Spin, plots, taxes: the politics of budget day

My moment: Labour peer Lord McFall says Osborne is the ‘most political’ Chancellor ever. © PA

The British chancellor George Osborne delivers the budget today. He has promises to keep and his fierce ambition to consider. Should ego-driven politicians control economic policy at all?

Market turmoil in China. Recessions in Brazil and Russia. Tension between major oil producers in the Middle East. Falling commodity prices. The possibility of Britain leaving the EU.

George Osborne, the UK chancellor, describes these as ‘a dangerous cocktail of threats’ to the world economy. Today, he will try to mitigate their impact at home when he delivers his most significant statement of the year, the budget.

‘The world is a more uncertain place than at any time since the financial crisis,’ Osborne said this weekend. ‘We need to act now so we don’t pay later.’ He will now reduce public spending 0.5% faster than he had previously planned.

This may attract negative headlines. With the next general election more than four years away, Osborne may decide he can afford them. But they may also be risky. He is thought to aspire to become prime minister; he has suffered recent setbacks over tax credits, a tax deal with Google and Sunday trading laws; and he could lose his job if Britain votes to leave the EU in June.

To gain positive attention, he is expected to approve the building of major rail routes in London and the north of England. Insiders say he has abandoned unpopular plans to reform tax relief on pensions and cut the top rate of income tax. He is expected to raise tax thresholds to appease restive Conservative MPs, who also want him to maintain a freeze on fuel duty.

The chancellor will be constrained by his promise to run a surplus by 2019-20 while avoiding rises on VAT, national insurance or income tax. To raise the money he needs, he may use less noticeable tactics — such as raising tax on insurance transactions.

Two recent decisions have significantly reduced UK politicians’ influence over economic affairs. In 1997, the Labour government granted the Bank of England the power to set monetary policy without political interference. And in May 2010, the coalition government created the Office of Budget Responsibility to analyse public finances independently.

Out of control?

They should go further, say some, and remove politicians’ influence over economic decisions altogether. The budget shows that political decisions are largely driven by the electoral cycle, party games and personal ambition. This encourages short-termist tinkering and populism, rather than sensible decisions made in the long-term public interest.

That would be undemocratic, reply others. The people responsible for setting a nation’s economic direction must be accountable to the public at elections. Elected politicians can balance expert advice with popular concerns. Economics cannot be separated from politics: after all, any political decision involves spending public money.

You Decide

  1. If you were in charge of the country’s finances, would you put your own interests above those of other people?
  2. Watch the budget. Is George Osborne setting a sensible course for Britain’s economy?

Activities

  1. Listen to Osborne deliver the budget and create two lists — one of his political messages and one of his economic messages.
  2. You are in charge of a panel of people who control your country’s economic policy. Do some research to help you choose five people from anywhere in the world to join you. For each one, write a paragraph explaining your choice. Is your panel better than the government?

Some People Say...

“Democracy is the worst form of government — apart from all the others.”

Winston Churchill

What do you think?

Q & A

Tax goes down a bit, spending goes down a bit — is it really such a big deal?
Osborne’s budget decisions will inevitably have a knock-on impact on you.Tax cuts free up money which if spent on UK products or services could mean more jobs on offer when you want to get one; but spending cuts could mean for example your school can employ fewer teachers or the police in your town have fewer officers on duty.
But why does it matter who makes the decisions?
In democracies, politicians are elected to make the decisions which affect people’s lives. If you like what they have done you can vote for them, or against them if not. But if they allow themselves to be influenced by what they think popular, they may make decisions which are harmful instead of those which are best according to the experts.

Word Watch

0.5%
Around £3.8bn of extra cuts.
Negative
Police and council budgets are likely to be hit hardest.
Prime minister
David Cameron has said he will resign by 2020. Rumours of Osborne’s ambitions were fuelled by recent revelations he had given his image adviser a promotion and a 42% pay rise.
Tax credits
In November, after a significant backlash against them, Osborne withdrew plans to cut tax credits for those on low incomes.
Google
In January, Osborne called Google’s agreement to pay £130m in back taxes ‘a major success’. Others said the amount was too low at just 3% of Google’s profits.
Restive
The EU referendum has been particularly divisive among Tory MPs.
Promise
The Conservatives made these commitments in their manifesto (their plan of action) for last year’s general election.
Surplus
A government runs a surplus when it raises more money than it spends in a year. Last year Osborne successfully asked parliament to pass a law requiring him to reach a surplus by 2019-20.
Monetary policy
Control of the supply of money. The Bank’s most significant decisions are over interest rates.

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