending, and only just about managed to get out of the bind when it brought in less than was expected.  This time there may well be no escape.

Otherwise, this was the usual nakedly political budget we've come to expect from Osborne, who despite loathing Gordon Brown seems to have learned everything he knows from the son of the manse.  This was a budget for an "aspiration nation", or to put it more bluntly, the middle classes, as long as you fit the new Tory notion of what the middle classes are.  You must want "to get on in life", work even if you have children, either own your own home or want to, not earn quite enough to fall into the 40% income tax bracket, not claim benefits, not work in the public sector, and you must drive to work and swill beer rather than any other alcoholic beverage.  There were a couple of sops to those outside these arbitrary confines, such as the raising of the personal allowance to £10,000 a year ahead of schedule, but then that also helps the middle more than it does the poorest.

All this pampering of the middle and continued codifying of business with a further cut in corporation tax for those who bother to pay it, does, after all, come at a price.  While there were no extra cuts to welfare announced this time round, it seems likely further reductions will be coming in 2015, with Osborne due to target "annually managed expenditure".  The effects of the current cuts are already there to be seen: the poorest are continuing to take a pounding, while the richest, despite possibly paying more in tax now than they did under Labour, are barely affected, not least thanks to Osborne's abolition of the 50p rate.

If Osborne's ultimate aim was, as the Guardian reports, to "avoid fucking up", then at the moment he seems to have just about managed it.  What he most certainly hasn't done is shift away from Plan A, regardless of how many people or publications urge him to drop his refusal to borrow to invest.  The one move today which may well have some effect is the £2,000 cut in employers' national insurance contributions, which could encourage small businesses to take on more workers.  Otherwise, he's relying on the Bank of England to inflate away the debt, something which is asking for trouble when wages already can't maintain pace.  Osborne's major problem is that as a recent poll showed, his unpopularity poisons his policies regardless of whether the public agree with him or not.  Nothing announced today is going to change that.  Nor will it even begin to get us out of the depression the coalition has helped to plunge us into.

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