Cutting taxes, regulations and Britain’s decarbonisation will cause plenty of pain and very little gain.
Many people may agree with City AM Editor Allister Heath’s assessment yesterday that “the failure of our part-time chancellor has been as spectacular as it has been self-inflicted”.
But they should be concerned that, according to the Express’ Patrick O’Flynn, most Tory MPs in the Commons were talking about the rest of his article.
Heath’s remedy would create nothing short of economic collapse.
It is based on three tenets of libertarian economic dogma that have each been shown to fail:
• Further spending cuts paid for with tax cuts for business and top rate tax payers;
• Further labour market deregulation including exempting the smallest firms from “most regulations”;
•The suspension of the Climate Change Act.
Britain’s double dip recession should be proof, if ever it were ever needed, that ‘expansionary fiscal contraction’ does not work.
The rapid pace of spending cuts has been a contributing factor to Britain’s economic decline and increased borrowing.
The most recent public finance figures showed that Britain borrowed £17.9 billion in May 2012, compared with £15.2 billion at the same time last year. The rise was driven by a 7.3 per cent fall in income tax receipts and an 11.7 per cent jump in welfare benefits.
A temporary tax cut, to VAT as the IMF suggests, or to employee’s national insurance contributions to put cash back into consumers’ pockets would certainly boost the economy but it makes very little sense to target businesses when they are currently hoarding cash.
But the Office for Budget Responsibility’s own analysis shows that boosting infrastructure spending or welfare measures such as job guarantees for the long-term unemployed are the best way to boost growth from government spending.
Neither does cutting employment rights make much sense. Only Canada and the US have lower labour market regulation than the UK.
• It is time to debate a new economy 17 Jun 2012
Yet the UK and US had the worst unemployment record following the financial crisis. Germany, which has added jobs over the same period, comes 28th out of 40 in terms of least stringent employment protections.
Heath’s final proposal mirrors a set of ‘policies for growth’ in a recent letter from right-wing think tank bosses to the Telegraph and is at odds with the views of business groups. Both the CBI and EEF argue that the dichotomy between ‘green’ and ‘growth’ is a false one.
Indeed, with clean energy investments growing by 600 per cent since 2004, the economy contributed a third of the 0.6 per cent growth seen in the fiscal year 2010-11. According to recent reports, both onshore and offshore wind are likely to be cheaper sources of energy than nuclear.
George Osborne certainly does need “a blitz of autumnal activity” and a “drastic u-turn” as called for by Heath. But this should include further measures to use the low cost of government debt to boost infrastructure spending and policies to get work for the 885,000 people who’ve been unemployed for more than a year.
Cutting taxes, regulations and Britain’s decarbonisation will cause plenty of pain and very little gain.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.