The weekend after the budget is always a tricky time for me. I can\u2019t ignore last Wednesday\u2019s statement after such a long, if chaotic, build-up. That would be like a cricket correspondent ignoring the first Ashes Test \u2014 though that might be no bad thing \u2014 or a theatre critic passing up the opportunity to review the season\u2019s big opening.<\/p>\n
At the same time, I am fully aware that many of you will have had enough of the budget even before Rachel Reeves got to the end of her speech \u2014 which had more than a flavour of her great hero Gordon Brown \u2014 if you had not already been put off by the months of speculation.<\/p>\n
It is good to have had a few days to think about the budget. Quite a lot of the instant reaction you see has quite a strong Blue Peter element: here is one that they prepared earlier.<\/p>\n
\u2022 OBR chief Richard Hughes quits over budget leak<\/a><\/p>\n So let me get my verdict out of the way before moving on to another issue. After all the speculation, and leaks \u2014 including that spectacular budget-day Office for Budget Responsibility (OBR) leak \u2014 the budget was a bit of a damp squib. The markets, judging by their reaction, liked that, together with the chancellor\u2019s decision to give herself some significant fiscal headroom, more than \u00a320 billion, which offers a chance of moving beyond the air of permanent fiscal crisis that has characterised this government\u2019s period in office so far.<\/p>\n Do I despair at the chancellor\u2019s failure to meaningfully address the growth in public spending \u2014 and in particular, welfare spending? Yes. I wrote here on November 1 <\/a>that spending cuts had to be part of the budget package to get us out of the fiscal hole. For \u201cno return to austerity\u201d Reeves, sadly, they were not.<\/p>\n Does it get me down that income tax (and national insurance) allowances and thresholds are to be frozen for another three years from 2028, making the biggest stealth tax increase in history even bigger and dragging many hundreds of thousands more people into paying income tax, and paying it at a higher rate? Yes, it does.<\/p>\n We have had a long period of real wage stagnation, which is due to continue, and which in the 2010s was made palatable by the increase in income tax allowances and thresholds, permitting a rise in real incomes. Now a modest rise in real wages is being stifled by that freeze. Real household disposable incomes per head will still rise over this decade, though only very slightly and, contrary to some reporting, they will be about 13 per cent higher at the end of the 2020s than in 2008, which is pretty poor over that length of time.<\/p>\n The freeze on allowances and thresholds, which are meant by law to increase in line with inflation (the Rooker-Wise amendment of 1977), will have lasted nine years and this damaging fiscal drag is taking on an air of permanence, a bit like the freeze on fuel duty. On that, Reeves has at least taken the brave step of signalling an end to the emergency 5p-a-litre fuel duty cut from next September, unless politics intervenes, and introducing a new pay-per-mile tax on electric vehicles to prevent the erosion of revenues from the switch to EVs.<\/p>\n I also found it mildly encouraging that the economic debate sparked by the budget is a grown-up one between Labour and the Tories, with the Liberal Democrats pitching in by focusing on the damage from Brexit. Reform UK does not have a credible economic policy position, and the Greens are away with the fairies.<\/p>\n \u2022 Don\u2019t fall for political parties selling economic snake oil<\/a><\/p>\n On which note, if it is not too awkward a link, you may recall that before last year\u2019s election, Labour was accused of relying on the \u201cgrowth fairy\u201d to make its numbers add up. There has been growth in every quarter since this government took office, but it has not been nearly strong enough. Richard Hughes, chairman of the OBR, already in the doghouse because of the budget-day leak, did not endear himself to the chancellor by saying there was nothing in the budget that met his organisation\u2019s standard for raising its growth projections.<\/p>\n It has previously scored the government\u2019s additional capital investment \u2014 infrastructure and other spending \u2014 and planning reforms as positive for growth, but there was nothing more to add to growth last Wednesday. Even the Treasury described it as a \u201ccontinuation\u201d. Hopes that the government\u2019s EU \u201creset\u201d and the India trade deal would be scored as positive for growth fell on deaf ears.<\/p>\n The OBR\u2019s new growth forecast, averaging 1.5 per cent a year for the next few years, is better than the 1.2 per cent average since 2008, but too weak to be transformative.<\/p>\n So, where does more growth come from? The chancellor and her advisers think that if they have finally delivered the stability promised by Labour nearly 18 months ago, then this will bring benefits. Financial markets will no longer be constantly on edge and businesses will have the confidence to invest (though the OBR revised down its business investment forecasts). <\/p>\n Consumers, while held back by feeble growth in living standards, could break out of their caution and start spending seriously again, if they no longer fear that they are going to be hit by as-yet unannounced tax increases. Fiscal stability, of course, also requires political stability.<\/p>\n