“Order! Order! That concludes questions to the prime minister. Now, I have a quick procedural change to announce before the Budget speech. Technocratic leadership is all the rage these days so I have tied the Right Honourable George Osborne up in a cupboard and appointed an unsuspecting economist chancellor of the exchequer for the afternoon.”
Gosh, Mr Speaker, this is all a bit of a surprise. I’ve hardly had time to have a couple of stiff drinks before coming to speak to you all today, and I certainly haven’t had any time to look at the forecasts from the Office for Budget Responsibility. They’ll probably be wrong, anyway, so I hope you won’t mind if I move straight to the measures I plan to introduce. My fellow economists have lots of ideas and I suppose this is a good time to implement them.
My Budget is simple: short-term stimulus; long-term fiscal consolidation; and reform aiming at a sane system of taxation. This seems to be the precise opposite of what most of my predecessors had in mind, but they will get over it.
First, stimulus. Mr Osborne has been boasting of his plans to reduce taxes and spending simultaneously. This is precisely the opposite of what is required at a time of weak aggregate demand, and every bit as foolish as when Gordon Brown increased both taxes and spending in a boom. I will unveil a package of spending on roads, railways, primary schools in oversubscribed areas and social housing. In many cases this will simply mean implementing pre-existing plans, so the building work can start without delay. By utilising spare resources in the economy, this plan will stimulate demand and provide urgently needed infrastructure at a low cost to the wider economy. On the “stitch in time” principle it will also reduce the total need for public spending over the next decade and beyond.
Naturally, none of these schemes will seek private finance or other costly accounting gimmicks. Bond investors have shown a huge appetite for lending to governments outside the eurozone and it would be quite absurd to ignore this willingness to lend, especially when the long-term fiscal position of the UK would be enhanced as a result.
As an additional short-term stimulus, I will follow the advice of the National Institute of Economic and Social Research and temporarily scrap national insurance for the young and for low earners. This will encourage employers to take on, or keep, people who might otherwise be shut out of the labour market, with disastrous long-term consequences.
All of these measures will increase the deficit. None of them, however, will increase the structural deficit or make a material difference to the long-term debt profile of the country. Nevertheless, long-term fiscal consolidation is a challenge that must be met. I will start by breaking the stranglehold the elderly have on the public purse. The triple-lock commitment to steadily ratchet up the value of pensions was a promise that should not have been made. It will be abolished, as will expensive, arbitrary and poorly targeted perks, such as free television licences.
We care about the genuinely infirm and will implement in full the Dilnot Commission’s proposals to cap the costs of long-term care for the elderly, a policy that costs little, is fair and will do much good. But my government has no interest in transferring ever more resources from the young to an ever larger and healthier group of people who just happen to be older.
Further long-term fiscal consolidation will come from simplifying the tax system. I have been encouraged by Mr Osborne’s rhetoric on this subject, but less so by his specific plans, which at the time of his sudden disappearance involved: as many tax bands as ever; fresh complexities with child benefit; and differential treatment for the oil, pharmaceutical, aerospace, and video-game industries, for broadband infrastructure, renewable energy, low-emission cars, road hauliers and anyone or anything that is not a bank. In short, Mr Osborne thought tax simplification was all about the rate of value added tax on biscuits.
I disagree. I would seek to implement the advice of the Mirrlees Review – broadening the tax base, unifying national insurance with income tax, abolishing the majority of special treatments, aligning tax on income with that on capital gains and dividends, taxing property and land rather than taxing transactions, and in general treating the tax system as a whole rather than a messy patchwork. This is a major effort that promises major benefits.
Finally, I am sure this House will agree it has had quite enough of the Budget circus. It may be an enjoyable political platform but there is no economic justification for the annual kaleidoscope of trivia. Therefore, I propose that the next Budget speech not be made until 2015. I do not expect to be the person delivering it.
First published on FT.com