Budget 2015: the nous behind the numbers

It won’t happen. On the face of it, George Osborne promised a teaspoon of jam today, none tomorrow and a large jar the day after at the Budget yesterday. His immediate, pre-election offering was of small but eye-catching help to middle Britain today (above-inflation increases in tax allowances; tax-free savings,) sharp reductions in public spending between 2016 and 2018, and room for massive largesse in the run-up to the 2020 election.

The middle bit—austerity in the middle years of the next parliament—won’t happen. If the economy grows according to the Bank of England’s more optimistic projections than Osborne’s own, it won’t need to. If the economy slips then Osborne will in practice behave as a secret Keynesian as he has for the past two years, borrowing at rock-bottom interest rates to boost spending, especially but not only on infrastructure.

The key to understanding the Budget is Osborne’s sharp political antennae. His short-term measures are targeted at the voters he needs—those on normal incomes who have built up modest savings, are unconvinced by Labour’s economic competence but regard the Conservatives as party that sides with the rich. Indeed, from Osborne those earning more than £150,000 get no immediate jam at all. They receive no benefit from the rise in tax allowances (these days they don’t have any) or the new tax-free savings plan (the benefit will go to those on 20p and 40p tax rates but not those on 45p); and the size of their tax-free pension pot has been reduced from £1.25m to £1m.

That last measure, incidentally, messes up Labour’s policy of reducing student tuition fees, for Labour had earmarked that money for this purpose. Now it will have to raise taxes elsewhere, or divert it from other spending budgets.

As for the medium-term pain, Osborne is making it hard for Labour to campaign for less austerity. If Labour says it will protect spending on schools, hospitals, police, defence and welfare throughout the next parliament, they will have to explain where the money will come from. In the coming weeks of election campaigning, Osborne will mock Labour for its profligacy, even though he knows that he would not be as savage himself as his own figures suggest.

In the long run, little that Osborne says today about 2019/20 will matter in five years’ time. He is looking for a favourable response now, not at the election after next. So what is he up to? I reckon that his offer of happy times in years to come is part of his narrative for the weeks ahead. YouGov polls have found that most people are pessimistic not just about the years immediately ahead but about the long-term future. Osborne wants voters this May to believe there is a light at the end of the tunnel.

The light might in fact be an oncoming train, set to crush our hopes. But we won’t know that until long after this spring’s votes are counted. Whether or not we like or believe him, we should concede that, in tactical political terms, Osborne this week has given us a masterclass.