Published on March 18th, 2016 |
by Eleanor Newis
Budget 2016: “A Budget for the Next Generation”?
By now, the dust should have settled on the 2016 budget, the latest instalment of George Osborne’s plan, but it would seem it hasn’t. A matter of hours after Osborne had held forth at Westminster, the Education Secretary, Nicky Morgan, spoke to the media, saying that the proposals to cut dIsability benefit were a “suggestion” and “under consultation”, and the government may back down. And, as of the last few minutes, Iain Duncan Smith has resigned over the disability benefit changes, citing also his dissatisfaction with the government’s cuts from the start. The significance of this story goes beyond the usual parliamentary squabbling: throughout his tenure as Chancellor, Osborne has illustrated time and time again that he is a politician, not an economist, and as a result this little row is much more important. It is making the aftermath of the budget look rather disorganised, and exposing the cracks in Osborne’s latest coat of plaster.
As with the past budget offerings from the Chancellor, this one is more soundbite than substance: yes, there are things to help small businesses, there is the lifetime ISA policy, and there are tax alterations which have solid arguments behind them. But, yet again Osborne’s rhetoric is bigger than his politics. His headline (repeated, as usual, several times just to make sure the journalists had time to write it down and underline it), was “a budget for the next generation”, words which were welcome after the last five years being toughest for young people. These words were also welcome in an economic climate in which the recently retired are now wealthier than the over-45s, and youth unemployment is the highest-rising demographic of people out of work. It is worth examining exactly why George Osborne decided to position his new budget as a budget for young people, for children: it could be the Chancellor has finally been to enough focus groups to get the message that his measures have actually been making things a tad difficult for younger people, but I would suggest there is a bit more to it all. I think it worth remembering that the majority of people who have jumped on the Corbyn bandwagon, and the people who are in large part responsible for its gathering speed, are in the younger demographic which has been mostly neglected up till now by the Conservatives. Might it be that Osborne has caught wind of this?
The result is a budget where the headlines are a sugar levy (for the children’s health) and a lifetime ISA for people up to the age of 50 (for young adults). The sugar tax is of course a response to the growing obesity crisis, and the two-year stretch before its implementation intended to prevent manufacturers getting too annoyed; the ISA policy is a little more complex. Will it help young people? Well, it’s called a Lifetime Isa and it does live up to the name, being available to anyone between the ages of 18 and 40, and running for those involved up until their 50th birthday, at which point they would be given a 25% taxpayer refunded bonus. The idea, according to financial analysts, seems to be to encourage younger people to accrue cash in tax-free Isas instead of building up their savings in pension funds. Osborne said in his speech that it “is the equivalent of tax-free savings into a pension and, unlike a pension, you won’t pay tax when you come to take your money out.” If you have one of these Isas, you can contribute up to £4000 per year, and you’re entitled to a 25% bonus, which could mean up to £1000 in bonus payments per year from the government. This is similar to the Help to Buy Isa, which the government launched a while ago; if you already have a Help to Buy Isa, you can transfer all the money into the Lifetime Isa free of charge if you choose to.
Now, this might seem like a very good deal, and by and large it is: you have to put your savings somewhere, and putting them somewhere with that many bonuses isn’t a bad idea. The Treasury has also cashed in, as remember, if people put these savings into pension funds, the Treasury has to wait years until they can tax this money; if they use the Lifetime Isa, then they are putting taxed income into the Isa. Basically, Osborne has constructed a policy which means he’ll get money into the Treasury in advance, if this policy takes off. Osborne may well need this money, as his predictions for that £10 billion surplus in 2020 are being looked at rather sceptically by the IMF, as well as various commentators. I am not by any means against the Lifetime Isa: the government providing any sort of financial product to help those in need is a good thing, in the aftermath of a crisis caused largely by private banking debacles. The new Isa will help, yet the problem is that it will help in the future, and in the present, the situation of my generation remains extremely tenuous.
Whilst the Help to Buy programme was designed to get more young people on the housing ladder, a third of the people taking up this offer have a total income of over £50, 000 per year, and over 2, 000 of the people on the Help to Buy programme have a collective income over £100, 000. Financial incentives aimed at the mid to high income brackets just don’t fully address the problems facing the young adult demographic. Furthermore, 42% of the government’s budget is still going to be spent on pensioners and health, and not that I don’t care about them, but this has risen steadily from 34% in 1997, whilst the percentage spent on young people has gone steadily down. The state pension is set to rise by at least 2.5% every year from 2016, yet benefits for people who are of working age have fallen since 2008; young peoples’ housing benefit has also been cut, and it has been announced the maintenance grants for students from poor families will be turned to loans. This of course means they will have to be paid back: the turning of maintenance grants to loans could actually mean that because poorer youngsters will have to borrow more from the state, the will end up in more debt at the end of their studies than richer students.
In essence, I think that Osborne is trying to appease a generation known for being (until Corbyn came along, that is) detached from politics, but he is not trying hard enough. Whilst his sugar levy will begin to help children’s health, as companies have to lessen their glucose content, and the Lifetime Isa will help many young adults save more, and encourage this, these changes are too slow. The levels of youth unemployment, of graduate unemployment, and the lack of young adults on the housing ladder, are untenable. Osborne simply needs to act quicker. As usual, he has found a good line to repeat (“a budget for the next generation” does sound rather good), but that isn’t enough anymore. In his resignation letter, Iain Duncan Smith said that “the cuts would have been even fairer to younger families and people of working age if we had been willing to reduce some of the benefits given to better-off pensioners.”
This is a turning point in the sense it represents a breaking of ranks on the Conservatives attitude towards younger voters. Smith’s resignation letter also stated that the cuts to disability benefit are “indefensible”, and asks that the Prime Minister “look again […] at the balance of the cuts you have insisted upon and wonder if enough has been done to ensure “we are all in this together”.” This is pretty dramatic stuff for a cabinet resignation letter – normally these rows are smoothed over and we are told someone needs to spend time with their family. As I write this various pundits and commentators are analysing the resignation, the cabinet, and I imagine Cameron and Osborne are doing the same thing. This budget has, therefore, been rather more intriguing than the last one; yet what will be more intriguing is to see if Osborne and Cameron do indeed change their approach at all. It is no longer convincing for Osborne to stand at the dispatch box and repeat key phrases; one thing which Corbynism has succeeded in doing is putting pressure on the government to act on the issues of young people in order not to lose them. Whilst as a young person, I would like to see more equality in the 2016 budget, this is a step in the right direction, and I hope the resignation news might prod Cameron and Osborne further in the right direction – a direction which puts any financial burden as much on the old as the young. Though Osborne has delivered this budget and commended it to the house, it actually seems, from all the squabbling, that it may not be over yet. We can only wait and see as to whether Smith’s letter has indeed made Osborne and Cameron think about their brand of compassionate Conservatism anew.