The Budget 2016: there’s cuts on the horizon.

In between following coverage from the US in relation to the most-recent Democratic and Republican primaries (Trump just won the Florida Republican primary, crushing Florida Senator Marco Rubio and forcing the one-time favourite to suspend his campaign), and reading chapters of my Evidence textbook, I remembered that Wednesday 16th March is quite the important day in UK politics: the day when Chancellor George Osborne will deliver the Budget for 2016. So, quite naturally, I thought to write about the Budget to explain what is is, what is its significance and to highlight the current context the Chancellor has to contend with.

What exactly is so special about this announcement, I hear you ask. Well, the Budget announcement is quite the big deal. In a nutshell, it is an annual update on the Government’s economic plans. Since Osborne became Chancellor back in 2010 and again in 2015, the Budget has become characterised by pronouncements as to how he plans to decrease the deficit. The Chancellor usually takes an hour to deliver a Budget speech.

Fun Facts: the longest Budget delivery in history was courtesy of William Gladstone (who ever else) in 1853, which lasted four hours and 45 minutes. In contrast, the shortest recorded Budget speech was by the suave Benjamin Disraeli, who took just 45 minutes in 1867. But let us return to 2016, and George Osborne.

The Chancellor delivered three different budgets last year. There was the regular Budget, and the Autumn Statement; these are delivered almost every year. However, there was also a third so-called ’emergency’ or ‘summer’ budget, which he delivered after the May General Election. It should be noted that the Autumn Statement and the Budget are not one and the same; the Autumn Statement is also a type of economic update, but it is not as detailed or in-depth as the Budget is.

Now that we know what the Budget is, it is time to look at what the Chancellor will discuss in this specific Budget. A clue: cuts appear to be on the horizon.

The Chancellor will deliver his Budget at after Prime Minister’s Questions, around half-past twelve in the afternoon and he will commence by setting out the latest economic forecasts, and the state of the public finances. Leader of the Opposition, Jeremy Corbyn will deliver Labour’s response, which should be interesting, if anything. Labour’s Shadow Chancellor John McDonnell had called for an end to ‘cruel cuts’ and ‘publicity stunts’ ahead of the Budget announcement, so expect similar rhetoric from Mr Corbyn.

What is so intriguing about this particular Budget is the timing, and background context. The Chancellor’s statement will be delivered with just two months remaining before the UK votes on the future of its membership within the EU. Now, we know that the Government is campaigning to remain in the EU – albeit with noticeable Cabinet division -and undoubtedly the Chancellor will be keen to avoid antagonising either side in the debate with his announcements. (There may just be a Conservative party leadership role on offer in the future, after all.)

It is customary for the Chancellor to speak in advance of the Budget, setting the scene so to speak. Thus we already have a rough idea of what to expect, but I must confess that I find this Budget to be scarce on information in comparison to previous years. But based on what little information is available, Mr Osborne will lay out around £4bn in extra spending cuts, and is expected to announce investment in the UK’s infrastructure. We also are aware that the Chancellor has set himself a target of achieving a surplus by 2019-20. In addition,he has set himself the target of having debt falling as a share of GDP every year.

His eighth Budget will also include a £1.5bn education package forcing all state schools to become academies and allowing some to open later in the day. Under the devised education package of reforms, every state school in England will have to become an academy, which means they will be independent of local authority control. State schools must undertake this transition by 2020, or at least have designed a plan in place by that date to do so by 2022. This  move essentially marks the conclusion of the century-old role of local authorities as providers of education.

Also on the school front: we can also expect an announcement in relation to school hours. Schools will be able to bid to be allowed to change their hours to suit the needs of their students. Evidently education is at the heart of the Budget: we can expect the Chancellor to vow to free the system ‘from the shackles of local bureaucracy’when we consider his plans to establish a new fund to permit a quarter of secondary schools in England to lengthen the school day. The consequence of this will be a vast number of students receiving at least an additional five hours a week of lessons, or extra-curricular activities such as sport and art. From a Northern Ireland perspective, this is quite interesting. Education is a devolved matter, so obviously these education reforms of the Chancellor will not come into effect here. But it will be interesting to see whether the Assembly here will consider a similar move when the new mandate convenes post-May elections.

Switching from the popular education front to another popular area, that of health. It ia understood that the Chancellor will also announce a £1.5million NHS programme to provide activity prosthetics for children so they can compete in sporting events and to fund new research. Whilst this is a great move, it cannot be denied that the NHS is under severe financial pressure.  Just recently, Parliament’s Public Accounts Committee published a report which found that the NHS in England lacks a convincing plan to plug a £22bn ‘black hole’ in funding within five years. The NHS is expected to find £22bn in efficiency savings by 2020-21, but MPs on the committee are unconvinced that such savings are actually possible.

Dr Mark Porter, chair of the British Medical Association council had responded to the report by stating his belief that the Chancellor should use Wednesday’s Budget as a means to prevent the NHS heading towards ‘financial ruin’.

“There is a complete mismatch between the government’s promise of extra funding and the reality on the ground…

“If the chancellor squanders this chance the NHS will continue to slide further into financial ruin.”

So, no pressure there, Mr Osborne.

Now, cuts and tax rises were to be expected. Simply put, there has been sluggish growth since his November 2015 Autumn Statement, when cuts to tax credits and police budgets were watered down. A consequence of this slower than expected growth is that both increased spending cuts and tax rises are needed to achieve his surplus target. The Chancellor has already warned that global uncertainty and the state of the world economy means the UK has to ‘act now rather than pay later’ in relation to making further spending reductions. Osborne has stated that the planned £4bn extra cuts would be ‘equivalent to 50p in every £100’ of public spending by 2020, which was ‘not a huge amount in the scheme of things’. (Speak for yourself, Mr Osborne).

The announcement of the extra spending cuts will mark a sharp contrast to the Autumn Statement. A mere four months ago, Mr Osborne had stated he had an extra £27billion to spend because of better-than-expected forecasts. Yet slower than expected economic growth both domestically and within European, when combined with worrying signs in China and low oil prices means the Chancellor has been forced to reverse his position. Yet it is telling that the EY Item Club warns that Osborne must not engage in ‘bad economics’ by announcing further austerity measures to eliminate the deficit.

However, it is expected that the Chancellor will raise the threshold at which people start paying the 40p tax, in a move that could see hundreds of thousands of people pulled out of the higher rate of income tax. Also in a sign of attempting to prevent alienation, Mr Osborne has already ruled out plans to scrap higher rate tax relief on pension contributions. However, he could announce further reductions in the lifetime allowance, which is the amount people can save into their pensions before incurring penal rates of tax. Moreover, Mr Osborne is also expected to announce a rise in insurance premiums that could see families pay £190 extra for motor, home contents, pet insurance and breakdown cover.

In terms of miscellaneous items, the Chancellor is expected to add 16 pence to a pack of cigarettes and may introduce a minimum price. In addition, there were suggestions in the weekend papers as to the creation of a ‘Paxman tax’, in that a tax loophole that allows television presenters and public-sector bosses to avoid tax through being paid through personal service companies – as Jeremy Paxman was – may be closed.

The above could be neatly summarised by ‘A,B,C’: ‘Austerity, Balancing, Cuts’. And Mr Osborne knew extra cuts would be required, and had you spent time following his media slots, it would have been evident that he was actually preparing the markets, commentators and indeed the public for yet more austerity in Wednesday’s annual budget. See, for example, the warning issued in The Sun on Sunday via an editorial written by Mr Osborne: the world is “facing its most uncertain period since the Great Recession” of 2008, and therefore ‘we need to act now rather than pay later.’ I have a vague suspicion this slogan will be to the Chancellor as ‘aspiration’ was to the aspiring Labour leader hopefuls last summer.

Now, the above outlined expected announcements  may very well turn out to be unpopular policies. Yet such is the commanding position of the Conservative Government, and the such are the difficulties of the (split) opposition Labour party under Corbyn, that Mr Osborne can afford to announce harsh policies. What will be interesting is seeing the development of his policies, and how any such developments coincide with the EU referendum in June.

Speaking of Europe, it is also interesting to note the difference between the UK and the majority of the other EU Member States in relation to Budgets. In mainland Europe, there generally are growing calls for more fiscal stimulus – government spending – to boost growth and relieve the European Central Bank from having to do all the work. In comparison however, the UK Government remains utterly focused on delivering a budget surplus. Whether this is achieved, notably within the restrictive time-frame the Chancellor has set himself will remain to be seen.


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