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We do have among the most heavily taxed fuel in the world in the UK

By Ian Fraser

Published: Newsnet Scotland

Date: Wednesday March 12th, 2011

George Osborne - Budget 2011 - with Budget Box outside 11 Downing Street

George Osborne is a very different animal from the more bombastic Gordon Brown but judging by this afternoon’s performance, there are some similarities. Both like to stuff their budgets full of minor fiscal tinkering, unleashing a torrent of bamboozling fiscal tweaks and superficial measures purportedly designed to boost economic growth, many of which had been well trailed and leaked in advance by the sieve-like Treasury.

Yet while Brown’s voice was a consistent hearty boom — in keeping, perhaps, with his unrealistic vision for the UK economy — Osborne’s is a less impressive nasal whine. Perhaps this is more suited to our straitened fiscal circumstances, but his delivery hardly instills confidence. And it didn’t help matters when the chancellor almost completely lost his voice about half-way through Wednesday’s speech. However, like Brown, he did manage to end with a vote-garnering flourish. In Osborne’s case this was the scrapping of the fuel price escalator.

The key fiscal message to take away from Osborne’s budget — and which all the fiscal tinkering and all the hubris about “a budget for growth” was perhaps designed to cover up — was that his government’s medicine for the UK economy does not appear to be working. Ed Miliband, the labour leader, was quick off the mark on this one, commenting in his budget response:-

“What is the Chancellor’s singular achievement? To deliver a budget for growth that downgrades the growth forecasts. Down this year to 1.7%. Downgraded next year too. It didn’t happen by chance. It happened by choice. His choice. And it’s the wrong choice. To go too far and too fast. There was another way.”

In his 56-minute speech, the chancellor admitted that UK economic growth will be slower than forecast in 2011 and that the country needs to borrow more than previously envisaged over the next five years. These admissions are suggestive of failure — and at best the jury is out on whether the coalition’s tough medicine is going will cure the UK’s economic ills or whether the chancellor’s optimistic targets for reducing the deficit and the national debt will be achieved.

In his post-budget analysis on BBC2 Scotland, the BBC’s Scottish business and economics editor Douglas Fraser described the budget as surprisingly political and populist, especially given the fact the government doesn’t have an election to win until 2015. Fraser pointed out that Osborne’s budget included a string of measures purposely designed to win votes from Middle Britain whilst effectively “bashing” unpopular entities that don’t actually vote, such as banks and oil companies. The latter have been hit with a £2bn a year windfall tax, which the North Sea oil and gas industry has already started squealing about, saying it will “decrease investment, increase imports and drive UK jobs to other areas of the world.” For companies that have recently bought into the North Sea, it will be bad news indeed.

Yet I can see that if the government wants to win acceptance for further austerity measures, then it wouldn’t exactly make sense for it to court deeper unpopularity now.

A great many of the measures introduced by the budget were designed to boost entrepreneurialism and rebalance the UK economy away from its misguided dependence on financial services. But many of these — including the introduction of 21 new enterprise zones and planning reforms — don’t actually apply to Scotland.

It will be up to the next Scottish government to decide whether to play ball. David Lonsdale, assistant director of CBI Scotland said: “With the levers available to an enterprise zone often a mixture of the reserved and devolved … it will be crucial that the UK and devolved administrations work together to ensure Scotland does not miss out.”

Form an environmental perspective the budget was disastrous. Richard Dixon, director of WWF Scotland was particularly disappointed. He said:

“Despite some progress on green investment, the major items in the Budget were simply give-aways for the roads lobby and the nuclear industry. The reduction in fuel duty was unexpected and combined with company car incentives and the freezing of Air Passenger Duty, the UK Government’s transport policy is clearly going backwards. With no further news on Scotland’s carbon capture trial, the scrapping of the carbon capture levy and no major investment in renewables this is a particularly disappointing Budget for Scotland.”

On this score, I particularly liked some of the tweets the New Economics Foundation’s Andrew Simms tweeted during the budget speech:

“The budget is firefighting a blaze of the economy’s own making, & mostly by piling more wood, instead of building a fireproof future”

“Bonkers to use oil profits to keep people hooked on cheap fuel – oil tax should go on transition. Just guarantees future insecurity”

“Just a nothing #budget. To listen, you wouldn’t think we’re facing massive energy insecurity, & playing climate roulette with the atmosphere”

My overall verdict is that while the budget goes some way to helping relieve the pressure on household incomes with its tinkering with fuel duty (and despite what so-called “dark greens” like Dixon and Simms say above, we do have among the most heavily taxed fuel in the world in the UK) – I’d agree with Douglas McWilliams, chief executive of CEBR. He said: “At first sight the micro measures look worthy rather than earth-shattering; unlikely to raise investment growth until 2013 at the earliest and unlikely to have significant effect on productivity until 2015 and beyond.”

This article was first published on Newsnet Scotland on Wednesday March 12th, 2011

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