Monday, December 01, 2014

It is still the economy...

As George Osborne rises to speak in the House of Commons this afternoon, I am sure that he will be feeling a little rueful. The Conservatives have talked tough on the deficit, but the reality is that many of the cuts they proposed were quietly rescinded when it became clear that they were often counter-productive. The crisis in British government finances can not be easily tackled by the piecemeal approach that both the Tories and Labour have set out. The problem lies in the the deep structure of the British tax code, which is unwieldy and expensive to administer and deeply unfair in its application. Without a wholesale -even revolutionary- change in the tax code, the nibbles here and there that he will set out today will not change the direction of travel for the UK.

Despite much positive news- and the resilience of the UK economy is the object of some envy internationally- the fact is that the structural deficit can not be eliminated without drastic tax simplification and large scale deregulation. The costs of administrative compliance in the UK are crushing small business and have a major negative effect across the whole of the UK economy. The Conservatives- and even more the Labour Party- can not accept that major administrative reform comprises far more than the transfer of powers to Holyrood under the Smith Commission proposals- but requires a radical change in the seat of decision making across the country.

As the oil price falls still further (and with it the Russian Rouble, taking that country to brink of financial meltdown), it is pretty clear that yet another global crisis is upon us- the oil price reflects a global slow down. In that context Mr. Osborne's prescriptions announced today are far too modest to address the long term structural issues embedded deep in the regressive, expensive and absurd UK tax code.
  

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