"Granny grab" distracts from key questions Economy & fiscal policy In his Budget speech this week, George Osborne said "employment is growing, inflation is coming down, and so too is the deficit." Is the British economic model repaired? Household incomes are still under pressure, squeezed by rising oil and food prices. The level of business investment is weak and companies are not yet sufficiently confident about the outlook. And the eurozone is slowing. So much for strong demand growth. On the supply side, the picture is little better. Productivity growth is feeble but no one really understands why. Companies report little spare capacity and credit remains constrained. Without a big giveaway or significant reforms, the Budget did nothing significant to address demand or supply. We should not be surprised as it would be asking too much of any chancellor to solve Britain's economic problems overnight. The hope remains that Britain's devaluation, its inherent economic flexibility and credible policies will slowly allow dynamism to re-emerge but probably not until 2014. When will the British government be able to pay its way? Not until 2016-17, after seven years of austerity, if things go according to the latest plan. That programme assumes Britain is much poorer than it had expected to be before the crisis and needs almost a decade to adjust to the new and rather unappealing reality. The process requires more grinding cuts in social security generosity in years ahead - so the "granny tax" is not the last - and five more years of real cuts in public services, much of which cannot come from efficiency savings. Compared with this reality, the Budget changes to taxation and spending were a sideshow. Politics Mr Osborne woke on Thursday to angry headlines from usually sympathetic rightwing newspapers denouncing his £1bn "granny grab." Have the chancellor's political instincts deserted him? No one at the top of the coalition foresaw the backlash that greeted them on the morning after the Budget. Blame for that is being laid at the feet of Mr Osborne, generally credited as the coalition's best strategist. Some in his party accuse him of arrogance, flying to the US in the week before the Budget was due. If that is the case, he is unlikely to have to learn the lesson twice: expect any nasties in the next Budget to be heavily trailed and the argument made well in advance. A cut in the 50p tax rate paid by top earners combined with a freeze in pensioners" tax allowances provided Labour with plenty of ammunition. But can the opposition reap long-term benefits from a Budget that even Conservative MPs dubbed a presentational failure? Ed Miliband, the Labour leader, gave one of his best Commons performances in response to Mr Osborne on Wednesday, but while the row over the "granny tax" will help bolster Labour's lead in terms of fairness, it is unlikely to help restore the economic credibility the party so desperately needs. Given the government's success in casting the country's fiscal problems as "Labour's mess," Mr Miliband may have to bide his time and wait for voters to start listening to his party's ideas on the economy once more. Business The chancellor cut corporation tax to 24 per cent as "an advertisement for investment and jobs" in Britain. Will companies now start investing their £700bn cash pile? Not immediately, it seems. The Office for Budget Responsibility slashed its forecast for business investment growth this year from 7.7 per cent to 0.7 per cent, largely because of a dip at the end of last year. Companies said their investment plans would be driven by prospects for demand rather than tax cuts. The OBR expects things to pick up smartly from next year, however. It thinks business investment will grow by a cumulative 40 per cent by 2016, similar to the 50 per cent rise after the recession of the 1990s. PwC said at least 10 to 15 multinationals were considering big UK investments. Are the "makers" still marching? Last year, Mr Osborne hailed a "march of the makers." This year, his pro-industry rhetoric was more muted and manufacturers, whose pleas for bigger capital allowances on plant and equipment were ignored, were left grumpy. The chancellor did talk of "a deliberate strategy to create a more balanced economy" and threw sops to aerospace, energy and pharmaceuticals. He also raised the bank levy. But his cuts in corporation and the top income tax rates, which largely benefit multinationals, were sector-blind. Mr Osborne seems to be quietly going with the grain of Britain's strength in services. Public policy Mr Osborne's raid on pensioners was a shock, given the protection hitherto enjoyed by over-65s. Did the Budget close the generation gap? The £1bn raised by the "granny tax" is nowhere near enough to tilt the burden of austerity from young to old. Young people must cope with a rise in university tuition fees, while families face cuts in working tax credits. In contrast, "grey welfare," such as the winter fuel allowance, and free bus passes and TV licences, has escaped the Treasury axe. Whether those benefits can remain, even for the wealthy, as Mr Osborne tries to trim £10bn more from the welfare bill, is an open question. Where is the welfare state heading? Constrained public spending and an inexorable rise in the number of people living into old age has compromised William Beveridge's vision of a welfare state in which everyone contributes and gains. While Mr Osborne softened his plan to cut child benefit for upper earners, the measure still marks the end of a universal benefit often credited with giving the middle classes a stake in the welfare system. Increasingly, the UK seems to be moving to a model more familiar to Americans. Just as social security is seen as the untouchable "third rail" of US politics, benefits for the elderly will be sacrosanct. In contrast, benefits for working-age people will become less generous and may evolve into a means-tested safety net for the poor.