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Photographer: Simon Dawson

Osborne's Fiscal Sweeteners Could Sour His Career

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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U.K. Chancellor of the Exchequer George Osborne looked distinctly uncomfortable on the parliamentary stage delivering Wednesday's budget. Gone was the slightly sneering head prefect seen at previous performances; instead, we got a grim-faced auditor giving masterclass in the detail of the tax system, cracking a couple of good jokes and springing a surprise sugar tax.

Perhaps Osborne is distracted by the imminent European Union referendum, which may decide whether he can beat Boris Johnson to become Prime Minister once David Cameron rides into the sunset to make money. His stewardship of the British economy will be the platform on which he makes his leadership bid; so it doesn't help that global headwinds are buffeting the U.K. economy and forcing him to curb his natural enthusiasm for increased austerity and smaller government.

Osborne cited a deteriorating world backdrop to explain why the U.K. economy will only grow by 2 percent this year rather than the 2.4 percent previously forecast, with further reductions in the outlook for every year until the end of the decade:  

Financial markets are turbulent, productivity growth across the west is too low and the outlook for the global economy is weak. It makes for a global cocktail of risks.

To offset those risks, Osborne found a surprising amount of wiggle room on the fiscal front with tax tweaks including a lower corporate tax rate, a reduction in the levy on capital gains, and higher earnings thresholds for personal income taxes.

The beleaguered energy industry also got some tax breaks, while the under-40s were offered government money to augment savings towards buying a house or building a pension. Osborne also committed more money to infrastructure spending, backing various road and rail projects including motorway expansion in the north of England and another London train line.

On the taking away side of the country's balance sheet, tax avoidance by supranationals will get even closer scrutiny, large firms will have less scope to seek tax relief on their debt interest, and there are new restrictions on how banks can use past losses to offset tax.

As a self-acclaimed champion of the need for more austerity, Osborne's fiscal measures suggest he's more flexible than he would care to admit, and that the "cocktail of risks" he referred to in the global economy are giving him pause for thought.

So as an application letter for the job of Prime Minister, Osborne's budget speech won't do much for his cause. The cuts in growth forecasts are wounding to his reputation, the increased infrastructure spending won't sit well with Tory hardliners, and the tax on sugary drinks has hints of the nanny state. What the budget does suggest, though, is that Osborne is exactly the kind of pragmatic politician you'd want in charge when the outlook for the economy is as clouded as this.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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