Tag: George Osborne

MIDTERM UNPOPULARITY COMES EARLY

BREXIT DANGER.

With death on the streets around the European Union Headquarters building and the Budget shambles at home, it has been a bad week for those of us wanting a remain vote in June’s EU referendum.

The disgusting terrorist atrocities suggest Europe is falling apart under a wave of violence. The events in Brussels come hard upon the migrant crisis where the EU did not cover itself in glory.

People should realise that the economic arguments for staying in the biggest market in the world and the perils of the unknown offered by the Brexiteers, should overwhelm concerns about terrorism and migrants. But after the Chancellor’s bungled budget, will they?

Labour actually edged ahead in one opinion poll and that was even before Iain Duncan Smith resigned. It is a sign that the traditional mid term unpopularity suffered by all governments has come early. People may look at the most senior advocates of remaining in the EU, the Prime Minister and Chancellor, and decide to give them a kicking for the way they are running the UK, rather than think about the dangers of leaving.

HE TURNED UP THE VOLUME AGAIN.

Iain Duncan Smith has been a disruptive force in Tory politics for two decades. In the nineties he helped to force the sitting Prime Minister, John Major, the resign and stand again for his own job over Europe. He then became Tory leader in 2003 but showed no signs of avoiding a third successive defeat and was replaced a couple of years later. In government since 2010 he has been on a single-minded crusade to reform the benefits system, so single minded that he clearly has been a nightmare to deal with. Faced with the Chancellor constantly demanding cuts, it is surprising the resignation didn’t come earlier.

Neither Osborne or Duncan Smith have emerged from the events of the last week with much credit. Universal credit is a good idea but it should have been rolled out to over 5 million people by now. The current figure is 200,000. That is failure.

The other failure is George Osborne’s failure to hit any of the targets that he floats at election time to woo the voters. The cap on welfare, reducing the National Debt and the ever receding promise to get the books in surplus by 2020. Even in the Budget it was going to be achieved with some sleight of hand involving Corporation Tax receipts. Now his only hope is a booming economy will fill in the four billion pound black hole.

The retreat on things like welfare cuts and the tampon tax can apparently be accommodated according to the Chancellor which begs the question why disabled people were put through the ringer in the first place.

The one nation Tory Party theme is holed below the water line. The true face of George Osborne was shown in that nasty jibe about abolishing the Lib Dems. Pride always comes before a fall and whilst the Lib Dems are on a long journey back, Jeremy Corbyn’s handling of the budget crisis (not overdoing the point scoring) may ensure a better set of election results in May than he could have hoped for a few weeks ago.

A CONFUSING POTENTIAL SWANSONG

PICK AND MIX

You’ll look for an ideological thread in the Chancellor’s budget in vain. On the one hand he regards it as acceptable to cut disabled benefits whilst cutting Corporation Tax again. On the other hand the sugar tax is an intervention in the free market that met with the immediate approval of Jeremy Corbyn.

Then there was the missed opportunity to increase petrol duty at a time when the slump in world oil prices meant motorists would hardly have noticed. He didn’t do it apparently so as to appease Tory backbenchers who he wants to vote for him for leader. But earlier in his speech he referred to the Office of Budget Responsibility’s warning that leaving the EU would lead to “disruptive uncertainty.” The OBR are right, Osborne was right to refer to the biggest issue that could disrupt his Budget strategy, but it didn’t go down well with many of those Tory backbenchers.

NORTHERN POWERHOUSE.

It was a complex, somewhat incoherent Budget which nonetheless had some good things in it for small business and the Northern Powerhouse. I thought the Leeds-Manchester rail line had been given the go-head a few times already but, anyway, it was in the Budget along with creating a 4 lane M62 over the Pennines. News that a case will be developed for a Manchester-Sheffield road tunnel is good news too. Greater Manchester once again gets more powers, this time over justice issues. But ominously whilst elected mayoral deals were announced for some rural areas, there was silence on Leeds, Greater Yorkshire and Cumbria. Knowsley is to get the northern Shakespeare Theatre which is brilliant and a reward for the lobbying work of local MP George Howarth. Perhaps he could play Lear in the first production!

SMALL BUSINESS BONANZA.

600,000 small businesses will pay zero rates from next year when the payment threshold is lifted £15000. This is even higher than campaigners were hoping for but there was more good news in George Osborne’s red box. The annual rise in business rates will in future be pegged to the consumer price index rather than the higher retail price index. There are also likely to be more frequent reviews. Due to government delays, businesses are still paying tax based on property values dating back to the financial crisis.

The elected mayors of Greater Manchester and the Liverpool City Region are to be given full powers over spending business rates but there is a downside for them and all local government. Town Halls will soon depend on business rates for their income rather than central grant. If Chancellor’s keep reducing the rates, council services will suffer further.

They will anyway because the Chancellor is looking for another £3.5bn of public spending cuts in 2019 as part of his desperate attempt to leap from a deficit of £20bn in 2019 to a surplus of £10bn in election year.

By then, the theory goes, George Osborne will be Prime Minister. There are just the little problems of Brexit, Boris and the good old British economy in the way.

DON’T ROCK THE REFERENDUM BOAT CHANCELLOR!

PETROL TAX IS TEMPTING TARGET FOR OSBORNE.

George Osborne is in danger of being caught in an ambush of his own making when he presents his budget next week.

He needs to keep voters sweet ahead of the EU referendum but recently announced that the optimistic note he struck at the time of the autumn statement has now gone flat. There was always a danger that mid term unpopularity might lead people to vote against the government for reasons unrelated to Europe. At the moment the Conservatives hold a healthy lead over Labour, but an unpopular budget with new cuts and tax rises could change that before June.

The Chancellor was too bullish in the autumn and now that the economic headwinds are beginning to blow, he is thrashing around for answers to keep his pledge of a budget surplus by 2020 intact. The suggestion of a major reform of pensions was a spectacular example of this. The idea was floated to remove tax relief on pension contributions rather than taxing withdrawals later in life. This would have been a complete reversal of the current position but would have given Mr Osborne more tax revenue now. The plan met severe criticism, not least because a future Chancellor might be tempted to tax withdrawals as well.

That pledge of a budget balance by 2020 is crucial if George Osborne is going to make a bid for the premiership, but it certainly restricts his room for manoeuvre as uncertainty persists on the international front. With growth forecasts cut and average earnings rising more slowly, tax revenues are not what he expected as recently as November.

Reaching for more cuts in public services is going to prove very difficult. The well reported difficulties faced by councils like Lancashire clearly show there is no low hanging fruit on the public spending tree. Indeed the Chancellor will need a long neck to munch much more. So let’s nickname any more economies in this area, the giraffe cuts!

It is always difficult to predict what Chancellors will do, but I would be surprised if petrol duty remains frozen as it has been since 2011. With the drop in forecourt prices to around a pound a litre, this would be a relatively pain free area to raise tax. He ought to do something about taxing the amount of sugar we consume but there seems to be a reluctance to do so.

With virtually zero interest rates the climate remains favourable for investment and consumer growth remains strong. However the latter familiar development in the UK economy may be storing up trouble in the future. If only the manufacturing figures were as healthy.

Osborne will be entitled to say that his campaign to make multinationals pay their UK taxes is beginning to work. This is an essential development as people grow weary of the austerity agenda.

Wednesday’s budget will be both a temporary distraction from debate on the EU referendum, whilst also potentially affecting its outcome. Osborne has been in post nearly six years now. He will need all his political skills to get through this Budget.

LABOUR OLDHAM WARNING AS OSBORNE MARCHES ON

OLDHAM WARNING FOR LABOUR.

A Labour contact of mine in the Oldham West by election says on the doorstep traditional Labour voters are raising Corbyn’s leadership all the time. This could be significant as “Westminster bubble” issues don’t always resonate with voters.

The feedback from this northern seat is that Corbyn and his close advisers are all perceived to be from a London clique who haven’t a clue about the North. This impression will be compounded by Corbyn’s decision to cancel his planned Friday visit to the by election as he tries to sort out serious divisions over his party’s policy on bombing Syria.

All this means that we would be unwise to rule out UKIP doing very well next Thursday night in Oldham West and Royton.

OSBORNE FOR PRIME MINISTER?

George Osborne’s shameless U turn on tax credits and police cuts will be long forgotten if his gamble in believing in a continuing world of low inflation and interest rates pays off. In his six years as Chancellor, he has shown himself generally to have a pragmatic and politically sensitive approach. Made a mistake over pasties or tax credits? Make a change and move on. His upbeat approach at all three budget statements this year raises the morale of backbench Tories who think he’s a winner. They also like the ideology which runs underneath the pragmatism. Osborne is determined to create a smaller state. By 2020 it will have shrunk from 50% to 35% of gross Domestic Product.

This is most clearly seen in housing policy. The private sector is to be incentivised to build 400,000 homes with a strong emphasis on making them available to buy not rent. Along with the right to buy for Housing Association tenants, the thrust of government policy is clearly away from social housing to home ownership. First time buyers with incomes of up to £80,000 in the North will be able to benefit from the subsidies offered. The policy will not help the poor who are most in need of housing.

On education George Osborne explicitly said the days of local councils running schools would be a thing of the past. 500 new free schools are to be built.

So ideology to please the Tory backbenches, pragmatism to please the voters, could this be a combination that allows George Osborne to see of Theresa May or Boris Johnson in the leadership election? At the moment he has to be favourite but what if things go wrong.

THE GAMBLE.

The Treasury are spinning that this isn’t the end of austerity. Well a strategic decision has been taken to take advantage of the more optimistic outlook offered by the Office for Budget Responsibility to ease the cuts in the early years of the parliament and breach the welfare cap. There is a heavy reliance on continued low inflation rates and growth of around 2.5%. If “events” happen like a further downturn in the Chinese economy, Osborne’s gamble could unravel just when he’s seeking to become Prime Minister. In that respect it is strange that he has decided to defer more painful cuts till nearer the election rather than getting them over now.

WHAT IT MEANS FOR THE NORTH.

Sir Richard Leese, the leader of Manchester City Council had challenged the Chancellor to put the flesh on the bones of the Northern Powerhouse particularly in relation to transport. Well there is £200m for transport including £150m for an “oyster” card system. This is brilliant news. Anyone who uses London Transport knows that card makes the use of public transport so easy. The M6 between junctions 16-19 is to upgraded. The motorway which enters the north through the important gateway of Cheshire and Warrington is often overlooked when connectivity is discussed. There are major investments in science and nuclear power. New Enterprise Zones are being created in Leeds, York, Greater Manchester Life Science Park, Cheshire Science Corridor and Hillhouse Chemical on the Fylde.

LABOUR VICTORIES.

Labour can claim to have forced the government to retreat over tax credits and police cuts but they still shoot themselves in the foot.

Liam Byrne’s 2010 message left on a Treasury desk saying there was no money left, Ed Miliband’s headstone and Shadow Chancellor John MacDonald’s brandishing of Chairman Mao’s Little Red Book are a woeful series of unnecessary public relations gaffs.

The tragedy is that the issue that MacDonald was trying to raise, the worrying amount of our infrastructure owned by the Chinese is a valid one.