hould have been an important moment, the day the Tories unveiled their masterplan to sort out the economy. So it was with some trepidation that I turned to George Osborne’s 23-page document, tantalisingly entitled “A new economic model”. I shouldn’t have bothered: the report is a damp squib. A few of the proposals are great; most are fluffy; some are downright bad; none are new.
Take the deficit. The Tories would hold an emergency budget with a “plan to eliminate in large part the structural current budget deficit over a Parliament.” Yes, that’s right: five years to eliminate an ill-defined chunk of the structural (not cyclical) component of a sub-set of the deficit which excludes capital spending. That is even weaker than Labour’s plan. The “pace of consolidation must be determined in coordination with the independent Bank of England”, they argue, implying that the governor would be given a say over tax and spend. That cannot possibly be right. And they have decided to keep Gordon Brown’s narrow consumer price index inflation target, which was designed to keep interest rates artificially low. This helped fuel the bubble and was one of the most disastrous of all of Brown’s policies; why can’t the Tories get the Bank to focus on a broader gauge of inflation or – even better – liquidity?
For the last decade, the Tories rightly argue, “growth was too dependent on government spending and debt-fuelled consumption. A sustainable recovery must be driven by growth in exports and business investment.” Yet they won’t commit to reversing Labour’s hike in national insurance; will keep the 50p tax indefinitely (worryingly, they are now portraying it as a quid pro quo for a one-year public sector pay freeze); won’t free up the economy or jobs market; remain wedded to extreme environmentalism; won’t reverse any of Labour’s hundreds of tax hikes; and will rely too much on gimmicks such as mentoring schemes for entrepreneurs. Osborne thinks that making it simpler to set up new firms is the answer; but that is already the easy bit. It is what comes next that is so tough. Meanwhile, his policy to boost savings is almost identical to Labour’s, his proposals to regulate credit cards even more paternalistic and his plans for state-backed credit for small firms out of date. They have diluted their plans to force banks with deposits to cease all proprietary trading: the new idea is to pursue an international deal to “prevent retail banks from engaging in large scale proprietary trading that puts the stability of the bank at risk” (whatever that means).
The claim that they will make Britain “Europe’s leading hi-tech exporter” by boosting venture capital and the teaching of science is laughably optimistic. The best way to help venture capital would be to give it massive tax breaks, which they don’t want to do. Better training is not enough: the Soviet Union had the best scientists and the worst economy. You also need some real capitalism.
There are some great policies too. Their school reform – making it easy to start new privately run but state-funded schools – would be revolutionary. Lower corporation tax could transform Britain’s prospects, though the cuts will not be supply-side reductions but merely a drop in the headline rate cancelled out by ditching reliefs. Ending the compulsory conversion of pension pots into annuities at age 75 would be great. What a shame the good stuff is drowned out by the bad, the mediocre and the useless.