Tomorrow the Chancellor of the Exchequer will deliver one of the more challenging Budgets he’s had to present in the last six years.
The economic situation is by no means as bad as back in 2010, when it turned out then Chief Secretary to the Treasury Liam Bryne thought he’d best leave his successor a note explaining there was no money. But there have been signs of a global economic slowdown, British productivity remains troublingly sluggish, and it’s been well reported the Chancellor will now have to find a further £4 billion in public spending cuts. After six years of austerity, with much if not all of the proverbial low-hanging fruit picked, it’s entirely reasonable to ask where this money will come from.
So what are the main problems the Chancellor is going to have to address tomorrow?
The living wage and zero hour contracts
The Government has seen consistent increases in employment, although critics will claim that low earners have to work more than one job to make ends meet. But Ministers can claim employment as one of the biggest successes of the last half decade – and who can forget Iain Duncan Smith punching the air when Mr Osborne announced a national living wage last year?
The news today that major employers are preparing to cut jobs due to the increased wage costs they’re facing thanks to the national living wage will have made unpleasant reading for the Chancellor. Meanwhile, the Government is under concerted pressure to clamp down on so-called ‘zero hours contracts’ that provide employees with little guarantee of regular work. The Chancellor will have to try and address this conundrum – protecting businesses while not backtracking on a major wage pledge that will benefit those on very low incomes.
Mr Osborne could be forgiven for now wondering why he ever used the phrase ‘Northern Powerhouse’, which has been coined in a way not seen since his ‘omnishambles’ Budget of 2012.
Interviewing Lord Adonis (head of the National Infrastructure Commission) on the Today Programme this morning, Nick Robinson suggested infrastructure spending had decreased by £8 billion. Lord Adonis has today insisted that better transport is needed in order to realise the potential of the North.
In one of what is now the traditional series of Budget leaks, it’s been revealed Mr Osborne will commit £300 million in funding for transport projects, and will pave the way for a high speed line between Leeds and Manchester, and a new Peak District road tunnel.
The Chancellor faces two challenges. Firstly, critics claim his funding pledge is not new money, but rather sleight of hand. Secondly, the Chancellor will also reveal plans for the north-south London Crossrail 2 – allowing further assertions that the South is benefitting more than the North.
Nobody should be surprised the Public Accounts Committee decided today of all days to warn the NHS has “no convincing plan” to save itself from a “funding black hole.” How to deal with the finances of this beloved national institution will be a serious question the Chancellor has to answer.
His problems will be exacerbated by the expectation that at least some of the £4 billion he has to find in cuts will come from local government. And, with councils being responsible for social care and public health, Mr Osborne could potentially place greater burdens on the NHS and its finances if further local government cuts send more people to hospital or primary care in the absence of local services.
Mr Osborne is facing assertions that tax cuts that may or may not appear in tomorrow’s Budget will benefit higher earners as opposed to low income families. There have also been suggestions that tax cuts will come from cuts to Personal Independence Payments – i.e. disability benefits – as he seeks to raise the level at which higher earners pay 40 percent tax to £50,000.
The Chancellor will have to face down his critics, and show that he’s not taking from the disabled or lower earners in order to fund what is effectively a tax reprieve for those on significantly high salaries.
Last night the Evening Standard reported that policing could be one area that bears the brunt of the Chancellor’s pursuit of public spending cuts. The basis for the claim is the assertion of the respected Institute for Fiscal Studies that non-ringfenced public sector budgets could be hit significantly hard.
Mr Osborne promised there would be no cuts to policing in his Autumn Statement, a claim he’s since been challenged on. The question facing him tomorrow is how he will keep that commitment and still make £4 billion in savings?