Friday, 16 October 2015

Why Gideon Osborne is a genius

When Gideon Osborne became Chancellor of the Exchequer back in 2010 I thought the coalition were being stupid. Vince Cable had shone through in the general election campaign as being a sensible thinker on fiscal policy – don’t cut for ideological reasons, and invest to maintain growth. As far as I was concerned, Gideon was a posh, out-of-touch idiot who knew nothing about economics. The “Pasty Tax” seemed to be typical.

But since May I’ve come to realise Gideon is an incredibly intelligent politician. I shall use two examples: austerity and the fiscal charter (with the resulting political fun on Monday/Tuesday) and the austerity discourse; and the devolution of taxation powers to Scotland.


Now, Gideon is an austerity chancellor. He has cut public expenditure enormously, although I was interested to note a fortnight ago that Dennis Healey’s cuts in 1976 were greater. As I ruminated with Alex Marsh on teh Twitterz, we are seeing the results of this in the fraying civility of our urban landscapes – the vandalism left unrepaired, waste not collected or swept. And as Julian Le Grand showed in the 1980s, as this is a Tory government elected by people who use schools and hospitals, the cuts are mainly on services Labour voters (or non-voters) use: the benefits system and the nice fluffy extra stuff like urban regeneration and community development that local authorities used to be able to afford.

But he has, quite obviously, not cut the deficit. As many economic commentators and people on the left highlight, he spectacularly missed his own spending targets and has borrowed a quite staggering amount and continues to do so. This borrowing is paying for tax cuts for the rich – cutting the top rate of tax and inheritance tax. But as this excellent blog post highlights, these are just the sort of tax cuts floating voters like as they aspire to be higher-rate taxpayers and think they’ll die with a house worth a £1 million because they “work hard and do the right thing” (to quoth Gideon).

So, I want to suggest that “tackling the deficit” and “austerity” have become entirely symbolic. To throw myself into French post-structuralism, they are now empty signifiers. We all laughed at the “long term economic plan” nervous tick the Tories had during the election campaign, but over the many weeks it stuck like an earworm. If you listen to how David Cameron responded to Jeremy Corbyn’s questions from the British public at Prime Minister’s Question Time on Wednesday, it’s a classic example. The attacks on tax credits were very powerful, but the response was “we have a long term economic plan to tackle the deficit and get Britain working”. It’s a sentence that, literally, has no meaning in reality. But it cannot be argued against.

Using all the powers of rational argument we have, we can fill-in that: the deficit has not been cut; that promising to always run a budget surplus will suck money out of the economy stymieing private enterprise; that tax credits cuts are hitting hard-working families the most. But no one will listen, because all they hear and know about is that the government has “a long term economic plan to tackle the deficit and get Britain working”. Unfortunately we have to play that game now. Whether Labour supports or doesn't support the Fiscal Charter doesn't matter. Gideon doesn't support the Fiscal Charter, as people have kept pointing out, he pilloried Labour's suggestion to do the same in 2010. But the Fiscal Charter is a "long term economic plan to tackle the deficit and get Britain working". It's symbolic policy can be used over-and-over again. 

Devolved taxation

At the SNP conference today, Finance Secretary John Swinney is announcing that local authorities will be able to reduce Non-Domestic Rates. This is almost exactly the same as the announcement from Gideon at the Conservative Party conference. As my colleague Paul Cairney points out, this is a classic example of the SNP Scottish Government being socially democratic in social policy, and fiscally neoliberal in financial policy.

However, John Swinney has also announced he’s not going to use the new tax-varying powers that the Scottish Parliament has from this year thanks to the Scotland Act 2012. I want to hark right back though, to the Land and Buildings Transaction Tax. Now, under the 2012 Scotland Act the Scottish Parliament had Stamp Duty devolved to it. The Scottish Government pointed out that the flat rate on transactions over £250,000 was stupid and regressive. They worked out a revenue-neutral, banded scheme instead. The Scottish Conservative in the Parliament realised that this would hammer home owners in Edinburgh, Aberdeen and Glasgow who fell into the properties over £125,000 band who would suddenly have to pay.

Now, I’d be interested to know how much exchange went on between the Scottish Conservative and Gideon at the Treasury on this. Basically, five months after the LBTT was announced, Gideon announced he was reforming Stamp Duty to make it more progressive and banded, but that it would kick in at a higher level and overall it would reduce the amount of money raised by the tax. John Swinney was then forced to quickly change the LBTT bands to match the English ones, leaving a £50 million hole in the Scottish Government’s finances.

Now, why do I think this is an example of Gideon’s political acumen? Well, basically, it looks like with this, and the Non-Domestic Rates policies, Gideon is forcing the Scottish Government to match the UK’s taxation policies. Much as it might proclaim a distaste for austerity and a desire to increase public expenditure, ultimately the Scottish Government seems to end up being boxed into a corner. It will be interesting to see if Gideon reduces the basic rate of Income Tax to 19% and whether the Scottish Government would then follow.

There’s also a lot of political acumen from the Scottish Government here. At the moment they have the get-out-of-jail free card that a lot of these tax powers are unusable because the increased revenue is offset by decreased block grant. But, if the Scottish Government did ever start using them to lead to fiscal divergence from England, and it did result in economic success and increased revenues and better public services, then they would walk into the anti-independence argument of “well, it’s working ok for you now, why do you need any more powers?”

So, I utterly loathe Gideon. But over the past couple of weeks I’ve begun to realise what a political genius he is. I should also add, the Non-Domestic Rates thing is particularly clever as everyone is clueless as it’s such as esoteric tax. It sounds brilliant, but it is horrendous for local authorities and will massively increase (listening to the leader of Nottingham Council utterly fail to explain this fairly simple fact on BBC PM). I really hope Gideon isn’t the next Conservative leader, because then we have definitely got a Tory government until 2025. That is, unless the long memories of those middling voters who have been hammered by the cuts to tax credits do come to haunt him. 

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