The main message for the public sector from Budget 2014 was that, despite some modest growth, the fiscal pain is very far from over
George Osborne has reputedly been on the fashionable 5:2 diet. And as with his economic plan, he seems to think it’s working.
Now, judging by his Budget speech, he wants to roll out the regimen for the public at large. But there’s an important twist.
Unlike the five days on/two days off formula, the chancellor recommends that austerity rations continue for most of the time. There will, though, be some sweeteners along the way.
Not just cheaper bingo and beer for the lower orders. Pensioners and well-heeled savers will get some instant gratification from the changes to annuity and ISA rules.
However, the main message from Budget 2014 was that the fiscal pain is very far from over.
Despite predictions of 2.7% growth this year, there is little spare capacity in the economy – and borrowing is expected to be £96bn for 2014/15.
Growth alone, the chancellor told us, will not eliminate the deficit and achieve a surplus. Cuts, cuts and more cuts are needed to ‘get the job done’.
With some minor modifications, the Opposition agrees. It too (see interview with Chris Leslie) has caught the ascetic bug.
Labour has signed up to a current account surplus and wants some radical ‘decluttering’ of public services. It is also upping the ante on strict fiscal discipline.
In response to Osborne’s Charter for Budget Responsibility and welfare cap, the shadow Treasury team is calling for the Office for Budget Responsibility to vet tax and spend decisions, as well as manifesto pledges.
All this muscle-flexing over whose plans are the most credible feels a long way from debates over Plans A and B.
Either way, it’s bad news for the public sector, which faces two-thirds of spending cuts to come. Another £2bn of funding for frontline services has just been lopped off by the chancellor.
With the economic differences between the parties paper-thin, the electoral battleground turns increasingly to the cost of living – and how far the recovery is being felt on the ground.
Cue much unpicking of the Budget’s childcare tax break – and of Osborne’s pensions shake-up, which many pundits fear will damage the public finances in the longer run.
These and other forensic debates over when and whether real incomes will be restored are setting the scene for the 2015 election.
But one thing is already clear. Osborne’s ‘resilient economy’ is lean and mean. And there’s precious little fat left to trim.
This article first appeared in the April issue of Public Finance magazine
