Will Inflation Scupper The Forgotten Budget?

George Osborne MP, pictured speaking on the la...
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It seemed to have slipped out of the media’s attention, what with all this Libyan stuff, but the Budget is rapidly approaching once again. No doubt the conflict will change the narrative a little but up until a couple of weeks ago, this budget had a lot riding on it. Already, Cameron and his advisers are looking failure in the face and relying on George Osborne and his budget to retrieve what has looked like an increasingly fragile position.

Cameron was busy bigging up the budget, telling anyone who would listen about how ‘pro-growth’ it was going to be. An odd thing to promise when George isn’t planning on offering any significant tax cuts. He will, though, offer plenty of misdirection and sleight-of-hand to distract us from the ‘swingeing’ cuts that are about to come into force next month.

Having shadowed Gordon Brown as chancellor, Osborne learned well how to use one of the rare occasions when the Opposition have no real foreknowledge of the announcements to put the Government in the driving seat. Since new year, Osborne has held back announcements that the various ministries could have made for use on Budget day to do exactly that.

Of course, he has a lot of work to do to put project Cameron back on course. After his initial budget, George was only ever intending to make slight changes to the original deficit-reducing plan. But none of the cabinet seem to have expected what everyone else warned them about all along. Reduced economy, increased inflation, rising oil prices and falling living standards. All of which is viewed through the prism of cuts.

The fact that these things seem to have taken the Government by surprise says an awful lot about David Cameron and his cabinet team. They complain noisily about all the things that stop them, blaming everything but their own policies. They’ve even managed to blame the judiciary and the UK civil service, a sure-fire way of making sure nothing ever happens to your policies as a Government. It’s the civil service who enact all the theories after all.

Inevitably, following this particular insult, the civil service is being a little less helpful than they would normally be. When the Sir Humphreys of the modern world want to follow the rule book to the letter, life can be very difficult for the elected ministers. Those ministers have realised they’re outnumbered and outmanoeuvred by the mandarins of Whitehall, with at least one Secretary of State organising a Freedom of Information request against his own department to get information.

When Team Cameron were in opposition, any problems with the smooth running of Government, were laid firmly at the feet of Gordon Brown and his ministers. Now that they’re in power, Cameron and co have decided that the blame needs to be laid even more firmly at the feet of those famous ‘enemies of enterprise’, the UK civil service.

On top of the economy, there have been unforced errors like the failed evacuations from Libya and the inability to get paperwork processed so that British rescuers could help with the aftermath of the Japanese earthquake.

So the Conservative Government isn’t working very well at all. And the Cameroons are relying on George Osborne to turn it all around. It’s George who runs this government after all. He is the one who makes the day-to-day decisions and very little gets done without his say so. Cameron is little more than a figurehead in this set-up. Chancellor Osborne has even more power than Chancellor Brown did, because PM Cameron is nowhere near as capable as PM Blair ever was.

George has his hands in lots of pies whether it’s the individual Whitehall departments or the organisation of number 10, newly filled with old Osborne staffers and appointees. With all Government policy and practice being run through the Treasury, Osborne’s budget takes on even more importance, and the demands for pro-growth have grown as the Parliament has gone on. Can George save the Cameroon project and enact the reforms (for which read cuts) in Government in time to have any effect? With the time it takes to have an effect, there’s a good chance that policy announced in this budget won’t have much impact before the scheduled date of the next general election leaving the public with nothing but a sense that this Government has failed.

But it could already be too late for the Chancellor. Today, the Retail Price Index figures for February have been released and is now at 5.5%, its highest since 1991. The Consumer Price Index is now also up, sitting at 4.4%. No matter which measure you prefer, inflation is up. This increased inflation will mean the Government will have to borrow more than planned, putting Osborne slightly on the back foot already. The Chancellor will say, and indeed is already saying, there’s less taxes being paid because prices are rising above the rise in earnings. And with benefits index-linked to inflation, the cost of those is increasing faster than planned as well.

That line from the Treasury makes it sound so unexpected as if it was some unforeseen natural disaster. But the truth which Osborne is glossing over is that benefit costs are bound to increase when the Government policy is to cut jobs and make people redundant. Prices are bound to increase faster than earnings when you’re promoting pay freezes across the public sector (and consequently the private sector who have them as customers). Retail purchases will always drop if you deliberately increase the price of all those purchases with a VAT increase right when people need to watch their money closely.

So instead of cutting the deficit, it’s highly likely that the Chancellor will have to increase it and all because of the policies he has enacted since he arrived in power last May. The great hope of the Cameroons that Osborne will turn around a failing Government is beginning to look less and less likely but we’ll find out tomorrow as he rises at the despatch box of the Commons.

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