A little bit of history will be made by George Osborne today. For the first time in more than two decades he has the opportunity to deliver a pre-election budget that actually counts.
Since Norman Lamont’s package before the 1992 election, that hasn’t been the case. Ken Clarke cut income tax before the 1997 election but the writing was already on the wall for John Major’s government. Gordon Brown showed some largesse ahead of the 2001 and the 2005 elections but the result was never in doubt on either occasion. The Treasury cupboard was bare by the time Alastair Darling delivered the last Labour budget in 2010.
Nor is it the case that all chancellors behave cynically in the run-up to elections. Sir Stafford Cripps insisted that Attlee called the general election in February 1950 before the Budget so there could be no suggestion he might be bribing voters.
Such self-denial did not last long. There were Conservative giveaway budgets before both the 1955 and 1959 elections, and Reggie Maudling was also in generous mood in 1963. The problem then, though, was that the election planned for the autumn of that year had to be postponed due to the Profumo scandal. A much more modest affair followed in 1964.
After Labour’s defeat in the 1970 general election, there was much soul searching. One theory was that Harold Wilson had lost because of a set of rogue trade figures, affected by the arrival of a couple of jumbo jets. Another explanation was that Labour would have won had Gordon Banks not gone down with a bad dose of food poisoning before England’s World Cup quarter final against Germany. But the chancellor Roy Jenkins also copped criticism for not being generous enough in the last of his three budgets. In truth, the squeeze on living standards and higher inflation following the 1967 devaluation were more likely reasons Ted Heath won.
For Mrs Thatcher’s first two terms in office from 1979-87, there was a rhythm to Conservative budgets: toughness early on in the parliament, tax cuts as polling day approached. This is the classic way to manage the political cycle, ensuring that any pain administered to voters is long forgotten by election time. As such, Sir Geoffrey (now Lord) Howe’s tax-raising 1981 budget was followed by a much gentler affair two years later. The split in the Labour party that led to to the creation of the SDP meant the 1983 result was never in doubt.
Nor was it four years later when a booming economy meant tax receipts were flooding in to the Treasury. The chancellor Nigel Lawson was able to cut the basic rate of income tax from 29% to 27%, with the clear hint that there would be a further cut to 25% if the electorate gave Mrs T a third term. Which they duly did.
Lawson was as good as his word, but the big tax cuts in the 1988 budget were a mistake. They stimulated an already booming economy and, what’s more, they did so in the very first year of the parliament. Eventually, interest rates had to be doubled to 15% to curb inflation, leading to the biggest crash in the property market in history.
All of which made life tricky for Lamont in 1992. The economy was struggling and public borrowing was high. The race was tight and the Conservatives wanted to kick-start their election campaign with some tax cuts. The chancellor ensured this was possible by getting the Treasury to tweak the forecasts for the budget deficit, which were revised higher once the election had been fought and won.
Osborne’s creation of the Office for Budget Responsibility means forecasts for growth and borrowing are made independently. There are, though, still ways for chancellors to provide some pre-election sweeteners even when the deficit is high. As we shall see later.
