Posts tagged George Osborne
On charity George Osborne must stand up to the self-interested super-rich
Polly Toynbee:
From the outcry of the big donors, you might think they were being banned from giving. Not at all. They are only being told to pay their taxes like everyone else and then donate out of their taxed income, just like every basic-rate taxpayer. Paying your taxes is the most communitarian thing we do, signing up to society and the democratic choices it makes about taxing and spending. Voters decide. Giving to charity may be altruistic or self-interested, may or may not do good – but the present system draws in taxpayers’ money with no such accountability. Osborne is right to ask why anyone should get tax relief.
It’s not often I agree with Polly, but on this I do.
Thoughts on the Budget
Following politics can be really frustrating. Sure, it’s fascinating and intriging - but it can also be deeply frustrating.
Take yesterday’s Budget. George Osborne made his announcements and then, immediately afterwards, listening to Ed Miliband’s response, I was left wondering if he’d even listened to any of the announcements Osborne had just made. Miliband had clearly decided on his narrative in advance and chose to ignore the inconsistencies that didn’t fit within this narrative.
And no sooner had Osborne’s speech and Miliband’s response finished, it all spilt out of the House of Commons into the media and social networks. The interpretations were so polaraised. Osborne had - in an announcement that probably took up 1/500th of his speech - said that the highest rate of tax would drop from 50p to 45p. Going onto the BBC News site later, this part of the Budget was their headline. Apparently, this was the main and most important part of the Budget. It wasn’t.
Labour chose to interpret the Budget as being all about making things easier for the rich and harder for the poor. Whether this was factually acurate was, of course, irrelevant. It was about political point scoring. The fact that hundreds of thousands of people were brought out of paying tax at all was totally ignored. This is something that you’d of thought Labour would support. And, in reality, they do. But can they say this? No. It wouldn’t fit with their narrative on this whole Budget being about tax cuts for the rich. Politics!
There are two announcements that Osborne made yesterday that have stuck and made all the headlines: First, the drop from 50p to 45p for the highest rate earners (those who earn over £150,000). And, second, the so called ‘Granny tax’. These have been used to shape a narrative that says that the coalition (and in particular the Tories) are grabbing from the poor to support the rich.
And you know what, this is great for newspaper sales and website pageviews! But I hope the more discerning citizens will see beyond the media hype and political point scoring and realise that these changes are not nearly as dramatic as they are being made out to be.
How much will dropping the 50p top rate cost us? Next to nothing. There’s even a chance it might save money. Which raises the question of whether people’s wanting the 50p rate has anything at all about national interest, or if it’s simply a hating of anyone rich. Whilst some highest rate tax payers may end up better off, overall the wealthiest people in our nation (via various other means) are going to end up (as a whole, if not individually) contributing a greater amount to our economy than before.
And then there’s the Granny tax. Taking from pensioners seems to be a total no go for politicians. Why? Because pensioners vote. Keeping pensioners happy is often key to political success. But should pensioners be free from suffering from any of the cuts most of the rest of us have been facing?
I know it’s not popular, but I don’t believe in universal benefits. What’s the point in rich pensioners having free bus passes and help to pay their heating bills? It’s nothing but a waste of money. And this new Granny tax isn’t on all pensioners; it’s on the wealthier pensioners. (Note: pensioner doesn’t automatically equal poor.) As the IFS has now said, ‘this looks like a relatively modest tax increase on a group hitherto well sheltered’. And, in real terms, this will mean a loss of equivalent to just 0.25 per cent of income.
So, in essense, the two main stories from yesterday’s Budget are really non-stories. They are both pretty neutral changes that in the grand scheme of things aren’t that big a deal. Unless you’re only interested in a particular political narritive that doesn’t depend on factual accuracy!
UPDATE:
This article isn’t written to suggest that I support everything in the Budget. It is simply to make the point that the people have jumped on two issues that are not actually that big a deal.
Budget 2012 at a glance: George Osborne's key points
Helpful summary from the BBC.
The 50p tax rate is a bomb that a brave Chancellor would defuse
Fraser Nelson:
In opposition, Osborne saw the 50p tax only as a political debate: no research was conducted to estimate how much Britain would lose. Now, he’s beginning to realise. A Treasury study currently underway still has too little data to draw any proper conclusions, but anecdotal evidence is flooding in. London is full of leaving parties for people heading to Dubai or Asia. A recent survey of millionaires by Skandia, a financial consultancy, found that just over half say they may emigrate. Of those thinking of leaving, high tax was the biggest factor. For a Government that collects £14 billion in tax from 14,000 millionaires, this is something of a concern.
The basic fact is that Britain is hugely dependent on a very small number of highly mobile taxpayers. The best-paid 1 per cent earn 13 per cent of salaries paid in Britain, but contribute 28 per cent of income tax collected – this is what you might call a “fair share”. After we published this fact in The Spectator last month, a minister told me he’d had no idea. “You guys in the press should be making this case more strongly,” he said. One might respond that, ideally, ministers would be making the case – and using it to explain why our current eat-the-rich mentality is so dangerous.
This debate about the 50p rate goes on and on. And I can see both sides of it. It should be about pure economics but, sadly, it seems that politics will be the determining factor. The idea of cutting taxes for the wealthiest is not going to do anything other than fuel the ongoing manta of the Tories only looking after the rich. But, if as Nelson suggests, the 50p rate could be costing is between £500 million and £4 billion, then politics has to be put aside.
The problem is, of course, that it’s difficult to prove categorically the costs one way or another. And, inevitably when that’s the case, ideologically frames the interpretation of the figures.
I don’t know enough to know either way what is the best option regarding the 50p tax. I do know that I think 50% should be the absolute maximum anyone should have to pay from their taxes - and that’s including national insurance. Currently the richest are taxed 52% when you include NI.
I totally believe that the rich should bear the biggest burden but I also am a true pragmatist. If lowering the top rate of tax would lead to more money being raised from taxation, then it seems madness to not lower the top rate.
It’s a big ‘if’ though. And can the if be proved categorically?
The Economist: Another recession is on its way, but the government’s policies are broadly right
The Economist:
Mr Osborne has not got things completely right. But this government’s instincts have been saner than its big-spending predecessor’s. Mr Osborne was correct in his determination to tackle the deficit quickly. The notion that he has caused the coming recession is nonsense. More flexibility is now needed. But, sadly, all the options for Britain are pretty dark.
The whole piece is a helpful overview of the state of our economy and looks at what George Osborne is getting right (and wrong) with his response.
The night before the chancellor’s autumn statement
Pretty funny (in and economic in-joke kind of way) piece by Tim Harford. Here’s how it starts out:
In an act of last-minute desperation, the prime minister decides to replace his chancellor George Osborne with a figure judged to have broader political appeal: Santa Claus. (The decision was approved by a committee of Liberal Democrats.) The FT can now present a transcript of the conversation the night before the chancellor’s autumn statement.
Follow the link to read the transcript.
Some thoughts on the state of the UK economy
It has to be said that today’s Autumn statement by George Osborne was not one he will have wanted to make. There was a lot of bad news about the state of our economy and it’s painfully sluggish recovery. All of the borrowing figures for the next five years have increased and we will no longer clear the deficit by 2015 as promised with the original plan.
Inevitably, political persuasion will taint the way we interpret the state of the economy and Osborne’s response to it with this mini-budget. The government continue to lay the blame primarily at the feet of the last Labour government’s ‘reckless spending’ and on the Eurozone debt crisis. Labour claim that the slow down of economic growth and rising unemployment is all because the government is cutting ‘too far and too fast’.
So who’s right?
Much as Labour would like to assure us that their plan would definitely have avoided our having a flatlining economy and rising unemployment, the truth is that we will never know. But, if I’m honest, I’m very sceptical that Labour’s plan would have made anything better. In fact, I very much suspect the opposite. For one, Labour’s plan was based on hopelessly optimistic growth figures that we can be 100% sure would never have become a reality.
It is worth emphasising too that if Labour was in power, our approach to the economic crisis would be significantly different to what all the other major economies are doing. The leading countries all seem to be united in an approach that focuses on tackling the debt hard and fast. So Labour would be at odds with the rest of the world. That doesn’t mean they’re wrong of course, but it is worth mentioning that the support for Labour’s economic approach globally is very, very scarce.
The saddest thing of course with all of this is the impact it has on individuals and families. With all the gigantic numbers being thrown around on days like today, it is easy to forget the significant hits people and families are taking on their personal finances. It’s no fun for anyone having less money to spend in real terms due to stagnant salaries and rising costs. The cap at an increase of just 1% on public sector salaries at a time of 5% inflation is a painful salary cut. A cut that will no doubt be similar for private sector workers too.
Despite how painful it is right now, I do think that, on the whole, the government’s approach is essentially the right one. I don’t think that the way out of a crisis triggered by excessive spending and borrowing is to commit to more spending and borrowing. That said, it is worth emphasising that the plans of the Coalition government and the Labour party are not as far apart as both would like us to believe.
Whilst Labour never give their support to any of the cuts the government makes, the truth is that their plans would see them making cuts that amount to around 95% of what the government is cutting. So the view that some people hold that all of these cuts are ideological Tory attacks on hard working people is hopelessly naive. Most of these cuts would still be happening if Labour was in power.
And, not only are the parties closer than they might admit, the sad reality is that there are an awful lot of factors outside of our control. The Office for Budget Responsibility* (OBR) make clear that everything in their report today could be totally irrelevant if the Eurozone crisis doesn’t get resolved. The harsh truth is that there is not a huge amount anyone can do to magically turn the economy around.
It’s easy in opposition to pretend that your plan will sprinkle magic dust and make a dramatic difference. And it’s easy to critique the plans of the government when your own plans never have to face the cold, harsh world of economic reality. But, sadly, neither George Osborne nor Ed Balls can wave any wands that will dramatically change anything.
The truth we all have to face up to is that, regardless of who is in government, we’re in for a long, slow, painful recovery. And, who knows, maybe things will never get back to how they were. We live in a dramatically different world post 2008.
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*Speaking of the OBR, both political parties always treat the reports by the OBR as if they were Scripture and use different sections to support their own stances. But, for time after time, the OBR’s forecasting has been way off the mark? Why should we trust them at all when their forecasting abilities are so clearly limited?
Has George Osborne just declared war on the public sector?
Paul Waugh at PoliticsHome:
It’s worth remembering that some public sector staff - who know exacty how much taxpayers money can be and has been wasted - are determined Conservatives. But even they may not take too kindly (particularly the higher paid among them who lose most from pension changes) to today’s news. And although several doctors and health workers shifted towards the Tories at the last election (partly due to promises of being freed from targets), since the row over the Lansley reforms they may have changed their mind.
So the big question is this: has Osborne has calculated that he can write off public sector votes and still win the keys to No. 10?
Interesting take. I think it would be a very foolish move by Osborne if this was the case (which I doubt). Whilst I do think the public sector got too big and there needs to be a stronger private sector, I don’t think there’s any sense in George Osborne being at war with such a vital cog in the wheels of our country.
Osborne and Balls: Their differences (and similarities) in economic approach
Stephanie Flanders, BBC economics editor:
Mr Balls thinks a short-term fiscal stimulus would pay for itself, at least over a few years, and would not seriously jeopardise the government’s standing in financial markets. So, incidentally, do some right-wing critics of the chancellor, who are lobbying for immediate tax cuts. But many in the city would still agree with Mr Osborne, that the short-term benefit for the economy of any stimulus would be small, and the long-term costs for the government’s credibility rather large.
It’s up to you to decide which is right. There are plenty of clever people on each side. But when it comes to the gloomy reality facing the UK over the next few years, I’m afraid the chancellor and his opponent are more or less agreed.
The whole article is a helpful look at both the differences and areas of agreement between the chancellor George Osborne and the shadow-chancellor Ed Balls.
The FT's economics editor urges Mr Osborne to stick to plan A
Chris Giles:
The chancellor is right to reject the arguments of the Plan B brigade because the risk that investors would lose confidence in the deficit reduction plan far outweighs the likely small economic gains. On the National Institute’s own estimates, huge temporary tax cuts, sending borrowing to a new record of 12 per cent of gross domestic product, are required just to push the 2012 forecast growth rate up from about 1 per cent to 2 per cent. After that, borrowing would still have to be cut.
Spending cuts aren't the cause of slow growth
Chris Giles at the FT argues that those like Ed Balls who are saying we are cutting too much, too soon are failing to understand what’s really going on with the economy:
Instead of cuts curtailing growth, we see poor productivity derailing the prospects for expansion. Instead of deficit reduction squeezing the life from the economy, the pain has come from rising commodity prices over which Britain has no control. Instead of demand falling short, we see supply shocks that have cut output and kept inflation high.
It would be wonderful if slower deficit reduction could address the problems Britain has encountered in this recovery. But the economy is not facing a sudden crisis of confidence similar to 2008, when household and company spending suddenly stopped and macroeconomic policy was the right tool to prevent a slump. The economy faces a hangover from the hubristic years of the past decade and must adapt.
Talk of “plan B” increasingly sounds irrelevant – it is favoured by those who are unwilling to face up to the true problems facing Britain’s economy today.
Ed Balls needs to switch tactics
Fraser Nelson in The Spectator argues that Labour are heading for a decade in opposition. He picks on Ed Balls in particular for going about opposing George Osborne in the wrong way:
[Balls] killer instinct has led him to take the wrong line of attack on the economy. Osborne’s cuts aren’t harsh or drastic: they’re mild and probably insufficient. There’s almost no organisation on the planet that agrees with Balls that cuts of less than 1 per cent a year are too harsh and too fast — he ends up looking like a loser. Better if he’d focused his attack on tax rises and the cost of living (the latter is the no.1 concern for ordinary voters). But Balls always goes in for the kill: that’s his modus operandi. It’s tragic that someone of his intelligence and understanding of economics should succumb to such a temperament. He’s the best Shadow Chancellor available to Labour, but he needs to switch tactics.
The austerity hasn't started yet
Fraser Nelson at The Spectator challenges the idea that George Osborne is cutting deep and fast at all:
Another month, and another all-time record for state spending in Britain. The government splurged £1.8 billion a day in April — of which £332 million a day was borrowed. Up goes the national debt. All of which leaves us with the question: where is this austerity that George Osborne keeps talking about? He’s been in No.11 a year now, and each month state spending has been — on average — 4.9 per cent higher than the same month under Gordon Brown. He seems to be taking the St Augustine approach to fiscal conservatism: Lord, give me spending restraint. But not yet.
One thing is clear: the idea that the cuts are ‘savage’ is a very misleading narrative. Of course, that doesn’t make the impact on individuals lives who are losing jobs in the public sector any less real. Nor does it in anyway detract from the organisations and groups who are losing funding. But compared to both the US and most of Europe, we are actually cutting much less and much slower. Don’t expect to hear that from Ed Balls though!
Ed Ball's economic plans are reckless
Tim Harford in the FT:
Mr Osborne claims some credit for this international confidence and is right to do so, since he looks determined to adjust government spending to suit the UK’s detumescent economy. The Lib Dems also appear willing to take a bullet in defence of the austerity plans.
Ed Balls, shadow chancellor, claims that such austerity is a macroeconomic disaster, and the government should stimulate the economy by keeping spending up. Politically, Mr Balls sounds plausible: his plan to halve the deficit within four years seems responsible to the ordinary voter. But since we would expect the deficit to be approximately halved simply by the process of gradual economic recovery, the implication is that if Mr Balls had his way, the government would spend an entire parliament doing almost nothing to restrain spending. Even recognising a case for stimulus spending this year, this is recklessness.
This is a decent piece by Tim. And whilst I’ve picked up on his dismissiveness towards Ed Ball’s plans, that is not to say he is entirely complementary towards George Osborne.
The UK economy grew by 0.5% in the first three months of the year
BBC News:
The UK economy grew by 0.5% in the first three months of the year.
The Office for National Statistics’ (ONS) first estimate of economic activity shows a recovery from the 0.5% contraction recorded for the last three months of 2010.
Pretty dreadful construction industry figures (down 4.7%) mean that the growth isn’t as high as projected (0.8%) but after being -0.5% last quarter, it’s reasonably good news -if not as good as hoped.
Obviously George Osborne will tell us this proves he’s making the right decisions and Ed Balls will tell us it’s far too slow and proves Osborne is making the wrong decisions.
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