As George Osborne prepares to present his eighth budget, the economic storm clouds are gathering. And Osborne’s policies have meant we are more vulnerable than we should be to any global financial shock. Business investment is falling, manufacturing is flatlining, construction is in recession and unsecured personal borrowing is rising. Osborne’s “economic recovery” is one built on sand, and his false economies and short-term political fixes are beginning to catch up with him.
On Wednesday the Labour party will scrutinise every line of the budget document to examine what stealth taxes and cuts Osborne is trying to sneak through. The common thread in this chancellor’s budgets is that they tend to be cheered to the rafters by his backbenchers but then unravel when they come under wider scrutiny. Osborne’s response to this is not to change his failing economic policies but to make them harder to scrutinise.
In the last parliament the Treasury included in each budget a document setting out the distributional impact of its decisions. While not perfect, this did at least attempt to provide some indication of how different households were affected by changes to the tax and benefit system. The distributional analysis showed how much each income group – from the bottom 10% to the top 10% – benefited or lost from the changes, both in absolute amounts (pounds and pence) and as a percentage of household income. It also showed how different income groups were affected by changes in public expenditure.
Now Osborne is struggling to achieve his fiscal target, which has been widely criticised for tying his hands and reducing investment, he has limited his distributional analysis of the budget in order to hide the impact of his unfair policies on low- and middle-income households. It’s no surprise he decided to do this in his summer 2015 budget, when he tried to sneak through £4.4bn of tax credit cuts – hitting the incomes of millions of working families across Britain – which would have left them on average £1,300 a year worse off (and breaking a Tory general election commitment in the process).
Fortunately for those families, using a subsequent analysis provided by the independent Institute for Fiscal Studies, Labour spotted his ruse and ensured the tax credit cuts were debated in the House of Commons, rather than just in a committee, as Osborne intended. This eventually led to his U-turn in November.
The budget distributional analysis provided some evidence of the implications of Osborne’s policies on different incomes groups. On Monday a coalition of anti-poverty organisations called upon Osborne to produce the more detailed distributional impact assessment for this week’s budget. It’s not just these organisations that do vital work with the most vulnerable that believe Osborne was wrong about this: Andrew Tyrie MP, Tory chair of the Treasury select committee, wrote to the chancellor last July to ask him to reinstate it.
Osborne wrote, in his reply to Tyrie, that it “is plainly not a useful way to consider the distributional impact of economic policy” because it didn’t include the economic benefits of what he argues are sound public finances. This is an incredibly arrogant and patronising argument to make.
We believe he should provide the clearest information about the impact of his budget on family incomes in the most accessible way possible. This is vital for parliamentary scrutiny of his policy decisions.
Unlike Osborne, Labour’s Treasury team isn’t afraid of effective scrutiny of our policy proposals: we think it is an essential part of good governance.
If Osborne wants to show he trusts the British people to decide whether his budget is progressive or regressive, whether they will benefit or whether they will lose, he should make yet another U-turn and reinstate the publication of a full distributional analysis on Wednesday. If he doesn’t, the next Labour chancellor will reinstate what Osborne has scrapped.