Editorial: Osborne has little room for manoeuvre

The Chancellor's first priority must be to avoid the debacle of U-turns that took such a toll on his reputation last year

Share
Related Topics

It is against an unpropitious background that the Chancellor will present his Budget in one week’s time. Politically, his party is riven with insecurity and the spectre of Ukip is looming large. Economically, Britain is on the brink of a triple-dip recession, the triple-A credit rating is lost, and even optimists predict only slight improvements to come. The latest warnings about increasing numbers of children slipping below the poverty line only add to the pressure. Yet George Osborne has exceedingly limited room for manoeuvre.

Britain’s economic problems are far from simple. Turmoil in the eurozone is a very real drag on growth. The banking sector is still dysfunctional – pulled one way by the requirement to take fewer risks, and the other by demands to increase lending. Meanwhile, the rise of China et al is forcing a radical re-think of our global role. And, after the bursting of one of the largest credit bubbles in history, there is no alternative but a period of retrenchment. All of which adds up to a conundrum to which  neither the debt-funded Keynesianism of the left nor the tax-cutting fanaticism of the right is any answer.

Next week, the Chancellor will want to unveil some sweeteners easing the burden on long-suffering households – increasing the income tax threshold to £10,000, say, or cancelling impending increases in petrol duty. Both moves would be welcome. But Mr Osborne’s first priority must be to avoid the debacle of U-turns that took such a toll on his reputation last year. He must also resist the temptation to try to see off his critics with grand gestures. The Chancellor does not have growth within his gift, and he would do well not to imply otherwise.

That is not to say there is nothing Mr Osborne can do. Top of the list is infrastructure. The Coalition talks warmly of investment plans, but only a tiny fraction of projects have gone ahead. Pro-posals to encourage private money into public programmes are also making slow progress. And attempts to boost our house-building have had little impact. The Chancellor must use the Budget to turbo-charge such efforts, particularly as regards the bottlenecks in the housing sector. School-building slated for after 2015 should also be brought forward, and planning reforms must be expedited.

Mr Osborne is right to stick to his austerity plans. He is right, too, to have let them flex in response to Britain’s sluggish growth. But he must do more to ensure that public spending is focused on the most economically productive areas. That means putting an end to universal pensioner benefits. It also means looking again at the ring fences around some of Whitehall’s more inefficient budgets. For all the Prime Minister’s protestations that education, foreign aid and the NHS should be sacrosanct, there can be no justification for further cuts to welfare, say, while such distortions remain.

The Chancellor is widely expected to use the Budget to adjust the remit of the Bank of England, ahead of the new Governor’s arrival in July. There is certainly room for more innovation from Threadneedle Street. But monetary policy is no panacea. Indeed, Mr Osborne should pay as much attention to the troubles of the retail banking sector.

Lending is still sclerotic, particularly to smaller companies, putting a brake on growth and scuppering judicious efforts to boost exports to fast-growing, non-EU markets. The so-called “Funding for Lending” scheme set up to crack the problem has proved largely ineffective, though. Despite a slight rise in mortgages, business lending is still alarmingly low. It is time for a shake-up, then. Extending the initiative and setting a target for company loans are both decent options.

Tweaks to arcane loan strategies and guarantees for house-builders may lack the wow-factor of lavish spending pledges or swingeing tax cuts. But a Chancellor navigating the narrowest of courses would be wise to tread carefully.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Energy Engineer

£25000 - £30000 Per Annum: The Green Recruitment Company: Job Title: Energy En...

Sales Representative, Leicester

£25-£30k Plus Car: Charter Selection: Major well established nationwide market...

Sales Representative, Birmingham

£25-£30k Plus Car: Charter Selection: Major well established nationwide market...

HR Administration Manager - Hounslow, West London

£28000 - £32000 per annum + benefits: Ashdown Group: HR Administration Manager...

Day In a Page

Read Next
 

August catch-up: The Hitch on Americans, literature, liberal intervention and language

John Rentoul
Indian Prime Minister Narendra Modi addresses the nation on the country's Independence Day in New Delhi, India  

With Modi talking tough and Sharif weak, the India-Pakistan love-in could never last

Andrew Buncombe
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment