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I was the Head of Policy and Public Affairs at UNISON Scotland until my retirement in September 2018. I now work on several policy development projects, so all views are very definitely my own. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Wednesday, 18 March 2015

UK Budget 2015

If you are going to tell porkies, tell big ones. That seemed to be the Chancellor's strategy in today's budget.

It was as if the past five years didn't happen. The worst fall in real earnings in recorded history a total fall of 7.9% and even this is on the basis of the lower CPI index. No other real earnings decline comes close. The IFS says his tax and benefit changes since 2010, including the big VAT rise, have cost families on average £1,127 a year. Nearer £2000 if you are a public service worker suffering from the UK and Scottish government pay policy.

On public spending the head of the National Audit Office has said that the cuts in public expenditure over the last five years have been too much too fast. The consensus among economists is that low wages and spending cuts have stunted GDP growth, resulting in the slowest recovery from recession on record. This extract from today's OBR report explains, in an international context, why austerity economics have miserably failed.

On an individual basis the budget does little for most workers. Increasing personal allowances is the least effective way to help the lowest paid workers and will benefit most those in the top half of the income distribution. Measures to incentivise saving simply won’t do much for those for whom saving is a dream. In any case Osborne is still relying on increasing household debt to boost the economy. This chart is slightly less scary than it was last December, but it should frighten anyone who remembers one of the causes of the financial crash.

Giving people the ‘freedom’ to turn their annuities into lump sums is a charter for the kind of abuses that have characterised the UK financial services for the past three decades and risks a return to the misselling scandals of the Thatcher era. The Chancellor has been repeatedly warned that the advice structures are inadequate.

For UNISON members the most important section in the budget is the changes to public spending first announced in last December's Autumn Statement. Lower inflation gave the Chancellor the opportunity to take the sting out of the IFS analysis that this would take spending back to 1930's levels.

So that's good news then? Well I'm afraid not. The Chancellor’s plans still involve a £30bn cut by 2017/18 with even deeper cuts in year two and three. As the OBR puts it:

"The real cut in public services spending planned for the coming year is slightly smaller than the likely average for the current Parliament. But the squeeze then becomes much more severe than anything we have seen to date in 2016-17 and 2017-18". This chart shows just how bad and it comes on top of his 2016 National Insurance contribution increase that will hit workers and employers alike.

The much talked about spending relaxation is in the final year. Of course that is a long way off and based on this Chancellor’s record you wouldn't bet your declining pay packet on him getting there. Not to mention deficit reduction which is based on hugely optimistic growth forecasts. Sadly, every single OBR forecast on deficit reduction and most on growth have been wrong and in every case have been far too optimistic.

Particularly when he is relying on extra revenue from tax avoidance. Here his record is dire. The gap between what is owed and what is collected is up not down. There has been no action on tax havens despite the Prime Minister’s promises. In fact he appointed the Chairman of tax dodging HSBC as a Minister. No action on hedge funds, when stamp duty avoidance is costing well over £1 billion a year.

Why, because they bankroll the Tory party. As Ed Miliband put it, the Tories are the political wing of the tax avoidance industry. Tax avoidance expert Richard Murphy's view of the prospects of additional revenue: "without tax returns from millions of people and with the HMRC cuts already in progress that’s just plain fantasy."

What does this mean for spending in Scotland? As always it is difficult to be precise because we don't know exactly where the cuts will be made in England and therefore the Barnett consequentials. The Chancellor claims that £13bn will come from departmental budgets and £12bn will come from welfare cuts. The £5bn balance from his fantasy tax avoidance savings. The Scottish Government estimates that this means "another £12bn of cumulative cuts in real terms over the period to 2019". A singularly unclear way of putting it because it doesn't tell us the time frame or if it's the annual DEL reduction or some other spending impact. Hopefully, the more reliable IFS will provide some greater clarity tomorrow.

On the subject of Scottish Government economic analysis, if after the GERS report there is anyone who still thinks oil revenues make a good devolved tax, have a look at this chart on oil forecasts.

A bad hair day at best! As for the Scottish Government claim that we can plug the gap with a 50% increase in exports, this chart would suggest that remains, as Brian Ashcroft puts it, 'fanciful'.

In conclusion, for individuals the budget measures are poorly targeted and will do little to support balanced sustainable growth. The precise consequences for public services and jobs in Scotland may still be unclear, but it will be grim.








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