George Osborne’s credit is running out

David Cowan 2.00pm

The Osborne brand has been heavily devalued since George Osborne’s politically disastrous budget. It initiated the ‘omnishambles’ of the past few months which was then followed by a ridiculously long set of U-turns over taxes on pasties, caravans, charities, heritage, and petrol. After weeks of government ministers loyally defending the budget these policies were swiftly and unceremoniously ditched with little or no notice. Often these announcements came within days of each other with the consequence that loyal ministers and MPs had been made to look incredibly foolish.

Just think of Chloe Smith on Newsnight after George Osborne announced that the autumn increase in fuel duty would not go ahead. Even the Secretary of State for Transport, Justine Greening – a loyal Osbornite by all accounts – was kept in the dark about the change of policy. The U-turn over fuel duty was perhaps the most misjudged as it still managed to backfire on George Osborne as that very same morning Ed Balls had called for such a change of direction in The Sun. As a result it looked more like a victory for Ed Balls and another wobble from George Osborne. Many in the Conservative party now see him as “too damaged” to be a credible successor to David Cameron.

Last week Osborne made his bid to regain some of his credibility as de facto Chief Strategist of the Conservative party with a provocative interview in The Spectator where he claimed that Labour aides were “clearly involved” in the Libor scandal, but without mentioning names. When it resulted in a clash in the House of Commons debate that very same day Ed Balls exclaimed “He has impugned my integrity in The Spectator!” It was a very partisan performance delivered in order to boost Conservative MPs’ confidence in him. George Osborne may appear to have done this by securing a parliamentary inquiry into the banking industry, instead of a judicial one, which will undoubtedly question Ed Balls and the other architects of the faulty regulatory system which helped precipitate the financial crisis in 2008.

But to many Conservatives the parliamentary exchange between George Osborne and Ed Balls looked like a sordid display of petty politics- not statesmanship. While it is of course important that Ed Balls et al are made accountable for their disastrous policies, there is still a feeling that George Osborne is far too focused on playing politics instead of doing his job. If this perception dominates how the electorate see him at a time when Britain has gone into a double-dip recession, the Eurozone crisis is engulfing the continent, 2.61 million people still unemployed, and the Bank of England printing money like there is no tomorrow, then the Osborne brand will continue to decline in value.

Within the wider context of the various deficiencies in George Osborne’s economic and financial policies, this run on his credibility is only going to continue. His plan for growth is far too heavily dependent on a policy of cheap credit from the Bank of England and fiscal stimulus from the Treasury (see my article on last year’s Autumn Statement) and clearly is not working. Another problem is that his deficit reduction plan has so far been implemented through tax rises while spending cuts will not actually start to bite until the eve of the next general election and will continue into the next parliament. It is now very likely that on polling day in 2015 the electorate will still be feeling the pinch of meagre growth, rising cost of living, and harsher spending cuts.

A wealth of radical policies for growth has come from across centre-right politics. Conservative MPs have set up groups like the Free Enterprise Group, 2020 Conservatives and The Growth Factory in order to formulate new policies to liberalise the economy. Numerous think tanks have delivered fascinating reports on boosting growth, like the Institute of Economic Affairs’ ‘Sharper Axes, Lower Taxes’, the Centre for Policy Studies’ ‘Small is Best’ publication and helpful infotoon, and the TaxPayers’ Alliance’s 2020 Tax Commission Report. They are all calling for the same spirit of Tory radicalism which has been advanced by Michael Gove and Iain Duncan-Smith, with a clear economic plan based on larger spending cuts, lower taxes, deregulation and sound money.

It is of course difficult for Osborne to recalibrate his economic and financial policies more firmly in this direction because of the Liberal Democrats. But this then begs the question of what happened to ‘Orange Book liberalism’ which was so superbly articulated by David Laws? The coalition seems to baulk at every opportunity of providing a more robust plan for growth. Instead we have seen streams of micro-initiatives put forward while radical policies, like the Beecroft Report’s proposal for making it easier for employers to hire and fire employees, get side-lined. Policy making has become a zero-sum game in which decisions are prevented from happening whilst civil servants are left to their own devices with disastrous consequences, like in this year’s budget. The coalition simply cannot function without an effective policy machine with both parties contributing to new economic radicalism.

George Osborne is undeniably a political animal. He has had numerous political coups like in 2007 when his inheritance tax cut pledge helped spook Brown into bottling the election, but there is a serious job to be done. If we are going to see an effective plan for growth based on spending cuts, lower taxes, deregulation and sound money which has the support of both coalition parties then George Osborne has to focus, otherwise the blood of electoral failure in 2015 will be on his hands.

Follow David on Twitter @david_cowan

Rhythm is a dancer at PMQs

Jack Blackburn 3.30pm

As Dave and Edward know (both being Oxonians) it is Commemoration Ball season: a time for dancing.

There was an element of that at PMQs today and, in the manner of the modern day ball, the participants were dancing without much discernible sense of rhythm. The music playing at the moment is much more to Edward’s taste than Dave’s, but everyone’s bringing out their own moves. Just don’t call it a U-turn. It’s a volte face.

These days, Edward Miliband has many dances he can trot out, but he chose the fuel duty “U-turn”: the latest contribution to the budgeting omnishambles, made all the more embarrassing by Chloe Smith’s unfortunate “Michael Howard moment” on Newsnight last night.

“U-turn? What U-turn?”, said Dave, claiming that it was a Labour tax they were getting rid of. “Ever since we came to office we have been defusing Labour’s tax bombshell.”

Dave’s major implication though was that the Leader of the Opposition was two-faced. He supports Lords Reform but is against the programme motion. He’s for stopping the increases in fuel duty, but against the Government’s “change of mind” to do so. The line Mr Cameron is trying to lay down by implication is that Mr Miliband is an opportunist.

Even though the Government has so far had an annus horribilis, there is no denying that Mr Miliband has looked more like a scavenger of their misery, than a viable alternative. This is despite a definite improvement in his personal style, most obviously marked in his weekly performances at PMQs. Nevertheless, he still cannot land a knockout blow, or even score open goals. The judges should be giving him nines and tens at present, but Edward’s twinkle-toes often leave himself at sixes and sevens.

Edward’s major problem is his lack of detail; his insistence on repeating debatable, rhetorical points as if they were indisputable facts. Things are going for him at the moment, but he just isn’t producing. What will happen when the fortunes turn, and the government starts getting the rub of the green?

Furthermore, the Government couldn’t be doing more to help Edward out. Today, while defending George Osborne’s alleged “cowardice” in not facing the press yesterday, the Prime Minister said that the Chancellor had faced the Commons, and in doing so had “wrong-footed” Ed Balls. That’s all well and good, but George Osborne’s adroit volte face wrong-footed everyone, to the point that Cabinet ministers were briefing for the increase all through yesterday morning, and poor Chloe Smith was sent up Newsnight creek, without a paddle, or a boat.

With all of this ammunition at his disposal, Edward still failed to score a clear win today. One wonders how he will dance when the music’s no longer to his liking.

Follow Jack on Twitter @BlackburnJA

The ghosts of Keynes and Brown are alive and well in Her Majesty’s Treasury

David Cowan 6.00am

The dust has settled on the Autumn Statement.
George Osborne has stuck to his original spending plans but abandoned his 2014-15 target for eliminating the structural budget deficit.
Instead there will be further 0.9 per cent cuts in real terms to current expenditure during 2015-16 and 2016-17. Over the seven year period public expenditure will fall by 16.2 per cent in real terms.
This means that during the Conservatives will be going to the country in 2015 with the pledge to cut an extra £116 billion over two years.

These are dangerous and unpredictable times. It is especially worrying when the OBR’s gloomy forecasts are based on the optimistic assumption that the Eurozone will survive its sovereign debt crisis.
The two year extension of the deficit reduction plan is also based on the complacent assumption that the Conservatives will still be in power in 2015. George Osborne should have refuted this complacent attitude and repositioned his fiscal policy in a credible manner, as by the 2012 Budget we could be living in a very different world without the Euro and the onset of another global recession, if not a depression.
 
A more credible fiscal policy would have been a reaffirmation of the commitment to eliminate structural budget deficit by 2014-15 by announcing some preliminary spending reductions which would go towards paying back the debt, such as scrapping the £34 billion ‘white elephant’ High Speed Rail 2 project (something Nik has blogged repeatedly about on these pages) and stop the £113 million going to trade unions every year (see Craig here), but then also say that further detailed spending reductions would be announced in the 2012 Budget with explicit aim of implementing the £216 billion cuts before 2015-16.
This course of action would allow new spending plans to be formulated in response to developments in the Eurozone. There is a need for further spending reductions if the coalition is going to put Britain back on track, keep borrowing costs and long term interest rates low, and maintain our perceived safe haven status.
 
However, George Osborne’s plan can only work if the economy starts growing again. The Autumn Statement was an opportunity for radical action but instead we got a ‘Brownite’ flurry of statistics and a plethora of small initiatives for ‘credit easing’, the Regional Growth Fund, and a ‘youth contract’.  All of which amounts to well over £10 billion at a time when we are adding another £145 billion to the national debt.
These schemes will waste taxpayers’ money on new bureaucracies and inefficiently re-allocate resources towards unproductive sectors of the economy. George Osborne has weighted his growth strategy too heavily towards a Keynesian style stimulus based on state intervention and cheap credit. He needs to bring the focus back towards supply side reform.
 
There are seeds of hope with the delay of the 3p increase in fuel duty, the aim to integrate the operation of income tax and national insurance contributions, the consultation on abolishing national pay bargaining, public sector pension reform, the liberalisation of employment legislation, and a more flexible planning system.
However, George Osborne could have been more radical. Indeed it would not be going so far as to say that it is essential for the future of the British economy that the Chancellor pursues this route instead of issuing headline grabbing micro-initiatives.
The ghosts of Keynes and Brown are well and truly alive in Her Majesty’s Treasury.
Follow David on Twitter @david_cowan

Uninsured drivers: the other invidious tax hitting the pockets of Britain’s motorists

Craig Barrett  6.00am

The Conservative MP for Harlow, Robert Halfon, has done a sterling job raising the issue of high fuel costs, which he sets out here for Total Politics.
Above all, fuel duty is a tax on the poor. But there is an additional invidious tax levied on all drivers: car insurance.
 
We all have to pay it but if you insure your car in compliance with the law you are effectively taxed to pay for those disreputable individuals who think this sort of responsibility beneath them.
When these criminals come a-cropper, the insurer pays out but recovers their losses from the law abiding majority by whacking up their premiums.
 
It is estimated that there are 1.4million uninsured vehicles on the road, at a cost to honest motorists of some £500 million in additional premiums, to say nothing of the 160 deaths and 23,000 injuries caused by uninsured drivers.
A person who is careless enough not to bother with insurance is likely to have a similarly slapdash attitude towards their behaviour on the road. Uninsured motorists are more likely not to have bothered with an MOT test or routine maintenance, three times more likely to be convicted of driving without due care and attention, and ten times more likely to have a drink driving conviction. Scary stuff.
Since June this year enforcement has been tightened. The Continuous Insurance Enforcement system will compare the DVLA’s database of registered keepers with the Motor Insurance Database and contact drivers who seem to be lacking insurance.
The monitoring technology works. Last year, when my car was broken into, a well-known firm of motor glaziers was instantly able to access my insurance details to confirm that I only had to pay the excess. Moreover, pricing tyres online yesterday was made easier by simply typing in my registration number to a form rather than having to recall the tyre size.
 
The theory is that all those who are uninsured will receive an initial fine of £100 (following a letter), escalating to further fines of up to £1,000 and destruction of the vehicle.
It would be interesting to know the CIE’s success rate after the first five months. There are some serious obstacles it has to get past.
Some 40 per cent of uninsured vehicles impounded are never reclaimed, basically because it is cheaper and easier to get hold of another vehicle than pay for a MOT and/or insurance.
With any luck, the new vehicle may even come with an MOT and road tax, such is the state of the used car market that a cheap runaround can be very affordable.
CIE will also rely on vehicles actually appearing on the DVLA register as being on the road, rather than having completed a Statutory Off Road Notification.
 
Some years ago I was speaking to a friend in the police and I was horrified to discover that he had stopped a driver in Southwark, asked for his insurance details and was told “God is my insurance”. Sadly, he wasn’t quick enough to respond by asking for the claims helpline number.
Uninsured drivers appear to be a particularly problematic in urban areas. On 19th October, the new Metropolitan Police Commissioner, Bernard Hogan-Howe, put 1,000 officers on the street to seize over 200 cars using number-plate recognition technology at roadblocks. Hogan-Howe used a similar mass sweep technique when operating in Liverpool.
As well as the impressive visual effect of a massive police presence, various weapons were seized and £10,000 worth of crack cocaine was found. Call me a traditionalist but this kind of ground-up policing appeals to me, although it is not really the job of the police to deal with what is essentially a basic administrative function.
 
Given that we all have to have a road tax disc, why don’t we have something similar for insurance? This is how it works in France and many other countries. Better still, how about some form of smart card without which fuel cannot be purchased but can be remotely deactivated if insurance is not in place? Crushing cars is a cure but prevention would be preferable.
 
In the meantime, as we discuss taxes on fuel, let us not forget that there is a tax on honest drivers through the iniquity of people who seek to cheat the system in this oh-so-simple way.
Ideas for how to improve our insurance system gratefully received…and anyone who wants some free publicity for tyre sales, it’s 4 x 205/60V15, British brands preferred, naturally…
Follow Craig on Twitter @mrsteeduk