Budget could be surprisingly radical

Allister Heath
MAYBE, just maybe, this Budget could end up being a big deal, a defining shift in direction for the coalition and the day George Osborne finally rediscovers his radical inner self. I certainly hope so, and there are growing signs that this may be the case – but instigating a revolution would require breaking away from the spin and continuity Brownite economics that still plagues this government.

Take the temporary suspension of Sunday trading laws – these absurd, antiquated and anti-consumer rules that limit opening hours for all but the smallest shops to just 6 hours – for the duration of the Olympics. Is this a gimmick – or is this the beginning of the end for one of Britain’s silliest pieces of red tape? Permanent change will require a consultation – a process which has neutered reform in other areas, including employment law – even though analyses during the Major and Blair governments all showed that the benefits of the reform are much greater than its costs. If shops are forced to close early again when the athletes go home, we will know that the coalition isn’t really serious about supply-side reform.

David Cameron is making a big deal of tapping private sector funds to build, finance and operate new toll roads, another good idea. But will real change happen? Will firms actually be allowed to build large number of roads – or is this merely a symbolic gesture which will have no real effect on the economy? The same is true of the coalition’s planning shake-up: will it really make a difference? We will soon find out.

One reform that appears more certain to materialise is the proposed ending of national pay bargaining for the public sector. The Institute for Fiscal Studies, Policy Exchange and others have demonstrated that public sector workers are paid more than their private sector counterparts. But this conceals a huge disparity across the country: there is no state sector premium in the south-east of England, while in Wales it is 18 per cent. Because they are set centrally, with no regard to the local cost of living, public sector wages are far too high outside of London and the south-east. In many areas the best and brightest all want to go and work for the state, and private employers are squeezed out. Over time, this excellent reform could lead to far fewer distortions in the labour market.

Then, of course, there is tax. Let us hope that the 50p tax rate is abolished immediately and entirely – most commentators believe that a cut to 45p is more likely, perhaps starting in April 2013. This would cast doubt on the overall radicalism of the Budget: the chancellor should either go the whole hog or not bother. This tax is popular but it destroys incentives, jobs and growth; getting rid of it would be the best possible signal that Britain is once again supportive of hard work, success and wealth creation. The personal allowance is meant to be going up to £10,000 by 2015; the chancellor may bring this forward by a year, which would help nearly all taxpayers. Corporation tax will fall to 25 per cent in April and 23 per cent by 2014; the Chancellor may wish to signal further moves, but long-term hopes are no substitute for short-term reality.

Whether by accident or design, Osborne could be on the verge of delivering a truly radical Budget. If he pulls it off, defying all of his sceptics, including myself, he may yet be remembered as a great Chancellor.

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