The budget was a disgrace. The government has washed its hands of any attempt to relieve the worst recession since the 19th century. Indeed, there's a resolute refusal to use government, in a creative fashion, to do anything direct to address the raft of inter-related problems which plague the economy – unprecedently strained bank balances, companies hoarding record amounts of cash and squeezed public and private investment. Instead, Mr Osborne clings to the belief that the elimination of Britain's structural public deficit is the key to growth and prosperity – and that once realised, the private sector will take off. It is absurd. He might just as well as sacrifice virgins.
Worse, the budget speech was littered with dissimulation and sometimes near-lies that are a black mark on British public life. The withdrawal of additional tax relief for over-65s is not a tax simplification. It is a tax increase – perhaps amply justifiable because lucky baby boomers should take their share of the burden – but a tax increase nonetheless.
Nor is it true that Britain has record public debts. It did have a record annual public deficit in 2009/10 as the budget papers say. But that is not debt. Debt is an aggregate figure, the consequence of cumulative deficits over decades. Expressed as a proportion of GDP, debt has been higher than current levels for most of the last 250 years. Indeed, with the cost of servicing public debt at the lowest since the 1890s there have been very few decades since the 1760s when the cost of servicing public debt has been so low. Britain, despite the Orwellian attempt to misuse language, does not have a debt crisis.
Nor is this just nitpicking: recognising this distinction opens up wholly different strategic options. A country with such modest debts and astonishingly low interest rates, but with large annual deficits, has a much wider range of choices about how to respond than the government lets on. It can use the public balance sheet to launch a range of initiatives which address seriously acute malfunctions rather than fiddle at the edges.
For example, it does not have to set up complex vehicles for pension funds and foreign investors to fund much-needed British infrastructure projects, which will, in any case, almost certainly fail unless the government has the courage to create income flows, such as allowing road pricing or motorway tolls that service the investments. The government can deliver such projects itself either directly or via a public Infrastructure Bank. Options are talk to replace action. It smells of economic cowardice.
In fact cowardice saturates this budget. To lift stamp duty to 7% on homes valued above £2m, accompanied by measures to stop stamp duty being evaded by the rich, is to play to the gallery. Nobody can disagree politically. But the brave action would have been to recognise that Britain's tax take from property is, in the round, absurdly low. We all, the rich included, pay council tax on house values that are more than 20 years old, because there has been no revaluation since 1991.
The chancellor should have announced such a revaluation, scrapped council tax and replaced it with a graduated system of property tax, similar to the old rates. Instead of getting a little extra from the 200-300 £2m-plus homes that are sold every year, he could have raised the annual tax take on rich property owners by billions. That requires imagination and courage – beyond Mr Osborne just as it was beyond Mr Brown.
Lowering the top rate of income tax to 45% also smacked of cowardice – giving way to a mob of self-interested higher tax payers who argued that it was a tax on "enterprise", and was justified by yet more dissimulation. The chancellor said the cut would only cost £100m, a figure he must know is a brave guestimate, based on the view that Britain is locked in an epidemic of tax evasion that makes the Mafia look like a bunch of Church of England vicars.
As the Institute for Fiscal Studies commented, we simply do not know enough after one year of the higher 50% rate to make any secure statement about how much it is evaded or avoided. The government has simply run up the white flag. And anyone who believes that a 45% top rate of income tax will suddenly unleash a wave of dynamic entrepreneurialism needs to lie down quietly in a darkened room.
Instead of irrelevant wheezes and this hotchpotch of tax measures as the IFS described it, the chancellor should have confronted head on the causes of our ongoing slump. (Output is still below peak 2008 levels and is projected to recover only in 2014.) Bank assets are five times our national output and need to be reduced; and banks want to contract their balance sheets rather than grow them. As a result, British small and medium-sized businesses are facing a potential funding gap of £190bn by the middle of the decade, according to the government-commissioned Breedon report.
The response, to establish the £20bn national loan guarantee scheme, is besides the point. It does not guarantee new lending, but rather old deposits – and is so irrelevant that the banks had to be arm-twisted into joining. One finance director told me that it might even raise funding costs because of administration expense – all for an exercise his bank did not need. What he, and other banks, need is the capacity to bundle up new loans into new aggregated investment vehicles that the Treasury can indemnify, and which can then be bought by investors or by the Bank of England's quantitative easing programme.
I have argued for this. So has the Breedon report. It is the only secure way to ensure bank lending rises over the years ahead. But it means using the public balance sheet creatively, innovatively merging fiscal, financial and monetary policy. Not a runner from today's complacent chancellor betting all on deficit reduction.
And the pain is all to come. According to the IFS, 88% of the planned spending cuts lie ahead over the next four years – a scale of continual spending reduction never contemplated nor delivered in our history. Public provision of everything is to be emasculated, with welfare in the front line. We now also learn that public sector pay in the regions, a last prop for many local economies, is also in the frame. Despite all this, and despite a darkening international economic situation as oil prices rise, the Office for Budget Responsibility blithely forecasts that business investment is to climb by 40%, the largest increase since the war. It is a ship of fools with the deluded at the helm.