what
kindof
economy
will
we have
under
the
tories?
D
avid Cameron did not expect it, and neither did
George Osborne. Commentators said we should
prepare for another hung parliament, and another
coalition or a minority government.
There was a lot of talk of Ed Miliband as a Labour
prime minister, propped up by the Scottish National Party. That
may have helped the Conservatives.Whether it was that, or because
Cameron consistently rated more highly as a leader and, with Osborne,
more competent in managing the economy, the election delivered
a result evenTory die-hards barely dared hope for.
The dust has settled.We have had the Queen’s Speech and Osborne’s
first Budget of the new parliament.You have to go back nearly two
decades for the last time Conservatives in government were able to set
out their legislative programme, or announce tax and spending plans
without having to convince the Liberal Democrats first.
What did the Budget tell us? Beforehand, there was speculation
that an unfettered Osborne would unveil aTory Budget that would
put a huge expanse of clear blue water between him and his political
opponents. One theory was that, alongside £12 billion of welfare cuts,
he would reduce the additional rate of IncomeTax – the 45% rate on
incomes above £150,000.
It was not quite like that.The chancellor did announce £12 billion of
welfare cuts, but stretched them out over a longer period – three years
rather than two – and mitigated the pain by surprisingly announcing
the National LivingWage. For some time now the suspicion among
ministers has been that some employers free-ride on the welfare systemby
paying the minimum they can get away with – the National Minimum
Wage – leaving taxpayers to top up the incomes of the low-paid. So the
chancellor launched an experiment. By introducing his new National
LivingWage at £7.20 an hour from nextApril, rising to £9 an hour
by 2020, he is banking on firms being willing to pay more, without
this leading to big job cuts. So, just as the BBC is taking on the burden
from the government of giving freeTV licences to the over-75s,
so the private sector will take on more of the burden of supporting
the lower-paid.
Whether it works depends
on the jobs market remaining
strong.The independent
fiscal watchdog, the Office
for Budget Responsibility
(OBR), thinks this living wage
will cost 60,000 jobs in the
next five years, but that this
will be more than balanced
by the one million jobs created overall.This, in turn, relies on recovery
continuing. Despite the storm clouds over the world economy, the
OBR expects 2.4% growth this year and, indeed, for the rest of the
parliament. It may not turn out quite like that, but the chancellor would
argue that preparing for future downturns is one reason why he is a
fiscal conservative, as well as a political one.
On deficit reduction, Osborne was less brutal, unusually, than he had
led voters to believe in the run-up to the election. In his March Budget
he said he would achieve a budget surplus in 2018-19. Now he says he
will do this in 2019-20.The reason was not just that his welfare cuts
Chancellor George Osborne
unveils some surprises in
the first Conservative-only
Budget for nearly two decades
By David Smith
Osborne was less
brutal than he had
led voters to
believe
IN YOUR INTEREST
