I resented having to listen to a fourth Osborne Budget within 12 months. The mild entertainment gained from an embarrassing switch in the economic weather forecast from sunny to threatening since December was tempered by the realisation that 99 per cent of the population will not have a clue all the big Budget numbers are fiction.
Listening to the Budget speech on 16 March, there was a horrible moment when I realised Osbo has turned into Gordo. Halfway through Osborne’s list of the charities that had each received a few millions from the fines levied on banks for Libor rate fixing, I felt I had re-entered a Brownian nightmare. One thing everyone who had to listen to Gordon Brown’s Budget speeches hated was the seemingly endless and confusing list of tiny announcements that had nothing to do with fiscal policy.
Confirmation came in the form of a “big” Osborne announcement about education policy that likewise had nothing whatever to do with fiscal policy. Lots more irrelevant micro-announcements followed, while big questions about the national finances were skirted or dodged.
Then as I listened to Osborne’s refrain throughout his Budget speech about “the next generation”, I remembered Brown’s drone about “prudence”. Just as that should have been enough to tell us Brown was not really being prudent with the national finances, Osborne’s steamrollering repetition of “the next generation” should warn us he is not really doing anything for the next generation. The Institute of Fiscal Studies confirmed with its Budget analysis the measures mainly benefited higher earners and savers – by definition, these are not the young.
The Budget as a spectacle tempts Chancellors to play to the gallery – and the more they do that the worse policy gets. Last autumn the outlook was rosy, today it is threatening – but the accuracy of forecasts has deteriorated massively since the end of the boom in 2007. You would be justified in thinking basing government policy on such uncertain forecasts is a bit mad. Banking on around £10bn of unspecified spending cuts to make his sums for 2020 add up suggests the Chancellor agrees.
Chancellors love wheezes and Osborne’s is the Lifetime Isa. Like Brown, Osborne has been Chancellor too long and has come to believe you can prompt significant changes to the way people behave through modest financial incentives. History mostly shows you need big, dramatic incentives to effect change.
The only change Osborne announced that is sure to have such effects is the cut in capital gains tax rates. We can expect a raft of schemes transforming income taxable at 40 per cent into gains taxable at 10 per cent – to be followed by anti-avoidance measures and eventually a switch back to more or less equal income and gains tax rates.
The Lifetime Isa is not a pension substitute. It is in fact a turbo-charged version of Help to Buy, which will give a government bonus of up to £32,000 (rather than a mere £3,000) to people saving to buy a first home. I predict a lot of the savings going into the Lifetime Isa will come from parents helping their children pick up the bonus – why wouldn’t you? But you have to question whether that is a good way of deploying the taxes we pay to solve Britain’s housing crisis.
Chris Gilchrist is director of Fiveways Financial Planning