“So what do you really think of George Osborne?” Someone shot that question to me in a television studio (while we were off-air) last week in the wake of the Budget.
It rather stumped me. I spend so much time in these columns lambasting the Chancellor’s decisions that I’d assumed the answer was obvious. But, actually, I’m pleased I got asked because it made me think. And it brought home to me that, perhaps contrary to appearances, I don’t believe everything the Chancellor has done in the six years since he became Chancellor (at the remarkably young age of 38) has been economically damaging and woefully misguided.
There have been policies announced by Mr Osborne over that time which have been sensible, but which I haven’t stopped to praise because there has, frankly, been so much else to object to. But with the Chancellor’s political standing at quite possibly its lowest ever ebb today, maybe this is a good time to redress that imbalance (at least a bit).
Let’s start with last week’s Budget. The special tax on sugary soft drinks announced by the Chancellor was an example of a sound, evidence-supported, policy. The design of the new levy is not perfect, as the Institute for Fiscal Studies stressed last week, but it targets a clear “negative externality” (of the type I wrote about last week) in the form of obesity healthcare costs imposed on society at large. It was also welcome to see Mr Osborne face down the drink industry lobbyists. Only a few months ago, the Prime Minister had ruled out any sort of sugar levy, apparently under pressure from the lobby.
It reminded me of another sensible reform from the Chancellor in the 2012 Budget. This would have equalised the VAT treatment of all hot takeaway food. This, readers will recall, led to one of the most powerful backlashes the Chancellor had (before now) experienced, and he rapidly had to scrap what became known as the “pasty tax”. But the original policy was right.
It’s silly that takeaway fish suppers and kebabs are subject to VAT but hot pasties are not. Yes, it would have meant more expensive pasties. But if politicians want to help people on low incomes, they should do it by bolstering tax credits, not through subsidising various random snacks and making the indirect tax take leaky. The universal media monstering Mr Osborne got of “pastygate” was a depressing spectacle for anyone who cares about sensible tax reform.
Another historic and much-reviled move from Osborne was his decision, also in 2012, to cut the additional rate of tax on incomes higher than £150,000 from 50p to 45p in the pound. This is what gave Labour its famous “tax cut for millionaires” sound bite, and there are still those who regard the move as a historic mistake by the Chancellor that forever stained the “compassionate” rebranding of the Conservative Party.
Yet in economic terms there was nothing wrong about the cut in the rate itself. The additional revenue the higher rate introduced by Labour brought in may well not have been worth the trouble, as Mr Osborne argued at the time.
Moreover, there are many more practical ways to take money off the very wealthy than taxing their income more, not least through a progressive tax on high-value housing. Whether we like it or not, the fact is that rich people can shift their incomes quite easily to avoid the income tax net. They can’t shift their mansions though.
What both the 45p rate and the pasty tax imbroglio ought to bring home is that the best way to look at the tax and benefits system is not the progressivity of any single particular measure, but the progressivity of the system as a whole. If some “giveaways” to the rich are compensated elsewhere by “takeaways” from them progressives have no reason to worry. And if the poor are compensated for tax rises by higher income elsewhere, ditto. Meanwhile, if tax reforms make the system more efficient and rational, the broader economy will ultimately benefit.
More recently, some of Mr Osborne’s labour-market reforms have been reasonable. The big minimum wage hike represents something of a gamble that productivity will pick up to match it, but it’s not a crazy one. Some distinguished labour-market experts think it a good idea.
The Apprenticeship Levy on employers is also a sensible innovation – and done right it could help shift us to a German-style system of building up the technical skill levels of the workforce through a close partnership with business. Both moves, by the way, belie the image of the Chancellor as an anti-state ideologue.
On trade and economic openness, the Chancellor’s instincts are often sound. He deserves credit for backing Britain’s membership of the European Union so forcefully. He has reportedly been a defender of immigration in the Cabinet, emphasising its economic benefits. The arguments the Chancellor makes for welcoming inbound investment from China – even into our nuclear infrastructure – are also good. The “Northern Powerhouse” emphasis on regional rebalancing and devolution of power is absolutely welcome. Mr Osborne’s liberalisation of people’s access to their retirement savings has an economic logic to it.
He did a good thing by setting up the Office for Budget Responsibility – which has proved its worth as an independent watchdog. Just imagine the uproar there would be today if it were announced that the economic forecasting process were to be taken back into the Treasury.
So does this list of successes make up for the Chancellor’s regressive and clumsy assaults on welfare spending, the slashing of environmental subsidies, the freezing of fuel duty, the race-to-the-bottom approach to corporation tax rates, the pandering to the pensioner vote?
Does it mitigate the stoking of demand for scarce houses, the reckless slashing of capital infrastructure expenditure, the failure to push through structural reform in banking, the harmful “fiscal rules” and so much else? Does it excuse the cynicism, the cowardice, the shamelessness and (above all) the rampant economic illiteracy of much of the past six years?
Of course not. But, still: credit where it’s due.
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