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
How would it increase employment, given the problem is demand?
Moreover, how will you find the necessary tax credits, housing benefit and other government top-ups required for the low paid jobs you want to create, given you have just slashed the tax take?
The sort of devastation to the tax base you propose would inevitable lead to a massive rise in the poverty premium and benefit cuts. Why should the left double-down on failure? Why should we continue to support crashing the economy?
JC
I’ve spent the last 18 years in small companies working at the margins of profitability. A decision to employ someone is based on the cost of doing so against the increased revenue the company will gain from it. A reduction in employers NI is not to compensate for making less wealth, it’s to make it cheaper to employ people.
Is there no subsidy for renewable energy then? No air passenger duty, not fuel price escalator? I mus have been mistaken. Sorry.
As for wealth creators; well if you don’t understand, I’d be wasting my time explaining.
JC
When there’s a significant wage discrepancy, or a majority of jobs locally in the public sector, the smaller companies are crowded out. They often don’t have the resources to recruit at those rates. Larger companies have no problem, but we know that capitalism is inherently destructive, so we should be providing the environment for new Dysons, Logicas, Triumph Motorbikes etc to thrive. I see no reason why these shouldn’t be cooperatives, but few are being created.
You may want to talk about social wealth, but how do you measure it? What exactly is it, and who can provide the environment to create it? This is a discussion about economic growth and how best to achieve it. You might be happy with your wage and feel that you pay the right amount in tax. I would like to be paid more than £6.50/hr and not pay so much tax on my lowly wage.
Anonymous
Where is the proof of a ‘significant’ wage discrepancy driving jobs out of the private sector?
Social wealth is the entirety of wealth produced in society. It’s fairly simple, really.
But you have entirely failed to answer my question : how will cutting wages and the public sector benefit ordinary people? Why do you firmly believe it will be a good thing, when you can provide no evidence and no supporting arguments?
Please explain why you want to fundamentally change our society in terms we can all understand.
Anonymous
I don’t think you understand what a ‘wealth creator’ is. It’s just a catchphrase for you, something to prevent the need for proper explanation, a means of justifying the current status quo but which has little meaning.
It would be nice if you could respond to the questions people are asking you, as well.