Loading summary
Transcript22 lines
- [00:00]
A
Hello. Welcome to the Heart Seat. I'm Martin Rogers, here with Kate Alexander Shaw, a PhD student in the Department of Government and former treasury official. We're here to discuss the recent budget. Welcome, Kate.
- [00:11]
B
Thank you.
- [00:12]
A
So, for the first budget by a Conservative majority government since 1996, can you give us an overview of what we've seen?
- [00:19]
B
Absolutely. This, as you say, it's the first time we've seen a budget from a majority Tory administration since the mid-1990s. And it contained quite a lot of stuff that was pre briefed, but also some surprises. One of the striking things about this budget was that it announces a rather smoother profile for public spending than had been expected back in March, and certainly smoother than was expected at the Autumn statement last year. Actually, this implies further austerity, but not the so called roller coaster of cuts followed by potential splurges that had at one point been envisaged. George Osborne talked about going no faster nor slower than in the last Parliament on austerity, which puts the Liebdems in a slightly awkward position, but it implies quite a lot more wiggle room for him on public spending than was previously imagined. The other thing Osborne obviously set out today was the vision motivating this budget. It's the first time the Conservative Party had been able to put forward a vision that's not been negotiated with the Liberal Democrats. And he was pretty clear about what that was a so called higher wage, lower tax, lower welfare society. So that implied some quite striking changes on all three of those fronts and the the budget did seem to deliver on that.
- [01:33]
A
So what are the fiscal and distributional impacts of the budget?
- [01:37]
B
Yeah, first of all, before we get into the individual measures he announced, the fiscal impact, as is quite common, is expected to be overall neutral. So while there are some quite significant giveaways, as the Office for Budget Responsibility put it in their analysis, those are expected to be offset by some quite major tax increases and of course major inroads into in particular the welfare budget and some departmental cuts too. So the overall fiscal impact is expected to be neutral. The distributional impact of this budget is what's going to be really important. And on that we don't yet have very good information. The distributional impact assessment that's published alongside the budget only runs up to 2017. 18. Actually, a lot of the big impact is going to come from welfare measures that kick in after that point. So to the extent that this is going to change the generosity of the tax and spending system to different sections of the income distribution, that Impact is yet to play out.
- [02:31]
A
So a lot of the welfare measures were pre briefed. Can you give us an overview of what has come out of this so far?
- [02:37]
B
Absolutely. A lot of the bad news, if you like, was got out of the way at the weekend. So we knew some of the things that were coming on welfare cuts. We knew that the Chancellor was looking for £12 billion worth of savings from the welfare budget over this Parliament. And while initially that was expected to be over two years, it's actually been spread to a slightly slower profile, primarily across three years. And of course, there were various measures in there. One of the most significant will be the change to the overall benefits cap. So whereas before households were capped in their benefits at £26,000 per year, that's been reduced to £23,000 in London and 20,000 elsewhere. And what's interesting about that is it sort of breaks the link with the initial rationale for that policy. Initially, the wording of that policy, both in the legislation and very much in the way it was presented to the public, was, was that no household should be able to earn more out of the benefit system than they could than an average household does in work. Hence the 26,000 figure reducing at this time. The government seems to be moving away from that benchmark as the driver for this policy and moving much more towards a kind of broader aim to bring down the generosity of the welfare system and create stronger incentives for people to move into work that goes somewhere beyond pegging it to the average household.
- [03:56]
A
So what about the other welfare measures contained in the budget?
- [03:59]
B
Well, as expected, there were some quite significant cuts to the tax credit system in particular. We knew this was in George Osborne's sights. And sure enough, the threshold at which the earnings threshold, at which tax credits will begin being tapered off, phased out for households, is much, much lower than it used to be. It's been almost halved. There's also going to be further restrictions in the future on the number of children that count. For tax credits purposes, it will be limited to two children per household for those born after April 2017. So, again, this is pursuing a much more overtly conservative agenda around creating incentives for people to consider their household finances, potentially move into work, potentially have fewer children. The rhetoric around this is that those are the tough choices that working households have to make and households and benefits should do too. So it's pretty uncompromising conservative content in that part of this budget. There's no doubt about it.
- [04:53]
A
The median management around the budget has improved considerably since the 2012 OmniShambles. Are we now seeing a more confident and competent Osborne as Chancellor?
- [05:04]
B
Certainly more confident. George Osborne, I'd say. One of the interesting things about this budget is that it's a highly unusual situation to have a new government but a sitting Chancellor. It hasn't happened since 1931, with Philip Snowden in the treasury as part of the national government that took over from Labour in that year. So the difference that makes for George Osborne is that compared to a lot of incoming Chancellors with a new mandate after a general election, he's already in that department. The treasury machine is used to him, he knows how to wield it and he's been able to use that position, I think, to exercise something of a master class in media management around this budget, and certainly a master class in expectation management. As I say, a lot of the welfare measures were pre briefed and trailed. A lot of the bad news was sort of softened up at the weekend. We then had a couple of days of more eye catching, but perhaps less important measures like Sunday trading laws and so on. Then on the day of the budget, you saw some kind of softening up that there might be a slower trajectory for the austerity measures than we first thought. So maybe things weren't going to be quite as nakedly austere as people had feared. And then of course, you have big headline surprises like the move towards a national living wage, which appears much more progressive in some ways than anything people expected from Osborne in this budget. They in fact trailed, I think that there wasn't going to be any change in the minimum wage. So that came as a big surprise.
- [06:30]
A
In terms of the move from a minimum wage to a living wage. Other than that one measure, what instruments does a government have to affect the wages that are paid in an economy relatively limited?
- [06:45]
B
Obviously there's some control over public sector pay and sure enough, public sector pay increases have been capped, this time for several more years at 1%. But in the private sector, the government has very limited traction over wages and it's in some ways quite surprising to see a Tory government being prepared to wade into that field. The minimum wage, of course, is an established part of the policy architecture in this country now. So they had that lever to pull and they've done so quite dramatically. The move to a so called living wage instead of a minimum wage is, I think, largely presentational. It implies a bit more account being taken of living costs, for example, but it's not clear that that's how these numbers have been calculated. So what you're Effectively seeing is a step change in the rate at which the minimum wage has been set. And what that does, of course, is create quite a lot of political space for the lower welfare part of the equation. So, taken care of the higher wages part of the equation, lower taxes, there's some of that in this budget, there's plenty of tax increases too. But the lower welfare bit is where they really needed to create the political space. And the minimum wage measure, living wage measure, does that.
- [07:51]
A
So, to move on to the political aspects of the budget, how much space has the living wage announcement brought? George Osborne specifically, and the Conservatives more generally, especially with regard to the inheritance tax measure that was trailed over the weekend.
- [08:07]
B
Inheritance tax, I think, is something they wanted to do anyway and were going to do it. It's a sort of George Osborne's signature policy. Now that he's finally unencumbered by Liberal Democrat coalition partners, he's been able to deliver on it and is very much making a virtue of that. There's been lots of talk about delivering our promises and he will feel empowered that he now has a mandate to do so. So inheritance tax is something that he's been promising since 2007 and now it's. There's going to be an effective million pound threshold where you're passing on a family home to descendants.
- [08:36]
A
So what's the wider political picture for the Conservative Party?
- [08:40]
B
Well, this is a party and a government making the most of its mandate at the moment. It's obviously been a long time since the Tories have felt empowered to launch a full blooded Conservative agenda, and in some ways this budget could have gone further in that respect. The fact that austerity has been flattened out somewhat is significant, but nonetheless, the sort of social policy agenda in particular here is unmistakably conservative and effectively throws down a challenge to the opposition parties to ask whether if they oppose those sorts of measures, they will be where the public are, or whether actually they might struggle to bring the public along with them. The Conservatives have had a fair amount of success in selling the argument that that welfare has been too generous, that tax credits are now too expensive or unsustainable, and so on. So it will be interesting to see how the opposition respond to that.
- [09:33]
A
So the opposition party, Labour Party, is currently undergoing a leadership contest. Is there a short term position for Labour to take, or will the position which Labour takes with regard to this budget only become clear in the longer term once a new leader is in place?
- [09:52]
B
I think the choosing of a new leader is only the beginning of Labour having a position on this budget and on the government's agenda more broadly. Choosing between the leadership candidates will, of course, give an indication of where the party wants to situate itself on a sort of left right spectrum. But that doesn't get the job done. There's still quite a large conversation to have about where the party's values are, what its priorities would be in administration, which of the government's policies it might want to oppose or not. Those things are pretty much up for grabs. And that's partly why you saw an emboldened George Osborne this week. He knows that he's got relatively limited effective opposition at the moment and a mandate to launch a Conservative policy suite, and he's done that.
- [10:34]
A
Great. Thank you very much, Kate. You're off the hot seat.
- [10:37]
B
Thank you.