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As we prepare for George Osborne to unveil his budget at 12:30 today, this could now be the last chance for the chancellor to inject growth into a stagnant economy. The Center for Global Liberty and Prosperity's Dalibor Rohac thinks the coalition has missed this chance:
First, the problem with his cuts is that there aren’t enough of them. According to the Office for Budget Responsibility, total government spending will increase from £690.9bn in 2011-2012 to £731bn in 2014-2015 and then to £755.1bn in 2016-2017. Although these are nominal figures, it’s hardly the savage contraction depicted by some critics of the government. The deficit is also rising. In 2011-12, the government borrowed £121.6bn, or 8 per cent of GDP. Once one-off factors have been removed, the underlying deficit is up this year.
Secondly, Osborne’s austerity has so far been reliant on tax hikes. Although the tax free income tax threshold is rising, the level at which people pay the 40 per cent rate is due to drop to those on annual incomes above £41,450 from April. “Sin taxes” on cigarettes and alcohol have continued to go up. And importantly, the early increase in the standard VAT rate, from 17.5 per cent to 20 per cent in January 2011, slowed down the recovery of retail sales. It is also perceived – rightly or wrongly – as disproportionately hitting poorer parts of the population, reinforcing the image of the Tories as an “anti-poor” party.
Perhaps Osborne still has a chance as some indicators suggest that the confidence is improved. YouGov chief executive Stephan Shakespeare explains:
The YouGov HEAT (Household Economic Activity Tracker) index has built on its significant gains in February with the mid-month figures showing a rise from 98 in February (which was up from 94 in January) to 102 in March.
The Index – which combines household financial situation, job security, house price expectation and economic activity in the workplace – is out of 200, so a score above 100 represents a situation where more people feel positive about the economy than negative.
It is the first time we have seen this since June 2010 and 102 is the highest score since May 2010.
Good signs then but how robust is that recovery in confidence? The evidence of last year is that what Osborne says today could have a crucial role to play. The first chart focuses on December 2011 to June 2012; we can see that in March last year, as now, we had seen a recovery of confidence (up from 88 in December 2011 to 98 in March 2012). This gain was arrested and confidence slipped back after the so-called omnishambles Budget.