Confidence....by the bucket load!
Published Friday 4 December, 2015
It's a recipe for confidence:
- a workable majority in the House of Commons
- no Opposition worthy of the name. (Indeed the Chancellor must have thought all his Christmases had come at once as he saw that Little Red Book come across the Dispatch Box. As the Duke of Wellington said at Waterloo: "Never interrupt your enemy when he's making a mistake")
- a benign economic environment with low unemployment, low interest rates, no inflation and quality, sustainable growth in UK plc, indeed the best-performing economy of the major nations in the developed world.
And what the Chancellor showed in his Autumn Statement last Wednesday was confidence....by the bucket load!
He performed a U-turn of stupendous proportions. No smoothing of tax-credit reform; no knocking off the hard edges of transition. "I've listened; we're scrapping it" might be good for the Country, might save an inordinate amount of Government time, but it's lousy Party Politics .......unless you're confident enough in the economy you're delivering that it can be afforded and you also have a group opposite you who are to effective Opposition what Herod was to baby-sitting!
He shot the Labour fox spectacularly, not only nailing the tax-credit debate but also maintaining the confidence of the public (note to Jezza: they're the people who elect Governments, not 250,000 £3-paying left-wingers) by looking after the Police, ring-fencing defence spending and (a big pat on the back from this Chairman of Governors of a College of Further Education) funding of Colleges, especially geared to Apprenticeships.
As one headline read the next day: "The End of Austerity".
But there are two clouds on George's horizon:-
- he has created a huge hostage to fortune and he's the one trapped in its web. He can afford to do all this if the economy keeps growing as predicted; if there's a slowdown in the Eurozone (who'd bet their shirt on that uncompetitive bundle of not-fit-for-21st Century economies?) or if China's slowdown became a meltdown then it's all bets off. He'll be back, scrabbling for every penny, with tax-credit reform back on the table big-time.
- just like those spectacular failures from the past who never learned from their history books, the GBP are "at it" again! The Great British Public are borrowing like it's going out of fashion.....again! Poor regulatory behaviour, arrogant, greedy bankers, politicians anxious to bask in the reflected glory of the feel-good factor tailoring policies to suit...... All are partly to blame for the 2008 crash. But one other factor usually escapes censure, usually plays the victim, usually searches for scapegoats everywhere but at home: the GBP! Borrowing on credit cards, home loans, overdrafts is now back at pre-crash levels. No one made us all do it; there has yet be a law forcing a bigger mortgage or maxed-out credit card upon us.
It only needs interest rates to rise (and they surely will one day relatively soon) and thousands of buy-to-lets move into negative equity at the flash of a pen. People default, horns are drawn in, consumer confidence is lost......and George's depended-upon tax receipts become so much moonshine.
For sure his 3% hike in stamp duty on new buys-to-let and second homes after 5th April 2016 will raise a billion to help shoot that Labour police and tax-credit fox but it also serves quietly and painlessly in changing one form of borrowing behaviour and helping to reduce that personal debt mountain. If debt is only provided as a ratio of what the buy-to-let is worth not what the borrower had to pay (including stamp duty) then down go prices and down goes that part of the debt mountain.
Lastly, we all have one issue that must be fixed if the Chancellor is to be certain of his tax receipts in the years ahead, if we are to have a public sector providing more with less, if the jobs are to maintained and business' profits are to be increased (and with them the tax that pays for our schools and hospitals) : we MUST increase, quickly and significantly, the productivity of the Nation. Per hour worked we are, in both public and private sector, appalling in global competitiveness terms. Therein lies our relative decline; our inability to earn our way in Asia's Century.
If we don't sort it (and having more sixteen year-olds leaving school who can read, write and count would be a great start) then tax-credit transition will be the least of our problems. If we do, then George Osborne's confidence will be so well-founded as to appear, with hindsight, quite modest.