Osborne’s constant repetition that the Budget was fair, even “progressive”, reveals not that it was (the IFS and all other analysts show conclusively that it was not), but rather how exceedingly anxious he is that we should be conned into thinking it was.   He’s trying to learn the lessons of the Geoffrey Howe budget of 1981 which contained (till then) the biggest spending cuts since the Second World War, but made no pretence of fairness or proportionality, and provoked a huge political backlash.   Four factors however are working strongly against Osborne.

One is that a stark austerity programme now in the UK will not be compensated for, as it was in 1947 and 1981, by an expansionary international economy inviting a surge in private investment and exports.   Britain’s manufacturing industry has suffered a long-term decline, the US recovery is fading, and the Eurozone which normally takes half of all UK exports is still gripped in crisis and flat.

The second factor is simply that Osborne’s claim is downright wrong, on several counts:

*  the Treasury Red Book says the richest 10% will be 7.5% worse off by 2014-5, but 7% of that is due to income tax and pension contribution changes brought in beforehand by Labour.   Equally the Red Book says the poor will be worse off by 2.5% (after being left almost untouched by Labour’s measures), so the truth is that the poor will suffer five times more pain than the well-off.

*  the Red Book’s distributional analysis is (deliberately) very deceptive by stopping at 2012 when the full range of benefit cuts kick in and the increase in the child element of the child tax credit grinds to a halt.

*   even more alarmingly, the Treasury analysis entirely omits the impact of  cuts in public services on which poorer households heavily depend.   Those cuts are now expected to range from 25-33%, by far the biggest since the Second World War and far more even than the markets were calling for.

*  above all pushing up VAT, a highly regressive tax, to 20% plus cracking down hard on housing, disability and child benefits will drastically hurt the poor more than the rich.

The third factor which greatly changes the equation is that even the two new tax imposts directed at the rich – the CGT rise and the £2.5bn bank levy – will have very little effect because they will be avoided.   The latter, set at a mere 0.07% of eligible liabilities,  will be largely avoided by balance sheet adjustment away from short-term wholesale funding, together with group restructuring and deleveraging.   And the CGT rise, to only half of parity with higher-rate income tax which is where it should be, will still allow very high incomes to be dressed up as capital gains so as to halve the tax otherwise payable.

And the final factor is key in putting the Osborne caricature into perspective.   Whereas the poorest are marginally better off than in 1997 (child poverty has reduced by about 0.7 million), the rich, the seriously rich, have made gigantic gains.   According to the Sunday Times Rich List, the thousand richest multi-millionaires – just 0.00006% of the population – have increased their wealth by £77bn in the last year alone and by £335bn over the whole 13-year period.   The real rich, the elite who govern Britain, won’t even notice Osborne’s pinpricks.

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