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

Recruitment Genius: Bookkeeper

£23000 - £26000 per annum: Recruitment Genius: This small, friendly, proactive...

Recruitment Genius: Photographic Event Crew

£14500 - £22800 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Software Developers - .NET / ASP.NET / WebAPI / JavaScript

Negotiable: Recruitment Genius: A Software Developer is required to join a lea...

Austen Lloyd: Corporate Tax Solicitor - City

Excellent Salary: Austen Lloyd: A first rate opportunity to join a top ranking...

Day In a Page

Read Next
 

After Savile, we must devote our energies to stopping the child abuse taking place now

Mary Dejevsky
A ‘hugely irritated’ Sir Malcolm Rifkind on his way home from Parliament on Monday  

Before rushing to criticise Malcolm Rifkind, do you know how much being an MP can cost?

Isabel Hardman
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower