George Osborne’s second budget was quiet but creditable
SOME people think football is a matter of life and death; on the contrary, Bill Shankly, a legendary coach, once observed, it’s more important than that. Some people billed George Osborne’s budget on March 23rd as a matter of life and death for the government. It wasn’t: the coalition’s big decisions—and big gamble—were taken last year, when the chancellor of the exchequer set out his plan to eliminate Britain’s structural deficit during this parliament. This budget merely restated that commitment. But it also groped towards an answer to an even more important question. As Mr Osborne put it, how can Britain “earn its way in the modern world”? His response, like his plan for the deficit, is broadly right.
Britain’s recovery has proved more fragile than Mr Osborne hoped last June, when he announced the fiercest public-spending squeeze in living memory, plus some tax rises to go with the ones bequeathed by Labour. The economy contracted by 0.6% in the last quarter of 2010 and growth in 2011 is projected to be only 1.7%. Meanwhile inflation has risen (to 4.4% in February), pushing up the welfare bill and putting pressure on household incomes. The Bank of England’s monetary policy committee is split on whether to raise interest rates, but it has got more hawkish. Mr Osborne could have softened the effect of a future interest-rate hike by loosening fiscal policy a jot. Yet by not loosening, he has made it more likely that the bank will delay putting up rates—and he has also maintained his deficit-reduction strategy. On balance he did the right thing.
Politically, that strategy is far from old news. Its real-world impact will begin to be felt only in full next month, when a gamut of tax rises, benefit cuts and public-sector pay freezes take effect. This week Mr Osborne announced some measures designed to make the squeeze look fairer, such as a new crackdown on tax evasion. He pinched North Sea oil companies by introducing a “fair-fuel stabiliser”, which will fund a deferral of rises in fuel duty (currently a big gripe in Britain as elsewhere) through an increased levy on oil production, so long as the oil price stays high. Bashing business is never good, but his swipes at the usual targets were relatively harmless.