Having studied the Treasury Red Book and carefully considering the Chancellor’s presentation of the Budget to the Commons, the word that springs to mind is – bodge. The definition of which is – to repair or adjust in a false or clumsy way, that is not as good as it should be, making it look good for a day or two before it collapses; or simply to put a square peg in a round hole. This perfectly sums up the Budget and Philip Hammond. We became resigned to his predecessor’s style of presentation over substance and lack of attention to detail, which invariably resulted in every one of his budgets unravelling within a short space of time. While acknowledging the fundamental soundness of George Osborne’s strategy to eliminate the annual Budget deficit and then start to reduce the National Debt, there is no doubt that his tactics were questionable and he kept missing his target. He was so consistent in this respect that I did not even comment on his 2016 Budget as it contained a number of ticking time-bombs, the latest of which is set to explode in April with the new rates for Vehicle Excise Duty that undermine the Government’s climate strategy. With Chris Grayling warning motorists to think very carefully before buying a diesel car, and the implication of coming penalties and taxes on them, whatever was Hammond thinking of by pressing ahead with the new VED instead of announcing a review in his first Autumn Statement?
At the time of that Statement he was described as ‘boring’, which was really a compliment following the flashy style of Osborne. This was boring in the manner of a dependable bank manager, or perhaps more correctly ‘sober’. In contrast to Osborne he is described as meticulous with an attention to detail. While this is admirable it can also result in not seeing the woods for the trees. There is no doubt that he is committed to the same strategy. To quote from his introduction in the Executive Summary of his first Budget; “As the UK begins the formal process of exiting the EU, the Spring Budget puts economic stability first. Following a period of robust economic growth, record levels of employment and a falling deficit, it sets out further progress in restoring the public finances to health. Building on the Industrial Strategy, it goes further in tackling the UK’s productivity challenge.” and “By investing in the future, the Budget helps to make the most of the opportunities ahead by laying the foundations of a stronger, fairer, better Britain – a country that works for everyone.” and “The Spring Budget also marks the transition to a single fiscal event each year, an Autumn Budget.”
The fact that this was a transition, towards the real 2017 Budget in November, required a different approach. In his position my presentation would have been short and to the point. That is – ‘we are coping well, but things could be better’ and ‘all the tax and duty increases are indexed linked, as announced in previous budgets and statements, refer to the Red Book’. I would then have sat down. That would have been truthful, bearing in mind that Chancellor Osborne had embedded these changes, little anticipating that his 2016 Budget was to be his last. Also, by entrenching his election promises, not to raise IT, NI or VAT rates, into primary law he effectively put his successors in to a straightjacket. That means all budgets up to the next general election will be bodge jobs. The Chancellor needs to stop tinkering and instead tackle the underlying structural deficiencies of the UK’s fiscal and monetary systems. If he is to have any credibility there must be a break with the past practices, but at the same time the reintroduction of the basic conventions that respect the historic position of the House of Commons.
It is worth reminding you of the critical assessment of the abuses of the last Chancellor contained in the post on this site – Bogyman George – of 11 September 2016. There should be a return to the convention that the Commons are the first to be told of the content of the Budget. No more visits and tours of the studios of the radio and television channels during the weekend prior to the Budget. Neither should the Prime Minister pre-empt the Chancellor by revealing measures at PM’s Questions, immediately prior to the Budget Statement. The Speaker needs to start cracking the whip and bringing Ministers to order.
The sixty plus pages of the Red Book make for tedious reading. For your penance go to the Treasury website and try to keep awake while reading and digesting the contents of the Book. If you cannot face that prospect, here are some key issues that may interest you.
There is much unfairness amongst the proposals for a fairer Britain. Purchasing power is still below the 2008 Crisis level, with the public sector badly affected by -10%. This is incredible and unprecedented. Previous pay freezes have been accompanied by price freezes and then only held for three years at the most. It will be impossible to hold to that restraint as the cost of living inflates, resulting from the devaluation of Sterling. Professionals have been hit hard and if nothing is done there will be an effect leading to and impacting the quality of the services they provide. Our solution is to make the Bank of England act to reverse the debasement and devaluation of Sterling. The CDP is proposing a Campaign for Real Money, to break the control of the banking industry. There needs to be a public debate that asks the country a simple question – ‘do you want a weak or a strong Pound?’
There is also a continuing fundamental unfairness that is never discussed or challenged by any political party. Indexed and automatic increases are applied at the rate set by RPI [Retail] such as, energy and transport taxes (and also public transport fares), alcohol and tobacco duties. Income by way of pay increases, pensions and benefits are set by reference to CPI [Consumer] index. That 1% difference is consistent and slowly erodes basic living standards. To further complicate this situation a new CPI+ rate is being promoted. the + being housing costs. Everyone has a personal rate of inflation based on their circumstances and family situation. Trying to calculate an average rate for the whole population would be near impossible, and still a blunt instrument. But, fairness dictates that the same index rate is applied across the board – that is the CDP position.
The announcement of the proposal to reform the Class 4 National Insurance Contribution will be Philip Hammond’s undoing. Not only did it break a manifesto promise, it was also illegal. Given his meticulous nature one can only assume that the Treasury Solicitor had advised that the NIC reform was not really an increase and therefore legal. The political outcry, or real politics, dictated otherwise. Having opened his Statement by praising Treasury staff for doing the heavy lifting, he might be more watchful in the future otherwise he will be following George Osborne.
However, it does highlight the need for a public debate about the future of National Insurance. For ten years we have proposed a comprehensive review and reform of the Fund. There has been a stealthy project to incorporate NI in to the Income Tax system and remove the employer element. The CDP wants to establish and restore the NI Fund to its original purpose by wresting it back from the Treasury. It must be independent and recompensed for the way it has been plundered by all the main political parties. There must be a public enquiry to explain what has happened to the NIF surplus. There is also the contradiction that people are being told and made to work for a longer period of time, while the number of years for qualifying contributions for the state pension have been reduced. Perhaps the most important factor is to take the financing and payment of NI out of the Budget. The Treasury do not pay for the Scheme as it is self funding.
The Budget contains a myriad of indirect taxes and levies. It also contains a number of new spending commitments. The lack of focus on eliminating the deficit and the lack of urgency is the most worrying aspect. It is now unlikely that the deficit will be turned in to a surplus before 2025, when the national debt will be somewhere between 2 and 3 trillion Pounds. Just at the time when the Great Crash is to come about. What does that mean? Well look at what happened in Cyprus and Greece, and imagine that happening across all the Western economies. This will then be compounded by the demographic inspired financial crisis of 2028 and the cyclical recession of 2029. We have always maintained that this scenario can be avoided, because it is all man-made and a change of public behaviour will result in a change of outcome. Governments and political parties are blind to these dangers.
We are still waiting for an important milestone to be reached. That is when the amount of annual borrowing falls below the annual interest payment. At that point it should be easier going and freewheeling to the finishing line. We are still at the uphill stage and struggling. Last year the deficit was £51.7bn and it is expected that this year it will be £58.3bn; with debt interest expected to be £46bn. It is moving in the wrong direction, although the long-term prediction is £40.6bn [18/19], £21.4bn [19/20] and £20.6bn [20/21] when the National Debt will be 79.8% of GDP. Given past performance that appears to be highly optimistic and reducing it after 2021 is likely to be the most difficult of all.
The Government must stop pretending that it can continue to be active in all its existing areas of public expenditure, and that it can top-slice department budgets and still maintain front-line essential services. It must exit from many activities, but in so doing commit to doing the essential services better. This means cutting the number of departments and reducing the size of government, while promoting subsidiarity. It also means listening to the people and what their priorities are. In other words, become lean and mean.