Budget 2014: A curse on all your vanities

For George Osborne, economics is always an extension of politics by other means. The budget on Wednesday was predictably entirely about next year’s election and, given his limited room to manoeuvre, adept. With Labour still failing to provide a credible economic alternative, the odds of a Conservative return to power are increasing.

According to the chancellor the economy is recovering faster than expected in vindication of his policies.  But there is still ‘a long way to go’ and Labour would simply ‘squander hard-won gains’.

The budget’s overriding aim was to shore up Conservative support among ‘ordinary people’. The personal tax allowance increased to £10,500 and the higher rate tax threshold to £41,865. There was the new £2,000 childcare tax allowance; and a liberal seasoning of populist (but patronising) lesser measures, including freezing fuel duty and reduced duties on beer, cider and bingo. The mortgage interest support and ‘Help to Buy’ schemes were extended until, respectively, 2016 and 2020. And, as the proverbial rabbit-out-of-the-hat (aimed particularly at UKIP voters), far reaching changes to pensions and ISAs.

There are also carefully laid traps for Labour, including legislation to lock in deficit reduction and cap welfare.

But the chancellor knows his plans are badly adrift. By triggering a collapse in demand, recession was made deeper and longer, with the national debt increasing by more than the entire debt he inherited. Productivity has fallen, already parlous investment collapsed and exports flatlined (despite Sterling depreciating by 20 per cent). Tax cuts for large companies and the wealthy didn’t bring the hoped for resurgence in investment, growth and new business. Instead recovery is being driven by cheap money, property inflation and debt-fuelled consumption.

To belatedly try to get back on track, the business investment allowance was extended until 2016 and doubled to £500,000. There was £7bn to reduce business energy costs; a doubling of export finance to £3bn; an increase in R&D tax credits; and a little more money for infrastructure, science research and apprenticeships.

But all this is in the context of sticking to the same overall economic strategy.  There will be further cuts and yet more erosion of the country’s essential enabling springboard and public services. Indeed, there are serious concerns about the sustainability of recovery. It is assumed investment, productivity and exports will now (miraculously) improve sharply while consumers resume borrowing heavily.

Ed Miliband gave a rhetorically robust response for Labour. He hammered at living standards and people being worse off under the Conservatives. He contrasted the economy’s performance with the chancellor’s promises; and highlighted the shortfall between the chancellor’s claims and realities on the ground. And he demanded to know ‘whose recovery is it anyway’ while the economy is being run by and for the privileged few.

But there was no counter-factual economic strategy. Valid criticisms of government policies, new Labour policies and even its overall economic competence are thereby robbed of grounding or traction, while leaving the chancellor’s narrative to frame the debate and drive the agenda.

Yes, Labour has relentlessly attacked falling living standards and announced a slew of piecemeal new polices over recent months: freezing fuel bills, bank reform, a youth employment scheme and repealing the bedroom tax. But this isn’t enough by itself.  Lacking context and significance, it doesn’t add up in voters’ minds to a clear or convincing a story of how Labour would do better.   Meanwhile the Conservatives are given increasing credit for economic success irrespective of their substantive failures.

This is certainly what’s been happening in the polls.  Labour’s lead has steadily dwindled from 11-13 per cent a year ago to 1-4 per cent today.  Given another year of economic improvements, elections invariably focusing voters’ minds and Osborne’s carefully laid plans, Labour winning the election is increasingly in doubt. Indeed, the best available predictions suggest the Conservatives being returned as the largest party in parliament, albeit without an absolute majority – and that’s subject to Labour still having some 40+ Scottish MPs.