Summer Budget: calculated risk or reckless gamble?

Abstract

Economic OutlookVolume 39, Issue 3 p. 5-10 Economic Outlook Summer Budget: calculated risk or reckless gamble?† First published: 12 August 2015 https://doi.org/10.1111/1468-0319.12163Citations: 2 † By Andrew Goodwin, Lead UK Economist, agoodwin@oxfordeconomics.com and Martin Beck, Lead UK Economist, mbeck@oxfordeconomics.com AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Abstract The Chancellor had created the expectation that his Summer Budget would be radical and he did not disappoint. The ‘rabbit from the hat’ was a compulsory ‘living wage’, expected to reach £9 per hour in 2020, which Mr Osborne hopes will help to compensate the lower paid for the slashing of in-work benefits. This has effectively transferred responsibility for supporting low-income households from the government to employers. The OBR expects this to have a relatively muted impact on employment, but this view looks pretty optimistic and the policy represents a major gamble. The reduction in welfare spending, plus an easing of the near-term fiscal squeeze, has helped to smooth the public spending ‘rollercoaster’. But with a plethora of giveaways failing to disguise a net increase in the tax burden, the Budget is likely to weigh on growth prospects, even if the Chancellor's big gamble pays off. Alongside the Budget the Chancellor announced a new fiscal mandate, which will require governments to run a budget surplus in “normal times”. But meeting this mandate will require a fiscal stance very far from the historical norm and it will also force other sectors to move into deficit to compensate. It will also mean a looser monetary policy than would otherwise be the case. So a policy presented as creating room for fiscal policy to respond to future economic shocks could potentially narrow the scope for the more potent weapon of interest rate cuts. Citing Literature Volume39, Issue3July 2015Pages 5-10 RelatedInformation