Budget 2016: why it’s not just about the deficit

As speculation mounts about the budget on Wednesday 16th March, Victoria Winckler broadens the debate.

On Sunday, I was a guest on the BBC’s Sunday Politics Wales show, talking about the options for the budget along with former adviser to Margaret Thatcher, Patrick Minford.  To prepare, I waded through a mountain of news reports and commentary about Osborne’s options, most of which were strikingly repetitive. Over and again journalists wrote about the £18 billion hole in the UK’s finances that the Chancellor needed to fill, arguments raged about whether now is the right time for the Chancellor to raise personal income tax allowances or raise fuel duties, and the prospect of further cuts to social security benefits were floated.  There was no discussion of what a budget is for other than balancing the books, and there was little debate about what the Chancellor could do differently – either on spending or tax raising.  So here’s my attempt to broaden the debate.

Important though the deficit is, there are much bigger challenges

Climate change could bring huge risks of flooding, extreme weather and threats to food production to name but a few; population change is raising important questions about how to provide adequate health and social care services and income in retirement as well as how to use the skills and experience of older people more effectively; and inequality, in terms of income, people’s characteristics and geography, is wasting lives and talent as well as costing a fortune.

Even if you accept Osborne’s self-imposed plan to eradicate the deficit by 2020, it is possible for him to use the £760 billion total UK expenditure rather differently to tackle these issues.

How should he spend it?

First, and most obviously, the Chancellor should invest in infrastructure. With borrowing costs at an unprecedented low, now is the time to invest in better public transport, flood defences, home insulation and renewable energy. Even organisations such as the EY Item Club are calling for an easing of austerity.

In Wales this could mean funding for the metro, approval for the Swansea Bay Tidal Lagoon project, and extra capital for new social housing and a dramatic step-up in home energy efficiency.

Second, public services – and especially the core services of health and social care, education and justice – need to be top quality. This will not happen on the cheap, so spending that is enough to meet needs is essential.

And third, there has to be some protection of living standards for the least well off – a social floor if you like – of food, shelter, warmth and cash below which nobody should fall. Welfare benefits have been cut so deep that some have fallen below this level. And going along with that, the high marginal tax rates are faced  by people on low incomes as benefits are withdrawn. This should be addressed as a matter of urgency – nobody on high incomes would tolerate such punitive taxes.

How should he raise it?

The most obvious way that the Chancellor could begin to fill the hole in his budget is to stop aggressive tax avoidance. This is nothing new or original and yet despite the potential gains, closing the many and various tax loopholes does not seem to be in the frame.

There is also much that Osborne could do to consider using the tax system rather differently.  Yes, taxes raise money but they also change behaviour. “Sin taxes” e.g. on alcohol are well known, but could be greatly extended – there is no shortage of “bads” that could be discouraged through taxation as well as raising revenue. A tax on added sugar in food and drink is the most obvious, but there are many more options.

It remains to be seen what Osborne will announce. But if there’s to be progress towards a better society and economy we need to broaden the debate.

Victoria Winckler is Director of the Bevan Foundation. Her appearance on Sunday Politics Wales is available to view here for a limited time.