Business

The high cost of too many Budgets

George Osborne and his Budget team Image copyright Getty Images
Image caption George Osborne leads his Treasury team out on Budget Day

The main complaint about Wednesday's Budget is not so much its contents, it's that it's effectively the fourth in 12 months.

Part of this was unavoidable. The election came close after the March Budget.

The new Conservative government wanted to set out a new economic stall and it did so in the July Budget.

Then it had a November Spending Review and Autumn Statement. And now this.

The Autumn Statement is not meant to be a Budget, but anyone glancing at what it did - a climb down on tax credits, spending cuts, stamp duty increases, an apprenticeship levy and an extension of the Help to Buy scheme - would be hard pressed to tell the difference.

'Huge amount of work'

Julian McCrae, Deputy Director of think tank the Institute for Government says: "Osborne said that he would have one proper Budget and then the Autumn Statement would 'foreshadow' it. But it's not worked out like that. These things have a dynamic of their own. They grow. In a sense they are unstoppable."

And they have reached a prodigious size. Mr McCrae counted 77 measures in Wednesday's Budget, which he thinks is close to a record, although he thinks some of Gordon Brown's Budgets may have come close.

He said: "That is a huge amount of work. 77 things that have to be worked through, 77 things that have to be planned and thought out and put into action."

Image copyright Getty Images
Image caption Spot the difference: George Osborne just before delivering his Autumn Statement

Giles Wilkes agrees. He is a former special advisor to Vince Cable, Secretary of State for Business, Innovation and Skills in the Coalition government. He told Radio 4's PM show: "From the policy making point of view, policy gets much, much worse when you have a Budget or an Autumn Statement.

"It's a time when the Treasury takes control pretty much of the whole government. Everything gets settled in last minute arguments.

"There's a huge appetite for gimmicks and showy things so the more Budgets you have probably the worse your government policy is, so the last twelve months haven't been good from that point of view"

Paul Johnson, Director of the Institute of Fiscal Studies thinks the problem is deeply ingrained in government: "There's a problem with the way we make tax and economic policy because it is all done in secret, sprung on us all at once, twice a year.

"We have too many of these and we do them in the wrong way."

Wild ride

The government has a legal duty to publish two economic forecasts each year. The temptation is that, having done so, it should announce some kind of response.

In fact the months since November have seen dramatic changes in the global economic climate with the Office for Budget Responsibility saying the outlook is "materially weaker".

The Chinese economy slowed dramatically, and the markets had a wild ride through the first two months of the year. It had a direct effect on government policy - for instance market volatility forced the chancellor to put off the sale of the government's remaining stake in Lloyds Bank.

When the economic weather is so unpredictable surely government should respond as and when it can.

Mr McCrae doesn't think that is what the Budget is about: "The chancellor said that things had got worse in the global economy, and in response he said he was going to reduce spending in 2019/20 by £3.5bn to, as he puts it, live within his means.

"He didn't say where he was going to make the cuts. He said he would set up a review. The rest of the speech was on the sugar tax and education and so on - not to do with the economic forecast.

"It was not driven by an update on the economic forecast. The world changes and you need to respond but the Budget goes way, way beyond that."

Budgets also create a huge workload not just for government but for businesses.

Image copyright Getty Images
Image caption That was then. The Coalition's last Budget, just 12 months ago

Politics not economics

Niki Dixon, business tax director at accountancy firm Deloitte said its clients hated it; "It's awful. If my clients had one request it would be to be able to plan with certainty. All this constant change makes it so much harder to plan, say five years ahead, when your biggest annual event is your tax bill.

"For instance the increase in the dividend tax due on the 1st April means that most of my business clients have to work out how much they can afford to pay and the Budget obviously creates distortions."

So why does it happen? In the end it seems it's more about politics than economics. As Giles Wilkes says: "It gives you a great chance to pull lots of levers and get lots of attention."

But the final irony is that there is precious little evidence that Budgets do anything for the government's (or the chancellor's) standing in the polls.

Mr McCrae said: "Chancellors seem to think they are popular events but look at the polling figures and Budgets make very little difference to popularity.

"You are taking a big risk standing up and coming out with an economic policy and it can go badly wrong. But the thing about chancellors is - they like to think they are setting the agenda."

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