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Photo from : Kevin Coombs/Reuters via guardian.co.uk
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In
closing his Autumn Statement, chancellor George Osborne left the
British public with three things. First, that in contrast to his
self-assured prophecy, it would be unlikely that he would be able to
achieve the goal of reducing national debt as a ratio of gross
domestic product (GDP). Second, that the 'era of austerity' would not
cease until 2017-18, substantially undermining the credibility of his
fiscal rules. Third, however, was the point that the chancellor
didn't make explicit- that in attempting to orientate economic policy
to the political development of a 'smaller state' the present
condition of the economy has failed to ignite desperately needed
economic growth.
It is therefore rather puzzling, that the chancellor continues to play politics with the economy. Despite of all the common rhetoric we have come to expect from the chancellor, particularly in his cynical attacks against the labour party, what has been glossed over is how marginalised groups are rendered the most vulnerable in Osborne's economic plans. Researchers at the Joseph Rowntree Foundation have shown that a real-term cut in welfare will do little to help the estimated 6.1 million people living in poverty in working households. The chancellor (and probably some Lib Dems) might try counter this through the £235 increase in personal allowance tax, but while this might benefit some low-income earners, it is likely to inflict a great deal of damage to low income working families on means-tested benefits. Indeed, it seems peculiar that those at the recieving end of Osborne's failing economic strategy- those rule-abiding, aspirational families, are the ones who will receive the most punishment for the years ahead.
Contrast this with the much lobbied for action to reduce corporate rates of tax to just 21% in 2014, a two percent decrease. This is not only indicative of a continuing ideological position whereby tax relief will automatically stimulate job creation, but it also illustrates the chancellor's disregard of how important small and medium sized enterprises are to recovery. In particular, the statement said little in relation to the apparent funds available at the planned Business Bank, or how prospective entrepeneurs can gain easier access to equitable sums of capital. And indeed, while a a levy is still in place for large banks, the OBR has estimated that HM revenue is likely to collect £2.5 billion per annum, less than half a percent greater than under the last government. All of this shows the chancellor's personal conviction of his strategy- one in which the approval of the markets and the AAA rating are retained, and where large corporations are the saviours of the economy, at the expense of under-capitalised small-medium enterprises.
Ultimately, the failures shown by the autumn statement do little to alieviate both intrinsic economic problems, as well as the wider social issues that come from it. In fact, this may indeed be one of the central problems faced by the chancellor. In attempting to maintain the nation's reputation on the markets, the chancellor has opted for an approach designed to keep the status-quo in place. The price of such an approach is retaining the inherent societal inequality that comes with it- one in which the most wealthy contribute much less as a share of income compared to the most vulnerable, of whom face further risks of cuts to welfare and public services.
Thus, the chancellor should take away two lessons from his statement. First, that in breaking both his fiscal rules, a rethink of his deficit reduction strategy needs to focus more on long-term job creation. This might require significantly more investment into infrastructure projects. Second, and probably more important, is an acknowledgement that the condition of the economy directly relates to the nature of society itself. It is futile to believe that sustainable, long term growth can be achieved without confronting inequality, not just through monetary approaches, but also in providing the opportunities necessary for young people to flourish.
It is therefore rather puzzling, that the chancellor continues to play politics with the economy. Despite of all the common rhetoric we have come to expect from the chancellor, particularly in his cynical attacks against the labour party, what has been glossed over is how marginalised groups are rendered the most vulnerable in Osborne's economic plans. Researchers at the Joseph Rowntree Foundation have shown that a real-term cut in welfare will do little to help the estimated 6.1 million people living in poverty in working households. The chancellor (and probably some Lib Dems) might try counter this through the £235 increase in personal allowance tax, but while this might benefit some low-income earners, it is likely to inflict a great deal of damage to low income working families on means-tested benefits. Indeed, it seems peculiar that those at the recieving end of Osborne's failing economic strategy- those rule-abiding, aspirational families, are the ones who will receive the most punishment for the years ahead.
Contrast this with the much lobbied for action to reduce corporate rates of tax to just 21% in 2014, a two percent decrease. This is not only indicative of a continuing ideological position whereby tax relief will automatically stimulate job creation, but it also illustrates the chancellor's disregard of how important small and medium sized enterprises are to recovery. In particular, the statement said little in relation to the apparent funds available at the planned Business Bank, or how prospective entrepeneurs can gain easier access to equitable sums of capital. And indeed, while a a levy is still in place for large banks, the OBR has estimated that HM revenue is likely to collect £2.5 billion per annum, less than half a percent greater than under the last government. All of this shows the chancellor's personal conviction of his strategy- one in which the approval of the markets and the AAA rating are retained, and where large corporations are the saviours of the economy, at the expense of under-capitalised small-medium enterprises.
Ultimately, the failures shown by the autumn statement do little to alieviate both intrinsic economic problems, as well as the wider social issues that come from it. In fact, this may indeed be one of the central problems faced by the chancellor. In attempting to maintain the nation's reputation on the markets, the chancellor has opted for an approach designed to keep the status-quo in place. The price of such an approach is retaining the inherent societal inequality that comes with it- one in which the most wealthy contribute much less as a share of income compared to the most vulnerable, of whom face further risks of cuts to welfare and public services.
Thus, the chancellor should take away two lessons from his statement. First, that in breaking both his fiscal rules, a rethink of his deficit reduction strategy needs to focus more on long-term job creation. This might require significantly more investment into infrastructure projects. Second, and probably more important, is an acknowledgement that the condition of the economy directly relates to the nature of society itself. It is futile to believe that sustainable, long term growth can be achieved without confronting inequality, not just through monetary approaches, but also in providing the opportunities necessary for young people to flourish.
"...the most wealthy
ReplyDeletecontribute much less as a share of
income compared to the most
vulnerable, of whom face further risks of
cuts to welfare and public services."
- but figures show this to be very much false, see table here: http://bit.ly/WY0zWM
First, I'm no fan of Osborne and I disagree with the way he's targeting disabled people's welfare over corporate welfare to banks and big business through ZIRP, but it's empirically proven that cutting tax rates (especially the 50p rate) will not reduce revenue at the very least, and is likely to increase as a result.
According to this blog (http://bit.ly/SQMps7) HMRC documents cited show "that the 50p top rate was the highest statutory tax rate in the G20. Reducing the rate to 45p moves the UK to about halfway down the list, lower than its European competitors and comparable with China."
Hear that? Communist China has the same top rate of tax as we do! You might also want to take note that the top 1% of earners contribute to around 28% of total tax revenue in the UK (In the US it's higher at 40% of total revenue and note, their top rate is *lower*)
Secondly, you imply that a 2% corporate tax rate cut is bad for SME's, how exactly does that work?!
But also you say this is "indicative of a continuing ideological position whereby tax relief will automatically stimulate job
creation", followed by later arguing that we need to "focus on long term job creation by investing in infrastructure".
This too is indicative of your own ideology in flawed Neo-Keynesian doctrines that assume that the state can simply create jobs or wealth by assigning infrastructure projects, in addition to ignoring the fact that Osborne actually stated that investment in infrastructure is higher now than at any point in the last Labour government!
The state can't *create* wealth which is what we need to do, it can *only* redistribute it (or attempt to). IMO a better strategy would be to focus on creation of new wealth by reducing the tax burden of all businesses and individuals, & re-brand the UK as a global centre for business and entrepreneurs based on the Swiss model as the eurozone further cocoons itself into a full fiscal union.
I would like to add that I am not some kind of Randian ideologue opposed to ALL government spending, but it should ONLY be pursued when the private sector is too timid to invest, and only into projects that can be used as a springboard for private sector activity to spur real job creation. Simply creating more houses might buy us some time, but without a full on recovery happening in that time it just won't cut it without addressing the overburdened nature of UK SME's and deeper structural problems the UK economy is facing.
It's true that big business, trans-national corporations and high net worth individuals are sitting on large amounts of cash that could be used to stimulate wealth and create jobs. The way to get that money moving and increase the velocity of money is to create an environment that encourages them to invest in job creation rather than hoarding their wealth into land, property or moving overseas to avoid high tax regimes. I might suggest a land value tax as a fair way of getting their wealth out of land & property and into creating jobs the real economy if coupled with a hefty cut in corporate tax rates to stop them doing so overseas, could be a real winner!