Reading the Budget

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George Osborne, Britain’s Chancellor of the Exchequer, is extremely good at what political types call messaging. So what has he just said in his Budget about the relationship between the new Conservative government and business?

Some of the messages are obvious and pleasant. Lower corporation tax, going beyond what’s needed to compete in the G7 league, says Britain is somewhere internationally-mobile firms should feel safe locating. A long-term guarantee of a competitive Annual Investment Allowance tells us the Chancellor thinks it’s worth encouraging small and medium-sized firms to raise their productivity and expand. A review of the overcomplicated array of green levies that affect business is a moment of confessional relief, admitting business did badly out of the previous coalition’s compromises over climate change policy, and deserves better. Measures like these embody Mr Osborne’s repeated Budget speech catchphrase about a higher-wage, lower-tax Britain. This a language manufacturers can easily understand, and be pleased with.

The Budget sends some other signals that are a bit more subtle. For example, the decision to hypothecate Vehicle Excise Duty to roads spending is in part a welcome response to repeated argument by organisations like EEF for proper investment in this vital but – until now – politically unfashionable transport infrastructure (see our pre-Budget graphs blog for the evidence). But it also restructures that argument for the long term. If spending on a policy line becomes inseparable from the associated tax, that transforms higher-spending campaigners (popular and annoying to the Treasury) into higher-tax campaigners (unpopular, and the Treasury’s friend).  Possibly by accident, the business voice has been invited to pioneer a radical leap forward in tax-and-spend transparency that has significant ideological overtones.

So what does the proposal for a training levy on large companies say? It is a second example of “hard hypothecation” – but definitely not one that responds to business lobbying. Manufacturers, at least, already make a financial contribution to training apprentices that hugely outweighs the public subsidy the apprenticeships receive. On the surface, the message is that the government thinks firms won’t make a training investment that is in their own long-term interest unless they are forced to. It’s hard for business to listen to that without scepticism.

As business works with the government to establish how a levy might work in practice, we may discover that it says something more positive – although surely not that these ministers who keep portraits of Lady Thatcher on their wall are nostalgic for the old levy system she abolished in 1988, with all its bureaucratic architecture. Perhaps, after all, what the training levy really tells us is just that slaying a monster deficit while sending a completely welcome message to business is a task even this Chancellor occasionally finds stretching.

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