Pre-Budget chaos, post-Budget damage

Thank goodness that’s over…

I love reading and listening about politics, but Rachel Reeves’ second Budget has tested even my patience with the extended period of pre-Budget speculation, pitch rolling, and kite flying.

I’m tempted to write about the economics and politics behind the Budget (or lack thereof). That’s a separate piece in itself, and is best done once the dust has settled.

This, though, is about communication, trust, and transparency – and, in that respect, this Budget has excelled in all the wrong ways.

An unprecedented leak and an omnishambles

It was unprecedented to have essentially the full Budget leaked before the chancellor had stepped up to the despatch box, and all the policy measures and fiscal impact revealed.

However it happened, it was a catastrophic error by the Office for Budget Responsibility, and there will no doubt be significant repercussions. I’d definitely put it down to ‘cock up’ over ‘conspiracy’, but it is symptomatic of the chaos surrounding this Budget.

George Osborne’s pasty tax Budget of 2012 was labelled an “omnishambles”. I think we can safely say that this Budget surpasses even that.

Budgets move markets

I worked at the Treasury between 1997 and 2010, and worked on a number of Budgets in various shapes and forms.

There’s always been trailing and spin ahead of fiscal events, but I remember that we all had it drummed into us the sensitive nature of the stuff we were working on and the need to maintain secrecy.

Budgets can, and do, move markets, so information needs to be handled carefully and with confidentiality.

The run-up to this Budget has been something else. The period of speculation has been a lot longer than usual, with a big gap between the announcement of the Budget date and the delivery.

That creates a vacuum, and vacuums get filled with rumour and speculation. This isn’t just political and economic chatter – the period of uncertainty has real-world implications. It affects decision-making by individuals and companies.

Kite flying damages confidence and stalls decisions

This was made all the worse by ‘kite flying’ – the practice of circulating potential measures to test the public reaction.

While this is common practice and has been a tool used by politicians for years to help policies land effectively and to help manage expectations, this Budget was something else.

We had the chancellor’s speech at the beginning of November, and the ‘pre-briefing’ that was gearing the nation up for an income tax rise, which would have broken a much-defended manifesto commitment.

We also had kite flying for other ideas, some of which came to fruition (electric car mileage tax, capping salary sacrifice pension contributions) and some that did not (reducing pension tax-free lump sums).

Kite flying creates uncertainty and dents confidence in the process. The government doesn’t have a coherent economic and fiscal narrative, and even if it did, this would have been shot given the smorgasbord of measures under consideration.

“The desire to prepare the narrative and ensure things ‘land’ well politically trumps the impact that such activity has on ordinary people.”

Darren Philp

Also, such kite flying affects decision making – as has been well documented with significant numbers of people rushing to take their pension tax-free cash ahead of an expected restriction, which never materialised.

The desire to prepare the narrative and ensure things ‘land’ well politically trumps the impact that such activity has on ordinary people. I’m not sure politicians or the advisers working on the Budget even consider the impacts of such activity.

The gap between narrative and reality

There is a disconnect between narrative and reality. The income tax threshold freeze is a case in point. This impacts working people, and significantly so. What will amount to a 10-year freeze seriously dents ordinary people’s finances, bringing hundreds of thousands of people into paying tax or paying a higher rate of tax.

This so-called ‘fiscal drag’ was seen as a clever way to get more tax without changing headline rates. The political hope was that people wouldn’t notice, or that it would prove too complicated for people to understand.

But it’s precisely this smoke and mirrors that damages trust and confidence in our political system and in what politicians say.

A plea for honesty

Politics isn’t easy, and it’s especially febrile at the current time. But I wish we could all be more grown-up about the challenges that our country faces, be honest with ourselves and with others, and tell it as it is.

I, for one – and I’m sure many others too – would value and respect such honesty and transparency. Start there, and we could have better politics, a better Budget, and a better economy.

Darren Philp is a co-founder of Untamed Consulting and co-host of the VFM Podcast.