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Tuesday, 24 October 2017

Right, by George

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Anthony Peters shows his appreciation for the UK Chancellor but no excitement for the budget.

Set piece politics. The Rt Hon George Osborne, Chancellor of The Exchequer, leaves his official residence at 11 Downing Street late morning, sporting a rather beaten-up red briefcase. He shows it to the photographers who could, if they cared, use stock footage from the same event last year, the year before that or even the year before that but they don’t. Osborne then proceeds the few hundred yards to the Commons Chamber at Houses of Parliament and stands up at 12:30 to deliver the budget speech. This will be his fifth budget and he is still only 42 years old.

Anthony Peters columnist format

Anthony Peters

SwissInvest strategist

Despite being a lifelong Conservative and a constituent of David “call me Dave” Cameron in the Witney constituency in the rural Oxfordshire Cotswolds and despite drinking in the same pub, The Tite Inn in Chadlington, I have never really warmed to the party leader. The Chancellor, on the other hand, has impressed me since his elevation to high office at such a tender age.

The show is currently for a very different audience. Not really a day for the City to cancel lunch.        

Criticised when he took over at the Treasury for being a “toff” with no experience of what it’s like to be an ordinary person – I heartily dislike that term for I believe that each and every person is extraordinary in their own way – and for refusing to concede that the famous “Plan B” existed as a viable option, he has relatively safely brought the economy out of recession again.

Damage limitation

Although I would be the first to acknowledge that politicians ride economic cycles rather than creating them and even a donkey in the Treasury would have presided successfully over this cyclical recovery, the question is as to how much permanent damage would have been done to the nation’s finances along the way. It was easy four years ago to declare that Osborne’s policies were doomed to failure and that the country was set on a path of self-destruction. It is now just as easy, seeing that it has not imploded and left 10% of the population out of work, to crow that another policy, maybe “Plan B”,  would have led to a speedier and more forceful recovery.

Judging by the experiences of most of Britain’s close peer group across Europe where relatively fast and reasonably sharp austerity was pooh-poohed and where attempts were made to spend oneself out of recession, the British can be fairly pleased with the outcome. Is it ideal? No. Is it successful? Somewhat. Is it better than the alternative? Probably yes, although one’s thinking on that is surely largely a matter of one’s political bias.

Osborne will be trying to demonstrate that he got it right and his opposite number, Ed Balls, will be questioning that all the way. Ultimately, in a year from now, it will be up to the electorate to decide. The most recent opinion poll by Ipsos MORI has Labour leading on 35%, the Tories trailing marginally at 33%, their coalition partners, the LibDems at 13% and that  odd and slightly rogue bunch, UKIP, on a rather surprising 11%. UKIP is set to do more than just pretty well in the pending European Parliament elections but my guess is that, when Westminster is up for re-election, the protest vote will largely return to base.

The squeezed middle

The budget today will probably reveal nothing of real significance. Fiscal policy has been reasonably stable under Osborne but he will want to entertain the audience with some clever head-lines which will promise to give back part of what he taken away from the “squeezed middle”, her Majesty’s Loyal Opposition’s prime target, in the past few years. The major head-line grabbers have already been leaked – tax breaks on childcare and so on – but there will no doubt be a few fireworks left. By the time he sits down again, we will have heard it all but it won’t be until tomorrow morning that the number crunchers at the large accounting firms will be sending out their analyses and telling us what the actual impact will be on us individually.

There is, however, no doubt that fiscal policy will remain fairly tight and that the “give-aways”, as far as there are any, will be set to impact the floating voters. Politicians are not stupid – they know where elections are won and lost. Osborne has the tail wind of a cyclical recovery to play with and it will be up to him to make the best of it. What until recently looked like an un-winnable election for the coalition in 2015 is suddenly within their grasp and today the Chancellor, the co-pilot, is taking over the controls.

Impact on gilts? They are being driven by the Bank of England and QE so nil. Impact on Sterling?  Can’t really see one. Equities? They are also in the clutches of wider global economic and political dynamics and unless Osborne makes major changes to corporation tax or CGT which I regard as unlikely, insignificant and barely lasting.

Therefore, as far as markets are concerned, today will produce a budget speech which might just as well not take place. The show is currently for a very different audience. Not really a day for the City to cancel lunch.                                         

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