Tuesday, July 21, 2015

Osborne sows the political wind

They sow the wind
    and reap the whirlwind.
The stalk has no head;
    it will produce no flour.
Were it to yield grain,
    foreigners would swallow it up.

Hosea 8-6

The first Conservative budget in 19 years is an act of of political hypocrisy so astonishingly blatant that it is hard to know whether to cringe at the opportunism or applaud the cynicism.

George Osborne has the reputation as a masterful political tactician. Certainly he has been a astute observer of the political weather and occasionally he has been something of a rainmaker himself. His first Conservative budget is certainly far stronger from a political point of view that it is from an economic one. Take the Minimum Wage, which for the purposes of politics he re-branded as the "living wage". He portrayed the large increase as a "pay rise for Britain", yet the quid pro quo has been such a sharp reduction of in-work benefits that even such a "pay increase" will leave the working poor worse off. Now don't get me wrong here: I have been and remain a sharp critic of the tax credit system which is complicated, unfair and incredibly expensive to administer. Osborne has given notice that in time he intends to scrap this subsidy to employers who will not pay fair wages. However this budget makes the system even more unfair, even more complicated and even more expensive. 

You might have thought that it would be impossible for the UK to have a more complicated and expensive tax system- it has the longest tax code in the world: over 16,000 pages long. Osborne has managed to increase the complications of the system, and with it the regulatory burden and the cost of compliance. At a time when the tax code is already an intolerable burden on small businesses, Osborne has made it worse. Neither is this pernicious over regulation confined simply to one area- the welcome reduction of subsidies to the buy-to-let sector is also simply part of an "interim solution", which again makes the tax position even more complicated.  From a political point of view it allows the Tories to keep their options open- to attack the foreigners who "buy to leave" in London, benefiting from the complicity of HM Treasury in the distortion of the UK housing market, or to gain further donations from those who have made the second home market their pension pot. Politically astute it maybe, but from an economic point of view it is horseshit.

This budget is emblematic of the whole of Cameron's Conservative approach- play the political ball rather than establish a connected strategy. This is certainly true of David Cameron's European policy. It seems self evident that the PM does not intend to be the man who takes the UK out of the EU, and thus, within the current European context he will need to accept the limitations set out by the other 27 member states: namely no major treaty changes. This of course is hardly the red meat that the anti-EU rump amongst the Conservatives are looking for. Nevertheless Cameron is nothing if not a lucky politician, and as the Labour party enters a long period of convulsive introspection and as the Liberal Democrats ponder the agony of effort to recover from the 2010 defeat, the PM may yet have sufficient political capital to cut the EU Gordian knot. As the political wind turns against UKIP it looks as though Cameron's political folly of the referendum may yet be a high wire act that he can pull off.

Nevertheless, Osborne can not pull off the Pollyanna optimism of the current incumbent of Number 10- he is more the Mandelson or the Iago of the Conservative party.  This political budget was Osborne's statement of intent: settling scores- including with his chief rival, Boris Johnson- rather than setting out a coherent long term agenda. Thus even as Osborne basks in admiration from his own side at the political slight of hand that has left Labour in chaos, the fact is that he is setting the seeds for his own destruction. When Cameron steps down, presumably after the success of an EU referendum, then Osborne will be facing quite a different political environment. As the clouds gather over Scotland, and the mess of the UK tax code becomes a crisis, I suspect he will look back on July 2015 with a sense of "never glad, confident morning again". 

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