Budget 2013 - we will need to drink a lot of beer

A predictably grim budget from a Chancellor whose predictions are almost always wrong.


The most astonishing wrong prediction came early in the speech. The revised OBR estimate for growth has halved in just four months since the last prediction in December, down to a mere 0.6%. This is the longest recovery from recession ever, entirely due to his austerity economics.

A neutral budget is just what Scotland doesn’t need, we needed an aggregate increase in spending. It also isn’t doing anything for the nation’s finances. On a quick calculation Public Sector Net Borrowing between 2011/12 and 2015/16 is now set to be £245bn more than planned in the 2010 spending review. He can obfuscate between debt and the deficit but this is the hard cash reality.

As expected he shifted cash from revenue to capital. We are told that Scotland will get an extra £176m over the next two years as a result of the Budget. The deal will see a £279m increase in capital investment, but there will be a cut in day-to-day spending of £103m. However, even this modest capital benefit doesn’t kick in until 2014/15. The DEL table 2.4 in the Red Book shows a cut in Scotland’s Capital DEL from £3bn this year to £2.6bn.

Of course revenue cuts continue every year after that while the capital spending is a one off. Capital spending also has many leakages from the Scottish economy as the money is not all spent in Scotland and the profits can be siphoned off abroad. Revenue spending is much more likely to be spent locally, supporting the local economy. His dodgy employment estimates have been highlighted elsewhere as owing more to reclassification and underemployment than any real improvement in the labour market.

A further cut in Corporation Tax is another example of throwing good money after bad. We know that the last cut didn’t work as revenues dropped. UK businesses are holding a record £650bn in their bank accounts. Its business confidence that is missing and that largely depends on consumer confidence.

In Scotland, particularly if you work in the public sector, any confidence you had has taken a big kicking. A further year of real pay cuts with the 1% pay policy, followed by a 1.4% hike in your National Insurance contributions in 2016. This only applies to those who have been thrifty enough to make provision for retirement by paying into a decent pension scheme. Many public sector workers are already facing a big hike in pension contributions this April, so the UK government seems hell bent on wrecking good pensions and discouraging workers from making proper provision for retirement.

There is also another hidden public spending cut here. Public sector employer contributions will rise by 3.4%. In local government alone my very rough calculation is that this could add up to an Osborne stealth tax of around £140m. You can more than double that when you include the rest of the public sector.

On top of all that the Red Book says: “The Government will seek significant further savings through reforms to progression pay in the Spending Round”. Apparently this is because some staff continue to receive ‘pay increases’ through these arrangements. This fundamentally distorts the purpose of increments or progression pay. The rate for the job is the top point of the scale. New staff are usually appointed at the bottom of the scale and progress through annually while they are learning the job. It is in effect deferred pay not an annual pay rise. These are also contractual provisions not discretionary annual pay rises and we have taken legal action against employers who have sought to tamper with our members contracts and will do the same again if we have to.

The overall effect of the budget is regressive and I suspect when the detail is picked through it will be found to be even more so. And that’s before the millionaires tax cut kicks in April. A £42,500 tax cut for someone with a £1m income, double the average wage just as a tax cut. And don’t be fooled by the tax dodging rhetoric, the measures announced are very modest as the real experts have already spotted.

Of course to be fair we are getting a penny off a pint of beer – if it is passed on to consumers. The average public sector worker will need to drink about 58,000 pints to get their cash back!