OsborneBudgetcreditMholland

 

Of course cuts are what’s required to promote growth in the British economy – but only when the Chancellor cuts the right amount in the right places and pumps money into other areas that need it, will he unlock the key to recovery.

If George Osborne’s budgetary policies were collected and written down in the form of a red, octavo book, perhaps emblazoned on the front with an inset golden Crowned Portcullis, the message inside would at first sight be fairly ambivalent. ‘Cut’ it might say, and then with the caveat, ‘but not everyone’. ‘Spend’, it might declare, but then ‘only on getting the private sector working’. The Chancellor’s fourth budget of this Parliament offered cuts, indeed, but all in the wrong places – only to be backed up by some bizarre attempts to pump equity into places it wasn’t needed, or wouldn’t be effective.

After halving growth forecasts for 2013 from 1.2% to 0.6% and declaring that national debt would rise to 85% and only begin to decline in 2017/8 at the earliest, he then declared that he would be attempting to collect even less tax from businesses since he was lowering Corporation Tax from 21% to 20%. The UK wants business to trade on British soil but the Chancellor’s argument that Corporation Tax is higher in New York and Europe than on home soil failed to explain why most big business hadn’t yet decided to move their tax-avoiding HQs from the Cayman Islands and Switzerland back to Britain. Compounding this with a 1% public sector pay cap, he twinned a useless tax break with a potentially crippling pay cut for nurses and teachers amongst others. This cut (inflation is at 2.8%) may even end up discouraging growth, since the average public sector worker, who requires as much support as the average private sector worker, despite what the Government would like to believe, will have less money to go out and spend to boost growth.

Some spending was announced, but on infrastructure, which won’t begin to pay dividends until years later. What’s more, its financing through a further squeeze on public spending essentially means it’s just moving money from a pot that’s more effective at jumpstarting growth to one that’s less effective.

The attempt to give everyone help in getting on the housing ladder through mortgage guarantees is not only dangerous, since cheap mortgages were arguably the germ of the recession way back in the United States with the 2008 sub-prime crisis, but it also smacks of some of last year’s surreptitious attempts at allowing the wealthy to more easily buy second homes, or indeed homes for their kids. It would be naïve to think that this is the main reason the Chancellor is introducing the policy, but the idea that he has not noticed this rather gaping loophole seems absurd. All that said, why nobody has floated the idea of building more council houses, which would solve Britain’s housing problem for good and hence potentially save further money later, is unknown.

A loophole into an easy second property, or potential for a second housing bubble. Either way, the Chancellor's plans to help people onto the housing ladder through cheaper mortgages has flaws.

A loophole into an easy second property, or potential for a second housing bubble. Either way, the Chancellor’s plans to help people onto the housing ladder through cheaper mortgages has flaws.

The top rate of tax, of course, is not going up, but neither has the Government decided to give the UK tax system its much needed overhaul. Creating more bands for middle earners would discourage tax avoidance in a system where an increase to the next band would mean a tax increase of relatively less, and would also bring in more tax since people on those tax rates would be less likely to be self-employed or people who could easily avoid paying it.

What is more, culling of needless departments would save further cash. The Department of Justice could easily be remerged into the Home Office – in fact most people weren’t sure why it was even created in the first place – which would mean the Conservative Party could promote Chris Grayling to a position similar to the one he held before he made the rather indefensible statement that B&B owners should be allowed to deny homosexual couples a room. If the Government hasn’t yet gotten rid of the countless unnecessary quangos and policy units initiated under Blair’s tenure, then why haven’t they? Quite simply, perhaps, because they’re run by their friends.

Alastair Darling’s firebrand rhetoric of a ‘lost decade’ would be passable if it didn’t sound so close to the Wilson team’s opprobrium of Conservative rule during the 1950s, and the concept that the Chancellor has given up on trying to kickstart the economy is classic rubbish. But what he has not given up on either is wavering. It is a pseudo-fact that the Conservatives are held back by their Coalition partners from doing what they really want to do; the only thing the Lib Dems stopped the Tories from doing was allowing limitless tuition fees whilst the increasing of the threshold of non-taxable income, it seems, was the Tories’ idea all along. What is stopping them, perhaps, is an election on the horizon and a discontented public. But decisions must be made.

Ed Balls is dead right that a cut in V.A.T would boost growth which would more than cover the resulting loss in tax income. A 50%, or even 55% top rate of tax would be competitive in Europe and would doubtless recover money from those who are wealthy but do not have the means to hide it – these people do exist. Cuts in public services must be made, but not in the police or in health, and it is unfathomable why the Coalition has chosen to attack and reshape two departments that represent Britain’s most respected institutions on the world stage and which, accepting a few tweaks, could have been left well enough alone. Osborne needs to start making real moves one way or the other – because we all know that the next budget; the penultimate of this Parliament, will be full of sweeteners, and will say nothing about economic policy whatsoever.

 

Stuart McMillan

 

Images:

George Osborne – M. Holland

Belgrave Road, St. George’s Square, London – Don Joseph