The budget today is presented against a backdrop where the UK still is among the worst performers in terms of productivity in the G7 along with a terrible trade deficit that remains unchanged from when the coalition took charge.
Furthermore, last week’s shocking January balance of trade figures only acted to underline how unbalanced the UK economy remains with imports rising 3.4 percent and exports falling 4 percent. With the trade deficit largely unchanged since the government took office, the risk of an unbalanced recovery has never been greater.
Unfortunately, it seems as though today’s budget will be more focused on pre-election sweeteners to compensate those affected by benefit changes than ensuring productivity is able to grow sufficiently to maintain the rate of employment growth and avoid inflation.
Whilst it is true that GDP has started to grow, this growth has been underpinned by an expansion of credit, a drawdown in savings and consumer spending.
This is a far cry from Osborne’s balanced economy being driven by exports and business investment with consumption having contributed around 1.4 percent of GDP growth out of total growth of 1.9 percent last year. The notion that the recovery is “unbalanced and unsustainable” is a sentiment shared by the Bank of England.
Furthermore, the coalition has prohibited Conservatives in government from enacting policies that are deemed crucial to its voter base. Primarily, these have been:
- Inheritance tax:
With the government having inflated house prices via Help to Buy, the enforced dropping of the raising of the Inheritance tax threshold from the coalition is now indefensible.
The fact that the IHT band has stayed static since 2009 means that the average London home (worth £409,000) is on the hook for up to £33,600 of Inheritance Tax where a hard working parent wishes to pass their home on to their children.
- Capital gains tax:
A tax on saving, the increase in capital gains tax from 18 percent to 28 percent was an un-conservative policy and should be reversed now growth is under way. Whilst the UK now has a hotchpotch of exemptions, these are complicated to navigate and are not universal.
Not only will this ensure that the Conservative party is seen as speaking up for hard work and savers, but it would go some way to addressing the incentive to spend and borrow at low interest rates rather than be taxed for saving.
The evidence points to one thing: that the mix of policies that have been enacted by the coalition have failed to rebalance the economy.
This should be the last budget that is presented by George Osborne in coalition, with the option of governing as a minority until 2015 one that should be exercised.
Such a move would allow the Conservative Party to table measures that are both crucial in reviving the economy and incentivising saving, as well as presenting clear daylight between itself and other parties.