Cutting taxes, regulations and Britain’s decarbonisation will cause plenty of pain and very little gain.
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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.
See also:
• IMF downgrades growth forecast AGAIN as Balls warns of “heavy long term price” of failure 16 Jul 2012
• OBR figures show a long term fiscal challenge that needs long term solutions 13 July 2012
• There is a clash of priorities in the government’s austerity economics 22 Jun 2012
• 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.
58 Responses to “UK economy will hit the rocks if Osborne follows Allister Heath’s plan”
Anonymous
Cutting wages is included in these proposals, under getting rid of ‘regulations’ i.e. minimum wage, holidays, sick pay etc.
Of course I don’t think it should be done, but I think you do.
If you believe in the free market your staffing problems indicate that you are failing to compete in the labour market. So, you want wages to be cut in the public sector to allow you to maintain profits. Why should we accept the relative impoverishment of other people because you can’t compete properly?
I don’t understand what you mean by referring to Sainsburys, but I presume you are trying to sneer and condescend.
I asked you to explain the benefits to wider society – not yourself, we all understand that – of adopting these proposals. So far you have failed to do so completely. I would suggest that indicates a certain confusion about what you want and why you want it. Don’t you think it would be better to get all that sorted out before you engage in politics, particularly if you are going to support extreme and untested policy based more or less on personal interest.
Anonymous
So ‘wealth creation’ means simply profiting from the labour of others, as I said. You probably think of this as ‘adding value’ i.e. increasing sale price compared with cost price, but that isn’t ‘wealth creation’ it is siphoning profits, just as it has always been. Any wealth that isn’t reinvested is a drain on socially productive wealth, not its creation. If it then shifts into speculative markets it is so far from ‘creating’ wealth as is possible. It is gambling on the future creation of real wealth and is fictitious capital making fictitious profits from inflated speculative values.
Also, you haven’t explained yet how society generally, rather than just employers, will benefit from what you propose.
Please do so, or stop what is basically a trolling session.
Anonymous
Crowding out is a myth, and for their qualifications public sector workers are considerably underpaid.
Given the massive redundancies and constant propaganda against the public sector, in fact it’s struggling to recruit in many sectors (especially some types of teacher and nurse), which is a damning incitement of the Government’s crusade against it.
And I’d like you to sell the second house and fly less.
Anonymous
Whereas you should go back under your bridge.
beatrix campbell
Osborne certainly needs a "drastic u-turn" but following @AllisterHeath's advice will cause major economic damage: http://t.co/3J7u91Eg