This was a "political" budget. First: the Chancellor had to lay the 50p tax rate to rest, although the debate will rage for some time about how much revenue it was raising. He had to find a reason to abolish it, and critics say that it was disingenuous to use figures for just one year of its operation to justify the low receipts. Second: the Liberal Democrats are able to say it was a fair Budget because of the increase in personal allowances and the attack on the "rich", i.e. those buying properties of over £2m and those that use legal loopholes to avoid tax.
Otherwise the Budget actually adds very little direct stimulus to the economy. Many measures, including the faster than anticipated increase in tax allowances, do not really come into effect until next year. But, on the plus side, the borrowing profile has improved by £11bn over the forecast period and the "windfall" from taking on to government books the Royal Mail's pension deficit will allow the Government to pay back debt faster.
The Chancellor clearly thinks of it as a Budget for business. The 45p top tax rate from April 2013, combined with myriad other measures including easier planning laws, will be seen as improving the environment for entrepreneurs.
The Chancellor is clearly hoping that his message is strong enough to convince business to spend some of their cash reserves on productive investment. The Office for Budget Responsibility is again forecasting growth of around 0.75 per cent this year. But then it anticipates a strong recovery back to a trend of between 2 and 3 per cent. But there is no guarantee that this will materialise, as it will depend on confidence improving markedly.
At the same time, there is no certainty that the consumer will go out and start spending again, given that the personal allowance increases will be partly offset by other measures. Given the extent of public spending cuts still to come, the risks, unfortunately, would appear to be mostly on the downside.
Vicky Pryce is a City economist and former Joint Head of the Government Economic Service
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