I am not noted for being a sycophant but George did well – very well.
He has placed Britain in a leading position, internationally, in restoring sound public finances and returning to a sustainable, sensibly balanced economy. In Continental Europe there are still “horrors” yet to come and the USA has yet to address restoring the health of its public finances. Britain will enjoy the advantage of being able to borrow internationally at highly competitive rates. The only, ironic, negative is that we may see Sterling appreciate particularly against the Euro, where it would be economically desirable to retain a competitive exchange rate.
Politically, George Osborne is also to be congratulated on engaging the support of not only the Liberal Democrats but also the Conservative leadership. The political advantages of the Coalition are also demonstrated, where the only opposition is from a wholly discredited Labour Party. Well done George.
Looking forward, I would make the following observations:
The aggregate figures George Osborne quoted for welfare spending did not include tax credits as these were deviously structured by Gordon Brown such that they are not treated as welfare expenditure but netted off tax revenues; nor some welfare spending included in regional spending. On my arithmetic the total welfare bill is now around £220billion per annum? The reforms announced were in the most glaring areas. There is, however, a lot more to address.
Welfare spending should be a safety net with “stick and carrot”, and not a universal provider. Major abuse is occurring in the single parent support territory. I encountered recently a situation of two men who work together, where one is married and is working seven days a week to pay for the necessary equipment for his new baby. The other is not married and his partner is provided with all the equipment, care of the taxpayer. This sort of situation is morally objectionable and discourages a fundamental theme of David Cameron’s, very right, pro-family philosophy. That all two million new jobs Brown claimed to have created went, in net terms, to Eastern European immigrant workers demonstrates a similar wrong, when there are some seven million British citizens of working age who are not working and living at a standard of living, comparable with that of the taxpayers who are paying for their benefits. This too is both morally and economically wrong.
At a macro-economic level, Britain needs to return to an adequate level of savings to finance retirement and the capital investment which business needs; and also to make the financing of Government borrowing less dependent, long term, on the rest of the world. This should happen gradually, as otherwise a sharp balancing fall in consumption would be negative for near term economic recovery. But it will be needed to restore the British economy to sustainable balance. The Labour Government destroyed Britain’s leading pension savings position. The Coalition Government will need to craft simple and attractive retirement savings regimes over the next five years. I also suggest the target should be a Savings Ratio of around 10% of GDP.
While appreciating the political reasons for the “we are all in it together” tax measures, there is a manifest economic argument for reversing as soon as possible the politically-motivated higher income tax and related taxation measures introduced by Labour. I well remember visiting one of the world’s largest banking groups in London ahead of the 2005 General Election. What they told me was how they had run down their Paris and Frankfurt offices, transferring staff to London, (who then paid UK tax); where what mattered to them fiscally was a top rate of income tax not higher than 40% and the then tax regime for pension schemes.
I have also just attended a board meeting where most of the business will be transferring to Asia. To the “man in the street” it sounds like privileged stuff, but the Government should not underestimate the extent to which mobile businesses and their employees will relocate if our income tax, CGT and NI tax regimes are too high. We lose both the employment they provide and the tax revenues from their businesses and incomes.
The fundamental causes of the banking crisis and the ensuing recession in Britain were the wrong monetary, economic and regulatory policies of the Labour Government. As history shows, if there is too much money/credit about, banks end up lending unwisely. Moreover, it was two particular badly managed Scottish banks which had to be bailed out. I am no friend of the banking oligopoly which has prevailed over the last two decades – substantially the result of previous Conservative Governments limiting Bank of England “lender of last resort” support to banks that were deemed too big to fail.
But what the economy now needs is for banks to lend more to medium sized and small businesses, and not to be constrained in a hair shirt of politically inspired caution. I have supplied to both the Treasury and Vince Cable’s Department, a comparison of the very successful US Small Businesses guaranteed loan scheme with the unsuccessful UK equivalent. There are useful lessons to be learnt from the US; but the positive support of the banks is also needed. “Beating up the banks” should now have its political day: we now need the full engagement of the banks to support and help grow the small company sector, which employs some 14 million people.
Ironically, it was the indecisive result of the General Election, delivering a Coalition Government, which enabled George Osborne’s tough Budget to have a wider base of political support, so making it easier than would otherwise have been the case for Britain to now get on with the measures needed to restore a successful and growing private sector. It is that which will deliver real jobs and real growth, in comparison to the vulnerable illusion of economic prosperity, created by Brown’s reckless explosion of public spending after 2001.