Has the penny dropped for George Osborne?
George Osborne rose to the challenge again yesterday, outlining the list of Government achievements in delivering a credible plan for deficit reduction and in beginning to halt the slide in UK competitiveness.
The Chancellor George Osborne is a skilled politician.
He rose to the challenge again yesterday to shift the debate on the economy, outlining the list of Government achievements in delivering a credible plan for deficit reduction and in beginning to halt the slide in UK competitiveness.
He certainly talks a very good game. This was far more optimistic than the dreary sermon issued by Vince Cable two weeks ago.
And in many ways, he should be congratulated. It is true that the UK is able to borrow much more cheaply than other nations with much lower deficits. This is because the markets believe that George is committed to deliver.
But his plan, as outlined in Budget 2011, will not eliminate the structural deficit without significant economic growth.
In fact, thus far, borrowing continues to rise. And if growth over this Parliament is half that forecast by the independent Office for Budget Responsibility, the deficit will still be nine percent of GDP in 2015.
Last Saturday, Andrew Tyrie critiqued the Government’s plan to achieve the economic growth required to eliminate the deficit in a CPS pamphlet: ‘It’s the economy.’
He highlighted that the Government did not appear to have a coherent and consistent strategy for growth. Many spending priorities: the Big Society, increased aid and the Green agenda were better suited to an era of abundance, he said.
It is of course possible that Mr Tyrie’s heavy endorsement of Osborne’s speech yesterday may have been influenced by the advice of Steve Hilton and Craig Oliver, but in fairness, there were certainly signs that Osborne had taken some of the criticism on board.
He was willing to upset the Green lobby by suggesting that he would not allow carbon emission targets to undermine UK competitiveness. And his credit easing scheme, not without its critics, at least highlights a recognition of the struggles that businesses face in obtaining finance.
The truth is, the economic adjustment will be slow and relatively painful. Over sixty percent of the economy – including the fastest growing sectors of the last decade – is now essentially ex-growth.
Financial services, real estate and construction, alongside the public health, education and administration sectors, have been bankrolled by public and private debt. Now this has dried up, the remaining sectors of the economy must take centre stage.
Unfortunately, these are the very sectors hampered by the increasingly uncompetitive tax and regulatory environment through the New Labour era.
Lowering the tax burden to encourage inward investment and lower employment costs, coupled with dismantling hurdles to setting up and expanding businesses, are the only way that this will be overcome.
The Government have made a start here.
Osborne’s announcement that he would double the time before an employee would be eligible to claim unfair dismissal was met with rapturous applause by the small business owner sat next to me. But there appears to be little appetite for a fundamental review of employment legislation and health and safety law; even less an appetite for fighting against damaging EU directives.
The disappointing aspect of the speech, however, was perhaps the Chancellor’s attitude to potential tax cuts. He continued to trot out the line that ‘unfunded’ tax cuts would entail more borrowing and put the deficit reduction plan at risk.
Even leaving aside the Laffer curve and the potential for targeted tax cuts to be dynamically revenue–enhancing, Osborne’s line is disingenuous.
Within the annual deficit totals he has set, the Government has made spending commitments which, if given up, could be used to ‘fund’ tax cuts and generate jobs and prosperity. Ring-fencing of health spending and the huge increases in international aid spring to mind.
That said, I got the overall impression that the penny is finally beginning to drop for the Government that growth and improving living standards should be their key objective.
Ryan Bourne is the Economic and Statistical Researcher at the Centre for Policy Studies. You can follow him on Twitter at @RyanCPS .
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