Alienating the elderly is unwise. But the big worry is growth
The furore over pensions might ease with time, but there's still no sign of the economy perking up
ALL BUDGETS these days are leaked, usually on the basis that it is best to prepare the ground for bad news. Yesterday, a witty Labour MP called George Osborne's speech "a review of the papers", and at times it did seem as if he was going out of his way to make the whole exercise as anti-climatic as possible.
But chancellors normally keep one or two surprises up their sleeves, and yesterday was no exception. Every item of significance had been pre-announced, except the controversial freezing of pensioners' tax allowances. If Osborne seemed downbeat, it may have been because he knew he was presenting a mixed bag, even on a sympathetic reading.
In economic terms, the Budget was deliberately neutral. What the Chancellor gave with one hand he took with the other. His deficit reduction strategy was on track, he assured us, and he was not going to do anything that might put it at risk.
That was surely sensible, but when it came to growth he was on weaker ground. The economy has been effectively stalled since mid-2010, and the Office for Budget Responsibility only expects it to advance by a meagre 0.8 per cent this year.
Business was naturally pleased by the extra cut in corporation tax and the reduction in the top rate of income tax. But one of the criticisms made of Osborne - in this column and elsewhere - is that he has consistently failed to tackle the supply side of the economy.
He would, he claimed, give companies "the modern infrastructure, business friendly planning laws and employment rules" they need. Yet he has promised all these good things before, not least in last year's Budget, and to date there has been very little sign of them.
Where his reputation rides high, of course, is as a political tactician, and that is really what yesterday was about. The deal he struck with the Lib Dems to cut the 50 pence top tax rate in return for higher charges on expensive homes was always going to be high risk, which is why both sides trailed the move so publicly in advance.
But if the Conservatives were ever going to cut the 50 pence rate, with three years to go before the next election, this had to be the moment. And by tying the reduction to a large rise in the tax-free allowance for those on low and middle incomes, as well as the hike in stamp duty on big houses, he has probably got the political balance as right as he could.
Whether the same can be said about the partial reversal of his earlier decision to strip child benefit from households with a higher rate taxpayer is much more doubtful. Yesterday's move to taper the cut-off for those earning between £50-60,000 a year means fewer families will be affected. But it was at best an interim solution to a problem that is entirely of his own making.
It does not resolve the anomaly that a household with two earners just below the taper point will continue to receive child benefit in full, whereas a family with one earner just above the top cut-off will get nothing. It also introduces an effective tax rate of 50 per cent for anyone with children earning between £50-60,000, just as the 50 pence rate is being abolished for those making three times as much.
To add to his difficulties, much of the money for yesterday's climbdown - and for many of his other measures - will come from his unexpected raid on pensioners' tax allowances. He seems to have gambled that the furore over this will ease with time, and he may be right. If there is one group of voters any party alienates at its peril, however, it is the elderly.
Osborne's response to such gripes will doubtless be that the Budget has made most people at least a bit better off, and that he has done it without imperiling his over-riding objective of reducing the deficit. At a time when money is tight, that is no mean achievement.
But the big question mark remains growth. For two years now he has been saying that it is on its way, only to be disappointed when it has not materialised. If the economy perks up, he will have far greater leeway to sweeten the pill of austerity as the election approaches. If we remain stuck in the doldrums, he won't.
The real lesson of yesterday is that without growth even the smartest chancellor can only achieve so much.