UK budget sweetened with polls in mind

IN UNVEILING Britain's new budget this week, finance minister George Osborne faced the biggest challenge of his career: how to turn his government's real economic achievements into votes ahead of a general election scheduled for May 7.

The task was not easy since, in firing the first shot in what promises to be a gruelling electoral campaign, Mr Osborne had to show that Britain is now on the right economic track after suffering the worst downturn in generations.

He also simultaneously needs to argue that much remains to be done, and that only the ruling Conservative party can be entrusted to finish the job.

Mr Osborne initially promised a budget of "no giveaways, and no gimmicks", but ended up distributing plenty of both.

Yet political observers in London are not persuaded that Mr Osborne's offer of financial goodies will have a decisive impact on an electoral result which is predicted to remain inconclusive, with neither the Conservatives nor the opposition Labour poised to gain an overall majority.

The British government has earned plaudits for presiding over one of the developed world's fastest economic recoveries: Growth stood at 2.4 per cent last year, is forecast to hit 2.5 per cent this year and predicted to accelerate further next year.

Unemployment is low: 5.7 per cent of a growing labour force, half the average in other European countries.

And although total government debt as a proportion of national output is still far too high at 80 per cent last year, draconian spending cuts will reduce this to 71 per cent by the end of the decade, the first such fall since the 1990s, when Labour was in power.

"We took difficult decisions in the teeth of opposition and it worked. Britain is walking tall again," Mr Osborne told Parliament this week to roars of approval from MPs and a fraternal pat from Prime Minister David Cameron, his closest government colleague.

As a result, the British government had plenty of cash to sweeten the voters' mood.

Some was spent on the traditional giveaways before general elections: tax breaks for middle-income earners, coupled with cuts on alcohol and petrol duties.

However, some measures were genuinely pioneering, and may well be adopted by other developed economies as well.

One such move is the offer of help for young couples buying their first home: The government will now chip in up to a quarter of the average £15,000 (S$30,700) in deposit which banks require before they approve a new mortgage.

Another is the offer of cheap loans for people wishing to further their education beyond their first university degree.

Restrictions on what people can do with their pension funds have also been abolished; retirees will be allowed to withdraw all their accumulated cash, mostly tax-free.

And the administration of the tax system will be overhauled: Filing tax returns will largely be electronic, and should not take more than an average of 10 minutes a year for the overwhelming majority of Britons.

Predictably, the opposition is unimpressed: Mr Ed Balls, the chief financial spokesman for Labour, points to research by the impartial, London-based Institute for Fiscal Studies which allegedly indicates that, as a result of various tax hikes introduced by the current Conservative-led government, the average British family is still £1,120 worse off in terms of disposable income than it was back in 2010, when Labour last held power.

"The Conservatives are planning more extreme spending cuts after the election, which go way beyond balancing the books", warned Mr Balls.

Economic specialists also doubt the real impact of some government measures.

Assistance with the payment of a deposit on the purchase of a first home boosts demand, but does not boost supply of residential properties, so its only impact may be even higher house prices, a real problem for young couples.

Even the Office of Budget Responsibility, a state-funded impartial audit of national finances, has raised doubts about the plausibility of some of the government's own financial projections, warning of a "roller-coaster profile" in spending, with national debt falling by the end of this decade but then rising again thereafter.

With all opinion polls indicating that Conservatives and Labour are now tied with only around 30 per cent support in voters' preferences and no party having a realistic prospect of forming a majority government after the May 7 ballot, the battle this week was more about perceptions than facts: the ruling Conservatives were eager to shake off their association with past economic austerity, while the opposition Labour was keen to reinforce this image.

Still, with barely 50 days of campaigning left, it may be too late to change voters' minds either way.

For, as even Mr Lynton Crosby, the Conservatives' campaign chief, once remarked, such last-minute initiatives are "like trying to fatten the pig on market day".

Jonathan.eyal@gmail.com

This article was first published on Mar 20, 2015.
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