Budget 2016: High politics may trump real policy

George Osborne will publish his seventh budget less than four weeks away on 16th March 2016 and with a looming referendum and high politics dominating the agenda, it’s likely to be his most short and technical to date.

There won’t be much of substance on higher education because there was a long list of Treasury announcements just a few months ago. The spending review published in late November confirmed a major expansion of student loans in the next couple of years, cut HEFCE’s other spending, ended nursing bursaries and increased the science budget. Having put all this in play, there is a good case for the Treasury to step back and let the Department of Business sort out the details. Implementation clearly isn’t easy which is why there’s some doubt about whether there’ll be a higher education-related Bill and also why the 2016 HEFCE grant letter hasn’t yet been published. 

The EU referendum is a bigger reason the 2016 budget won’t be like George Osborne’s previous ones. Whatever your views on the referendum itself, the campaign will have huge ramifications for the UK government and for politics in general. The sight of six cabinet ministers lining up to support the Leave campaign means that a suspension of business as usual for the next 18 weeks.

Although there will be great efforts to smooth differences within the Conservative party, the fact that there are two sides on such a big issue for the UK will make cabinet ministers more cautious about their decisions. Like previous chancellors, George Osborne tends to fill his set piece budget speeches with populist announcements. A bit of science funding there. A new University in Hereford there. It’s difficult to see him managing to do this on March 16th because every decision will have to pass an #EURef test. If he makes constituency-level spending announcements, commentators will just ask whether he’s trying to reward, bribe or punish the MP involved for their EU position. George Osborne normally uses his fiscal speeches to make some jokes and promises to maximise political advantage. This time round, he’s likely to judge the mood is a bit more serious.

It’s not as if there’s a lack of serious issues for him to address. Fears of a new world recession may yet prove to be overblown but his own tax, spending and deficit reduction are all vulnerable to small corrections that could push them off course. It is perfectly possible that UK tax revenues may fall short of target this year and next in which case the deficit may not contract in 2015-16 and 2016-17.

As the Institute of Fiscal Studies has explained in great detail, the Chancellor has very little room for manoeuvre either on tax or spending if this happens. The Government has passed laws to make most tax increases harder. And on the spending side, it would look like panic if the Treasury varied budgets just sixteen weeks after they’d announced them. The best course is undoubtedly to bluff the short-term while announcing some changes for the medium term which shore up the fiscal position.

This is where the technical changes come in. There will be plans to reform the tax rules, to cut reliefs and to extract a little bit more cash from those with bigger pockets. Like it or not, this category may include the tens of thousands of people in higher education who pay the higher (40%) rate of tax and who have a workplace pension. A big technical reform of pension tax relief may be a route to raise a reasonably substantial sum in a few year’s time. George Osborne has done this sort of thing before. Three years ago, in 2013, he announced a big pension reform which comes into effect this April. The national insurance bill for public service organisations (including universities) is about £5 billion a year for employers and their staff but the three-year delay in implementation deadened the impact of the reform. The announcement got little attention because it was smothered by other proposals. So boring at is it sounds, read the small print.

Budget day in the House of Commons is now a familiar routine. This one will very probably be less of a spectacle, but it’s inconceivable there’ll be nothing in at all. George Osborne will be operating under more constraints than usual but he’s an ambitious politician with a personal poll rating that is falling. And budgets still get announced even if everyone is distracted.

Gordon Brown made his 2003 budget speech on the day that the US army entered the centre of Baghdad and toppled the statue of Saddam Hussein. Brown faced plenty of constraints, but made sure he secured some positive headlines with a new child trust fund. Osborne will be in a similar position. His old budget tricks may be harder to repeat but some new ones should be possible. He’ll say something about big company tax bills to show that he’s heard the outrage about Google. He’ll find a policy with a slogan to secure the evening new bulletins. It’s a virtual certainty that the chosen topic won’t be a higher education issue.

Meanwhile, the important budget themes in higher education are the old tunes. That missing HEFCE grant letter (which is now later than comparable documents in every other part of the Government spending). The impasse over the Green Paper. Rising costs. Flat income. Difficulties in raising workforce productivity. Falling applications from UK nationals. An HE teaching model increasingly dependent on student loan debt, residences and non-UK applications.

The Treasury may have some a big challenge in reaching a sustainable budget situation. They’re not alone.

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