It is the last spring Budget this Wednesday, and about time too. For all of our lifetimes the budget has been held in mid-March, barely a couple of weeks before the end of the financial year. This in itself is absurd, because people have to plan for the next financial year and have very little time to do so. But the practice has been all the more absurd because the budget has been used by successive Chancellors as a theatrical episode rather than a measured presentation of how much money is likely to come into the Government’s coffers, and how that money is intended to be spent.
The event was usually designed to burnish the reputation of the Chancellor as much as the government, and indeed sometimes used by him (always a “him”) to challenge the authority of the Prime Minister. Remember how Tony Blair had to plead with Gordon Brown to get him to say what was in the Budget?
But if you think back over the past half-century for really memorable budgets, well, I at least can’t remember many. There was Geoffrey Howe’s in 1981, when 365 economists wrote a round-robin letter saying it would be a disaster. There was one by Nigel Lawson when he cut the top rate of income tax to 40 per cent, and ended up increasing revenues from high earners as a result. There was Gordon Brown’s first budget in 1997, which came after he handed independence to set interest rates to the Bank of England, outlining the golden rule about only borrowing for investment over the economic cycle. Both were important and welcome changes, though we know what happened afterwards.
There was Alistair Darling’s one in 2009, when he produced honest figures about the hole in public finances and acknowledged the deficit would go up to £175bn, or 10.5 per cent of GDP. As for George Osborne’s, there was one that was called an “omnishambles”, but I can’t remember what was wrong with it. I do remember that he went onto a 5:2 diet about then and made a nice joke about doing five budgets and then having to eat his words for next two of them. And I do remember he set up the Office for Budget Responsibility and charted a path back towards a budget surplus. But that is about it.
Now we move to having the main budget in November, taking over from the so-called Autumn Statement, which gives time for everyone to sort themselves out before the next financial year. But it does something else. It changes the tone of the budget. Because it is no longer an announcement of what is happening in the next couple of weeks, it makes the whole process more thoughtful, more measured. We’ll have wait and see whether we get better fiscal management as a result is an open question, but if we can get away from the theatre and focus on the substance that would be a start.
And the substance this time? Look, we are flying blind. No one has any idea the impact of the start of the formal process of leaving the EU on the economy. Maybe it will have none at all. Maybe a small negative, maybe a big one. It is possible it will be positive, particularly if this becomes a very disruptive summer for Europe. But if the past nine months have taught us anything it is that we should distrust economic predictions, or at least accept there are wide margins of error. What we do know is that so far the plan to leave the EU has had very little impact on the economy.
If you accept that, then the first question to ask of the plans for public finances are how robust they are in the face of extreme events abroad. What happens if US interest rates whizz up much faster than expected, and stock markets drop 25 per cent? What happens if Italy comes out of the euro this summer? What happens if there is a financial collapse in China?
The second question to ask is whether there is any long-term plan to move towards a less complicated and fairer tax system. We don’t have a dreadful tax system, but it is not particularly good. We have, for example, the highest proportion of revenues from property taxes of any major economy. Is that what we want? We have a narrow VAT base, about the narrowest in Europe. Is that a good idea? We rely on the top one per cent of earners to pay nearly one third of all income tax. Is that safe? And so on.
And the third question that we should ask is whether public spending is wisely allocated. This is a matter for the spending review rather than the budget as such, but moving to an autumn budget gives an opportunity to ask serious questions about long-term priorities. A government in a democracy is a servant of the people. If the gap between the governing elite and the people gets too wide, then something happens to close it.