Keene responds to the Budget

Alex Belardinelli, Ed Balls’ former advisor summed up the political fault lines that have crystallised in the wake of today’s Budget, suggesting: "George Osborne will want to pitch his flag in the centre-ground with an audacious claim to be the real workers’ party – but he risks undermining his own rhetoric if he pursues substantial cuts to tax credits. Labour’s challenge is to explain how tax credits make work pay for the striving families the Tories purport to stand for, while not appearing to be against welfare reform of any kind."

To that end Osborne has played his hand masterfully. A commitment to a ‘living wage’ could set the narrative in the way he did in the early stages of the last Parliament. Despite significant changes to social housing tenancies, and a major reduction in both welfare and tax credits he has begun to control that narrative.

The living wage is a weak commitment given inflation will catch up with it before its introduction in 2020. Yet the Chancellor is the master of making his spending plans give him a double dividend – both political and economic. His has a history of shooting Labour’s foxes, but this may go down as his greatest masterstroke.

Coupled with the living wage is an attack on non-doms. Much of the devil will reside in the detail, but it strikes us that the key feature will be on reforms to trust taxation, where the trusts are settled by UK resident non-UK domiciled individuals. The Chancellor’s attack was smart: it will not surprise many that non-doms will lose their tax advantages when they have lived in the UK for a certain period of time. He is able, therefore, to capture the political dividend without the flack that Labour drew when they announced that they would scrap non-domiciled status altogether.

All in all a slick political manoeuver from the Chancellor. However, Greece shows us that our assumptions can falter over time. If the economic projections are wrong, the optimism in the Treasury, the Conservative benches and in business might be dampened severely. In that case, the OBR’s statement that exports remain well down on the target of the Chancellor that he made when he first took over could be a dangerous warning. It is telling that during the past three weeks, even as the Chancellor prepared his speech, Chinese stocks lost a third of their value, indicating the turbulence of international economics and providing a stark warning against complacency.