Cutting energy bills a good move – but Osborne must do more

 
Allister Heath

EVERY little helps. George Osborne’s Autumn Statement on Thursday will contain some positive changes, for which it would be churlish not to congratulate him. In particular, energy bills are set to rise by £50 less than they would otherwise have, thanks to a partial rethink of environmental rules.

It is a shame that the green policy in question is not being axed and that, instead, its costs will be met from general taxation, but this shift is nevertheless psychologically important, given the debilitating context of coalition politics. It also looks increasingly likely that small firms will be given a little relief from the crippling burden that is business rates.

The Autumn Statement – which should perhaps be renamed the Winter Budget, given that it is being held on 5 December – will also contain a sprinkling of other positive reforms, and will be the first of Osborne’s set-pieces which is accompanied by large increases to growth forecasts and a big downgrade to the predicted budget deficit.

All of that is good stuff – though there will also doubtless be some bad policies, as there have been in each of Osborne’s Budgets. The biggest problem, however, is likely to be one of omission: even if Osborne does little to damage growth, and limits any new tax hikes to a manageable minimum, it is what he won’t be doing that will be the real drag. It is a fair bet that there will be none of the radical pro-growth supply-side tax cuts that the UK economy so desperately needs. For example, why limit business rates relief to small firms? What about the big retailers, restaurants and others who use vast amount of space and pay vast amounts of tax? Rising rates have been a contributing factor in the bankruptcy of several large chains, destroying thousands of jobs.

What worries me most is the chancellor’s new catchphrase of the “responsible recovery” (as opposed presumably to an irresponsible, unsustainable one); his steady as he goes message is supposed to show just how different he is to the previous Labour government, which presided over a gigantic boom and bust, despite Gordon Brown’s claims that he had conquered the economic cycle.

Osborne is, of course, right to highlight Britain’s disastrous recent economic history. As recent research from Policy Exchange reminds us, between 1997 and 2010, the UK saw the largest increase in public spending as a share of national income of any industrialised country. We rose from 22nd out of 28 to sixth, with spending increasing by 4.4 per cent per year in real terms. The tax take fluctuated in a narrow band of 36.2-38.7 per cent of GDP but state spending jumped from 34.6 per cent of GDP in 2000 to 47.4 per cent in 2010 on Treasury figures. Almost half this increase (6.2 points of the 12.8 per cent of GDP total) had occurred by 2005, two years at least before the start of the crisis. The economy was disastrously mismanaged and Britain still hasn’t recovered fully.

Yet dwelling on the past is not enough. Parts of the electorate will hesitate to back Ed Miliband and Ed Balls as a result of the previous government’s failures. But a refusal by Osborne to rock the boat on the grounds that he is being “responsible” won’t be sufficient to win him the next election. The Tories are way behind in the opinion polls; Osborne needs to be bold and think big if he really wants to turn the tide. His cuts to energy bills are a good move but the country will need to see many more concrete actions of that kind if they are to start backing the Tories again.

Fear isn’t enough – elections also require hope. Fiscal probity is essential. But unless Osborne is able to show aspirational voters how they will be better off under a Tory government – and how their taxes will be lower and their incomes higher – the prospects for his party will be very grim indeed.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath

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