Tag Archives: george osborne

Cutting tax is not a zero sum game

I’m cautiously optimistic about the rumoured plan of a 2.5% drop in VAT. It sounds like a good move to me, for several reasons.

One thing a VAT cut won’t do is lead automatically to a reduction in prices. Most food isn’t VAT-rated and it is hard to believe that a CD priced £9.99 this week will be priced £9.78 next week. However, taken together those 11ps start to add up. At the top end of the scale, being able to shave a bit more off the asking price for that plasma screen might just make the difference between whether it sells or not. If spending on the high street is down a couple of percentage points, dropping VAT by about the same amount could save real jobs. That means more people paying NI and income tax (and VAT) and fewer people claiming JSA. Looking it in that way, we have to ask ourselves the question: would it cost the Treasury more or less to keep VAT at 17.5%?

Gideon Osborne is not this blog’s favourite Shadow Chancellor, but I will give him credit for one thing: he has managed to get the media to completley buy into his claim that tax cuts now – any tax cuts – will automatically lead to paying a greater price in the longer term. The truth is much more complicated than that. VAT is a deadweight cost – a tax on commerce which is generally seen as a good thing. In my personal utopia, we wouldn’t have it in the first place. Dropping it at the start of a downturn has a real chance of softening the landing. It isn’t a magic feather, and there is certainly a point where the cost of dropping it outweighs the benefit, but it is a practical measure.

Vince Cable has broadly welcomed it, while emphasising the Lib Dem’s own policy for a tax switch (both policies are compatible). Cameron and Osborne have rubbished it. That should surprise no-one because VAT is the tax of choice for the Conservatives. It was Mrs T’s favourite tax. Raising it still further was one of Norman Lamont’s first acts as Chancellor. Ken Clarke, keen not to be outdone, expanded it to gas and electricity (Clarke has now come out as a VAT-cutter, suggesting his common sense now outweighs his dogma). Tory ginger group Direct Democracy – the closest the Conservatives get to genuine localists – envisage a world where council tax will be replaced by, you guessed it, a sales tax.

Once you remember that the Conservatives are not a pro-business party but a pro-entitlement party, it is easy to see why: piling the VAT on the proles means that you don’t have to pay for things by taxing unearned wealth. So for future Baronet Gideon Osborne to recoil at the merest suggestion is no surprise. The only tax cuts he will consider are on things like inheritence tax for millionaires.

The Tories have decided they are back in 1992, and have relaunched their “tax bombshell” posters. Labour should follow suit. Anyone remember VATman?

What do the Scottish Greens and Guido have in common?

Both today are calling for Land Value Taxation, or at least they seem to be.

The Scottish Greens certainly are. Municipal tax reform in Scotland remains in deadlock and dependent on at least one other party agreeing with the principle of local income tax. That seems unlikely at the moment, even if the Lib Dems capitulate over the SNP’s insistence of greater centralisation (which does not look likely; what would they gain except appalling policy?).

Meanwhile, Guido is raving about the reprinting of Fred Harrison’s Boom Bust: House Prices, Banking and the Depression of 2010 (Guido also pats himself on the back at his prescience for predicting the housing crash in September 2007; modesty prevents me from mentioning that my first blog post on the subject was July 2006 and frankly I could have told you what was going to happen a long time before then).

Fred Harrison? You might remember me linking to this video earlier in the year. Harrison, aka the renegade economist, is a keen exponent of land value taxation and regards it as a crucial tool in the armoury against boom and bust cycles (actually, as the video indicates, he goes a lot further than that).

So yes Guido, Gordon Brown was very very wrong. But somehow I doubt your mate Gideon Osborne is going to be interested in Harrison’s prescription. The son of a baronet and Shadow Chancellor for the Conservative Party, it is his job to protect vested interests, not challenge them.

C4 News Poll: Cable for Chancellor! (UPDATE)

I was on MoreFourNews this evening, talking about Channel Four News’ YouGov poll of marginal constituencies:

(it’s all televisual LIES by the way – the whole thing was done in green screen in ITN’s underground Danger Room. I half expected Gollum to virtually take part as the fourth guest.)

Because the poll is mainly focused on Lab-Con marginals (with a couple of Lib-Cons and three way marginals thrown into the mix), there isn’t much to comment on from a Lib Dem perspective. The main lesson is that the polls are incredibly volatile at the moment. C4’s poll last month predicted a 150 Tory majority; now it’s down to 50. If that was the situation going into a General Election, a hung parliament would very much still be on the cards.

The other lesson is that the Tories are doing really badly when it comes to public confidence in their ability to manage the economy; a complete inversion from 20 years ago. George Osborne’s ratings are atrocious. And this is a potential opening for the Lib Dems. While 15% think Darling is the best chancellor, 12% say Osborne and 19% say Cable (and among Tory supporters, Osborne only beat Cable by 28% to 20%, a damning indictment in itself in my view). If this was a nationwide poll, Cable’s rating would no doubt be even higher.

As I discussed in my CiF piece today, that isn’t translating into support for the party. It is however something to build on. We finally appear to have started moving beyond our media-imposed narrative of going through a period of implosion and uncertainty. 2008 has been a relatively gaffe-free year.

All the post-Kennedy crap is still lingering, but it is fading fast and will have almost vanished by 2010. My prediction is that with Cable lending us credibility and Clegg an unknown quality, we’re currently looking at quite a good general election. Both Ashdown in 1992 and Kennedy in 2001 managed to defy the low expectations people had of them.

Clegg still needs knocking into shape; nothing will convince me that the confusions this summer over tax didn’t lead to our autumn conference being a wasted opportunity. But if he can learn from his mistakes then I still wouldn’t rule out net gains.

For the record, the Liberal Democrats did not solicit nor accept a donation from Michael Brown

I feel the need to point this out because George Osborne is being very precise here.

So no, the Lib Dems did not receive a penny from Michael Brown (it all came from 5th Avenue Partners Ltd). Nor did they make the first move.

So that’s all right then, we must be in the clear.

Not convinced my Tory friends? No, neither am I. Neither am I.

Is George Osborne Cameron’s Mandy?

How much longer can George Osborne hold on as Shadow Chancellor? Now is not the time for a flyweight to be in charge of the Tory’s economic policy, not least one who thinks that the best way to stop a “house burning down” is to “fix the roof.”

Today’s revelation by Nathaniel Rothschild that Osborne not only attended the legendary dinner with Peter Mandelson and Oleg Deripaska but that he solicited a donation from the man, could just be the final nail in the coffin. At the same time it smacks of poetic justice – it was Osborne who began this whole cycle of events by making indiscreet comments about a private dinner he had had with Mandelson in the first place.

Osborne has form with this sort of thing as well. Pretty much every time he opens his mouth he attempts to lower political debate to the level of the school playground, whether he is whinging about Gordon Brown snubbing him or making snide remarks about Gordon Brown being autistic. This sort of thing gets him headlines but I don’t think earns him much respect. That is probably at least partially why journalists have been so happy to leak him as the Mandelson “source” in the first place.

Osborne deserves a lot of credit for helping to detoxify the Tory brand with Cameron. As a marketing strategy, their’s has been near flawless. The problem has always been with the substance (and I’m not talking about the Class A Cameron may or may not have put up his nose before becoming an MP). The deliberate strategy to be policy-lite has broadly worked, but the wunch crunch changes all that. The Tories need a heavyweight leading their Treasury team, a Letwin or a Willetts, or their current wobble in the polls may start to become a southbound trend.

Let’s not forget about Caroline Spelman either by the way. The Parliamentary investigation about her nanny is still ongoing, and while I was one of the first to defend her, but things seem to have got much murkier since then. If this comes to the surface once again while the Osborne stink is still lingering, the Tories could have a full scale crisis on their hands. The received wisdom seems to be to replace her as quickly as possible with Eric Pickles. If that happens it will be interesting, as Pickles has a big mouth which could cause him all sorts of problems.

And then there is Cameron himself. As this blog has repeatedly noted, he has a tendency to capitulate rather than confront. Blair was a thousand times more ruthless and even he balked at sacking Mandelson. Both times. What all this seems to add up to is the makings of a political storm. That assumption that the next election is already in the bag may yet prove to be premature.

Eee, those slippery Tories.

I’m still seething after Cameron’s speech on Friday. Coming in late, I won’t rant on redundantly except to add a couple of points:

1) Sometimes soundbites can bite you on the bum. Gideon Osborne on the Today programme on Friday managed to claim that a) it was time to question how the “house caught fire” and b) that Labour “didn’t fix the roof when the sun was shining.” Now, I may not know much about housing, but I am unaware of how a lack of roof could cause a house to catch fire. This may sound a rather pedantic point, but it does seem that during a time of crisis all we are getting from the Tory front bench is pat phrases.

2) The Tories have chosen this moment because they judge the immediate crisis to be over. In the City maybe, but the rest of the country has barely begun to feel the after effects. It speaks volumes that politicians, and the Tories in particular, only judge it necessary to put on a show of unity for the City and not the rest of the country. It shows who they consider their true masters to be.

3) Crude is now cheaper than it was 12 months ago, and half what it was in July. Back then, when the market cost was high, the Tories were offering to “share the pain” and cut fuel duty. The quid pro quo was that when the price of crude was low, they would raise taxes. So why aren’t they calling for increases now? Doesn’t this show the vacuousness of their policy in the first place?

Was Monday the beginning of the end of the Cameron bubble?

By rights, it should have been. The Tories are in a total mess over the economy. I have to admit, I held my peace on Sunday over this idea about having the Bank of England step in when banks get in trouble. It sounded pretty much identical to what the government is doing now, only with even less oversight, but I felt that I must have been missing something obvious. 36 hours of listening to the empty soundbites emanating from the mouths of Cameron and Osborne and I can safely say it is every bit as vacuous a policy as I thought it was.

Ditto this idea for an Office for Budget Responsibility. We live in an era where the government ignores its own watchdog regarding compensating the people caught up in the Equitable Life scandal; why should they worry about another quango wagging its finger at it?

This issue also threatens to divide the party. Hardliners are unlikely to take this lying down. At a stroke, Osborne has directly contradicted two of the main principles behind Dan Hannan and Douglas Carswell’s much vaunted “plan” – specifically:

* Devolving power to the lowest practicable level
* Replacing the quango state with genuine democracy

Quangos are now the panacea for everything while localism has been completely abandoned. As Carswell and Hannan like to remind people, they speak for a growing number of Tories these days, Tories who thought all that stuff about Cameron representing a new kind of Conservativism actually meant something. All that has been trashed now.

I actually got it wrong yesterday. I assumed that the Tories would underwrite a council tax freeze if inflation was running at 4-5%. Inflation may well be at that point if the Tories seize power at the next election (I hope not, but a massive interest rate cut now looks likely), yet Osborne only committed himself to a 2.5% freeze and even that was contingent on local authorities making cuts in their own public spending. So he isn’t willing to commit to public spending cuts at a national level but he is willing to impose them on perhaps the most efficient arm of the state, local government. Clue, anyone?

But perhaps the greatest indictment of the Tories on Monday was the video below. Highly reminiscent of Spinal Tap (note the shots of people sleeping during the speech – approx 1 min into the video), Osborne and Cameron manage to come across as feckless amateurs who are treating the whole thing like a jolly lark:

Seriously. Does anyone watch that video and not think “novices”?

See also: Sara Bedford, Jackie Ashley.

Osborne calls for more centralisation

That is the effect of calling, similar to Alex Salmond, for a two year council tax freeze. Ploughing national revenue into local government may sound attractive in the short term, but in the longer term it means even less fiscal autonomy. Given this will be happening during a higher than average period of inflation, we’re talking about a real shift here. My rough calculations put that as representing local government going from raising £1 in every £4 it spends to nearer £1:£5. How can the Tories continue to claim to be localists?

Gideon Osborne: how to make saying nothing into a virtue

Gideon Osborne has announced that, due to the “complete economic mess” the Conservatives will have to rewrite all their economic policies. To a degree that makes sense, except when you remember one thing:

They don’t have any economic policies!

Osborne has done a brilliant job at not saying anything about what he plans to do for three years. In fairness, he did announce three nuggest last autumn – raising the IHT threshold, lowering Stamp Duty and paying for both with a charge on non-domiciles – but even these backfired slighly when it was realised that the latter couldn’t even begin to pay for the other two. Now he’s even wiped these off the slate.

I mock him, but I do actually admire his low cunning. He recognises that getting bogged down into specifics can only do his party harm, so he avoids them like the plague. And with the economy in the state that it is, he is ultimately only stating the obvious when he says that any policies now would need to be revised before the general election. It is going to be difficult to beat the Tories with the economics stick and have much impact, despite the fact that in three years Osborne has failed to demonstrate any economic acumen (as opposed to PR).

Being a third party and vying for a platform, the Lib Dems can’t afford to play the same game, but after the last six weeks it has become clear that greater discretion on the part of our leader when it comes to taxation plans is sorely needed.