Should chancellor George Osborne use the Budget to deliver a pre-election giveaway?
John Longworth, director-general at the British Chambers of Commerce, says Yes.
The current situation in the UK lends itself well to the chancellor being able to deliver a pre-election giveaway. Public finances have improved in recent months, the outlook for the economy is relatively positive, as highlighted in our recent economic forecast, and the OBR is likely to downgrade its forecast for debt interest payments.
That said, George Osborne must use the Budget to focus on specific policies that support long-term economic growth, rather than short-term vote winners. In particular, we think the focus should be on supporting business investment – through making the Annual Investment Allowance permanent at £500,000 and widening its remit to include improvements to business premises.
This would help to achieve better balanced growth and tackle the unacceptable uncertainty created by the constant chopping and changing of UK tax structures and incentives.
Richard Batley, senior economist at Lombard Street Research, says No.
Osborne will be under pressure to mark the start of the election campaign with tax cuts. This would be a mistake. Despite the economic recovery, public finances have disappointed, in large part because low wage inflation has held back income tax receipts. But as wages improve and low oil prices boost real incomes, the OBR is likely to forecast a narrower deficit.
Recasting such cyclical developments as structural fiscal improvement was a technique used by the last government to grow spending while meeting supposed fiscal rules. Osborne will be presented with an opportunity to repeat this sleight of hand. Fiscal policy was able to respond to the 2008 crisis because debt to GDP was low, but debt levels today remain high. To react to future crises, debt needs to be reduced now.
A supposedly “fully funded” fiscal loosening amid already strong growth would get backbenchers cheering, but would mark a retreat from the much-vaunted “long-term economic plan”.