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

It’s time to get on board High Speed Rail

Sahar Rezazadeh 6.00am

In not cutting taxes and allowing high inflation, the Government is holding back growth

David Cowan 7.45am

On Tuesday the ONS revealed that growth for the last quarter was only 0.5 per cent. Many were expecting the figure to be lower, especially after only 0.1 per cent growth in Q2, but this meagre performance is still a serious cause for worry.

This may be unsurprising given the current global financial storm, the latest Eurozone bailout package being at threat by a Greek referendum and the lack of a credible plan from President Obama and Republican presidential candidates. However, this does not mean that the UK is powerless to boost growth. In fact, the Government is pursuing policies that are harming growth.

The most irresponsible is the Bank of England’s second round of quantitative easing (QE2). The de facto printing of money to the tune of £75 billion will not boost growth, but only exacerbate the already dangerously high level of inflation at 5.2 per cent. There is nothing progressive or compassionate about allowing the ‘inflation tax’ to put further pressure on the poorest people in the country at a time when real wages are not increasing. We cannot inflate our way out of our problems. The Government must realise that we need capital accumulation based on real savings for investment into British businesses instead of cheap credit at the heavy cost of rising inflation.

The Government’s growth strategy also seems to be too heavily weighted towards investment programmes. While it is certainly desirable that the Government should invest in more science R&D, education, apprenticeships and expanding the broadband network, there are some potential ‘white elephant’ projects that should not be pursued.

The biggest one is High Speed Rail 2 (HS2) which is based on Labour’s original badly planned route, has £28 billion worth of hidden costs and leaves our current infrastructure in its present decrepit state. The £1 billion Regional Growth Fund is also another futile attempt to get growth going and will actually destroy jobs.

Businesses are still having to pay higher taxes, which the state then inefficiently redistributes to areas which are already heavily dependent on hand-outs. Growth will not come from a Keynesian style ‘multiplier effect’. The focus should be on tackling the true restraint on growth: high taxation.

The 50p tax rate remains, despite it losing £4.5 billion and driving businesses away. National Insurance Contributions (NICs) are penalising job creation and have caused perverse income tax rates. The 10 points increase in Capital Gains Tax (CGT) will only prevent the capital accumulation we so desperately need for real investment in the private sector. Green taxes are already making up 20 per cent of every household’s energy bill.

On top of this, new taxes have been arbitrarily levied on banks and energy companies with little or no warning thus causing uncertainty. It is time for real action on reducing and simplifying our unnecessarily long tax code which is punishing enterprise and the poor.

Tax cuts can largely pay for themselves, as optimal levels are reached and increasing growth will boost revenues. However, there will need to be some spending cuts to soften any loss of revenue which may occur. I would suggest scrapping HS2, which will save £30 billion, dismantling the Green Investment Bank and Regional Growth Fund, which will save a further £4 billion, and abolishing the Department for Education (as I have previously suggested here).

The Government is contending with a turbulent economic climate and the legacy of Gordon Brown, which has left the UK heavily indebted and uncompetitive. There have been bold moves to tackle this, such as the deficit reduction plan, liberalising employment law and planning regulations, and education and welfare reform. However, there has been no attempt to deal with the key threats to economic prosperity for all, especially the poorest: rising inflation and high taxation.

It is essential that George Osborne tackles these twin dangers if he wants to regain the Conservative party’s reputation for economic competence and social compassion.

Follow David on Twitter @david_cowan

George Osborne’s strategy is to show that Britain is open for business

Matthew Robertson 6.04am

This is the second in a series of Egremont contributors’ entries to Fraser Nelson’s Coffee House competition, with a prize of a bottle of Pol Roger for the best explanation of George Osborne’s growth strategy.

A man checked into a hotel for the first time in his life, and goes up to his room.
Five minutes later he called the reception desk and said: “You’ve given me a room with no exit. How do I leave?”
The desk clerk said, “Sir, that’s absurd. Have you looked for the door?”
The man said, “Well, there’s one door that leads to the bathroom. There’s a second door that goes into the closet. And there’s a door I haven’t tried, but it has a ‘do not disturb’ sign on it.”

This is the dilemma facing the Chancellor at this crossroad for the UK economy: regardless of which door he opens he is still in the same room of a stagnant economy.

Open door #1 and rebalance the economy between public and private sectors which will involve cuts affecting people’s everyday lives; open door #2 and cut taxes to keep the City of London competitive and risk creating another bubble; or open door #3 and ease up on the austerity measures which could disturb the financial markets.

Of course all of these are not mutually exclusive of each other - the answer lies somewhere between the bathroom and the exit via the closet door. Despite consistently iterating that the number one priority of the Government is to reduce the deficit, the Chancellor has long acknowledged that a growth strategy is of essential importance as well.

The fundamental thinking of Osborne’s growth strategy is credit. Businesses need credit to invest and grow, which in turn means more hiring leading to greater employment and increased confidence. The reason the Chancellor always returns to the deficit when asked about growth is confidence. Confidence is what makes businesses invest and individuals spend and this is the integral building block of growth.

Running a tight fiscal policy with low interest rates has allowed the terms of trade for our businesses to improve substantially with the rest of the world. This had to be the starting point for growth.

Moving on from that position, the Government has announced numerous measures to help businesses develop and grow.  The Regional Growth Fund is a £1.4 billion fund operating over three years to galvanise private sector-led employment and economic growth. The aim of this is to secure an economy that is more balanced between private and public sector, as well as harmonise growth across different regions of the UK.

Another policy to enable growth is prioritising investment in infrastructure, which has been demonstrated by the increase in capital spending of £2.3 billion in the 2010 Spending Review, and investing over £30 billion in transport projects.

All of this has already happened and could not have happened without the bedrock of a stable fiscal position. These policies are examples of an underlying strategy from the Chancellor to create jobs in the economy whilst preserving the key ingredient: Confidence.

So where will this confidence come from and how do we find the door for the exit without disturbing low interest rates and a sound fiscal position?

There is no easy answer to this question but the Chancellor has a strategy and has attempted to answer it.

Firstly, he has introduced new Enterprise Zones to stimulate private sector led investment. Through the tax system he has incentivised investment by extending the capital allowances short life asset regime for plant and machinery from four years to eight years and provided £180 million for up to 50,000 additional apprenticeship places.

These are confidence measures targeting areas, business and individuals. Critics will say these measures do not go far enough but every one of these policies boost confidence in the real economy without hindering the financial markets. The Chancellor’s strategy is not risk free or easy but is an attempt to steer the UK economy out of the hotel room he was given with as little disturbance as possible.

The strategy is plain and simple: stop the negativity, get up and show the world that the UK is open for business and use the fiscal position we have to build a better and more balanced economy. If only we could find the keys.

Follow Matthew on Twitter @FlatFootTory

George Osborne is a Man with a Plan

David Cowan 6.00am

Last Wednesday, Fraser Nelson, editor of The Spectator, offered the prize of a bottle of Pol Roger to the person who could best explain George Osborne’s growth strategy. Herein David Cowan’s contribution. If David wins, he’ll get a second bottle of Sir Winston’s favourite bubbly from us at Egremont. Good luck!

George Osborne is a man with a plan. He is also a Conservative Chancellor in a coalition government at a time of financial turmoil not seen since the 1930s.

However, he is also a shrewd political operator, who managed to use his Inheritance Tax pledge to call Gordon Brown’s bluff in 2007 and opposed Alistair Darling’s NIC increase in order to give the Conservatives some momentum in 2010. George Osborne has managed to construct a growth strategy which accommodates the Liberal Democrats, includes political electioneering for a Conservative majority in 2015 and will hopefully rebuild the British economy.

The absolute bedrock of his growth strategy is to keep long-term interest rates low. That is why he is trying to eliminate the structural deficit by 2015 in a way which is fiscally responsible, i.e. through public spending cuts and modest tax increases. Keeping interest rates down will ensure that people can still borrow at German style costs while the country has a Greek style debt, and so the markets will maintain their confidence in Britain as a safe haven.

Dovetailing with his efforts to keep long-term interest rates low George Osborne has been trying to get credit flowing back into the British economy. The Bank of England’s second round of quantitative easing (QE) and holding the bank rate at 0.5 per cent represent a large part of this. However, George Osborne has also managed to contribute by pulling off the major Project Merlin deal with the banks in order to get them lending again.

However, it is not just the deficit which George Osborne has inherited from Labour. After 13 years of Labour misrule Britain has fallen to 22nd in the world ranking of the most competitive countries. The Chancellor is now on a crusade to put Britain back at the front of the pack.

This has led to serious efforts at supply side reforms which include cutting corporation tax to the lowest rate in the OECD, introducing the zero-rating of business rates in 21 new enterprise zones and simplifying the longest tax code in the civilised world. The coalition government has also introduced a new ‘Employer’s Charter’ as part of a Whitehall review of employment legislation, the ‘one in, one out’ rule is in place, small businesses are being exempted from domestic regulations for the next three years, and our antiquated planning system is being radically reformed.

Another part of this crusade to create a new ‘enterprise culture’ is to regenerate Britain’s ailing infrastructure and maintain the capital investment which will help sustain small businesses and create jobs. Obvious examples include High Speed Rail 2, Crossrail, and the extension of the broadband network, all of which will help to integrate all of Britain’s regions into a more balanced economy. Human capital is also being nurtured by the 500,000 new apprenticeships, new vocational training centres, more schools and greater science development.

George Osborne’s growth strategy is also ensuring that it is the least well-off who have more money in their pockets and that the rich pay their fair share during this ‘age of austerity’. That is why the personal allowance is being increased, Council Tax is being frozen again and fuel duty was cut, while the 50p tax rate is staying, capital gains tax was increased and new taxes have been slapped onto big banks and oil companies. As for the controversial VAT increase, it is a necessary measure which will raise more revenue, at a minimal cost to the economy, for paying back the debt and protecting the schools budget and real terms increase in NHS spending.

George Osborne’s strategy for growth is a clear and coherent set of policies based on the need to encourage a new competitive ‘enterprise culture’ by providing low long-term interest rates and cheap credit, a vibrant national infrastructure, lower business taxes and less red tape.

The Liberal Democrats have placed serious restraints on the options available to him, but if he successfully manages to deliver a healthy economic recovery in 2015 then he will be able to grant the generous tax cuts which many are calling out for now and gain all the credit in the process. This is a pragmatic and solidly fiscal conservative strategy which will pay off if George Osborne stays the course amid the current financial storm.

And if he is very very lucky.

Follow David on Twitter @david_cowan

PMQs: Amid the cacophony, a curious silence

Jack Blackburn 1.26pm

It has been sports day in the Commons today: a spot of Fox-hunting followed by some statistics-tennis.

Edward, once again like a child in a sweet shop, didn’t know which topic to choose and so plumped for two, latching onto the Fox-Werrity scandal, which he let lie last week, and then going back to his favourite activity of talking in vague terms about the economy.

Mr Cameron stood wearily at the dispatch box yet summoned enough energy to be exasperated at the adenoidal interrogation coming from the other side - and frankly couldn’t be bothered to answer most of the questions. Edward asked how Mr Cameron allowed the scandal in the MoD to happen. Dave pointed to the inquiry and didn’t answer the question.

“Show a bit of humility, eh?” sniffed Edward, to an unsurprisingly raucous response from all sides. Alhough he went on to ask for a guarantee that no other Minister was in cahoots with similar flabby cheeked friends in morning suits, his plea for humility provided the PM with a smokescreen that Mr Cameron used in order to avoid answering the question, bluntly reeling off all the matters for which Labour should be humble, most of which came from Stephen Byers’ greatest hits.

Edward, his first sweet having turned out to be a bitter and rather infuriating piece of liquorice, raised the ghost of Coulson and asked whether this Government really was different. Mr Cameron, who had been uninterested with this line of questioning when it started and by now was so bored by it that he veritably slumped his way back to the microphone to inquire as to whether the Leader of the Opposition had noticed that Mr Fox had resigned, and in a tone of disbelief told poor Edward, “You’re just a bit late.”

After a brief break, Edward calmed himself and went for sweet number two, which he thought was his favourite toffee, the economy. “Highest unemployment since the last Tory government”, he cried. “Highest inflation since the last Tory government”, he continued. “Back to the future”, a backbencher quipped.

Having used the National Insurance holiday embarrassment last week, this time Edward went with the Regional Growth Fund. How many businesses had taken this up?

The Prime Minister did not know the specifics, and Edward leapt on this, his schoolboy “charm” coming right to the fore as he revealed that two businesses had been helped in the last 16 months, while 16,000 had gone bust. “All we have is a Prime Minister who is hopelessly out of touch”, he snorted before sitting smugly back down.

Surely, this time he’d won? Surely, he’d embarrassed the Prime Minister and had deployed enough figures to win the rally of statistics tennis?

But Dave, an accomplished tennis player, had stats of his own. “All he wants to do is talk down the economy”, he growled toward the Labour Leader, before saying that since the election, we now had 300,000 new business and 500,000 people with new jobs.

Having been on the back foot for twenty minutes, Mr Cameron suddenly advanced on his opponent, who was now out of questions and defenceless, save for a wildly gesturing Ed Balls telling the PM to calm down. “Where is his plan?” shouted the PM, as the Speaker interjected for order again and again.

Yet, strangely, through all the cacophony of claim and counter-claim, once again there really was nothing but silence: a curious noise, full of words, and figures, and signifying nothing.

Follow Jack on Twitter @BlackburnJA

Growing Pains

Nik Darlington 8.15am

The Chancellor, George Osborne, will use a speech to the Conservative party conference hall today to announce, amongst other policies (an Osborne speech isn’t an Osborne speech without a few tricks up those sleeves) a further freeze on Council Tax until 2013.

Mr Osborne is also being prompted from all sides - stage right and left - to reformulate a strategy for growth.

His predecessor at No.11, Alistair Darling, wrote in the Independent on Sunday that the Chancellor is “not daft” and will be acutely aware, to use a nautical analogy of which the sailing lover Darling would approve, of the need to change tack. It won’t, of course, be presented as a “Plan B”; but no less a plan must be set out today.

The Labour party, Ed Balls in particular, has been playing on growth for some tome. Over the weekend, a pointed piece of advice has come from within the Conservative ranks. The Chairman of the powerful Treasury Select Committee, the usually discreetAndrew Tyrie, has insisted that growth plans are not working. He also attacked the ring-fencing of budgets such as healthcare and international development. The MP for Chichester is not alone on his party’s benches in being critical of the Government’s strategy. The mostly youthful grouping of Tory MPs dubbed as the “New Right” are demanding tax cuts to boost spending power of individuals and businesses. Described as economically and socially liberal - and ferociously ambitious - the “New Right” is drawn largely from the 2010 intake and includes historian Kwasi Kwarteng and Matt Hancock, a former (some might say current) advisor to Mr Osborne.

And this morning, the new director of the Institute for Directors, Simon Walker, was doing the round of TV & radio studios calling for a more explicit growth strategy, tax cuts, and a massive outlay on infrastructure such as roads and railways - a “ring-fenced” outlay, perhaps a more veiled criticism of ring-fencing other areas of spending.

Much has been made of the potential growth impact of High Speed Rail. The Government is also banking on a housing boom to stimulate economic activity in a nation reliant on its construction and property sectors, hence the acrimonious efforts to reform planning policy.

Francis Maude, the Cabinet Office minister and Paymaster General, mentioned both yesterday in a provocative interview to the IoS. Notwithstanding the curiosity of appearing to disown the ‘big society’ having only 6 months ago been arguably its most articulate advocate after the Prime Minister, Mr Maude went on a loose diatribe against opponents of HS2 and the National Planning Policy Framework (NPPF) in its present incarnation.

The National Trust (membership approaching 5 million) and other preservationist campaigners such as the CPRE and Woodland Trust are peddling “bollocks”, according to Maude. It is just the latest in a plethora if ill-advised inflammatory comments from Government ministers. The PM has offered a more conciliatory tone but he is being advised that the Tories’ political positioning will benefit from fisticuffs with the forces of darkness that are the National Trust, Jonathan Dimbleby and Bill Bryson.

And opponents of High Speed Rail are opponents of growth. A long thin island like Britain has to have it, he says.

As I write this on my way to catching a train to Manchester, I can’t say I’d be that bit more excited in the knowledge I’d reach my destination a few minutes quicker (and probably for a much higher price). I can’t say either that being in transit is stopping me from thinking purposefully and getting my work done.

On nearly every currently available basis, HS2 is promising to be a weaker option than alternatives, such as upgrading the West Coast Mainline. High Speed Rail to Edinburgh is a different matter, as it might genuinely dissuade people from flying to Scotland, but that is decades off.

And the planning shakeup is even worse. Ministers have bought into a development lobby fudge that the planning system is inhibiting growth, when limited access to credit, slack consumer demand and developers’ intransigence (greenfield gives higher profits) are the immediate barriers.

A more encouraging move is that announced yesterday by Grant Shapps, the housing minister - the Government will make available state-owned land for 100,000 houses on a “build now, pay later” scheme.

But if this Government really wants to stoke the economic furnace and provide infrastructure this country desperately needs, it should be looking seriously at Boris Johnson’s idea for a new hub airport in the Thames Estuary. Instead, ministers appear to view it with an air of amused disdain.

Britain needs more airport capacity and fast. An extra runway at Heathrow ought to be entirely off the table, whatever its owners seem to be hoping. Stanstead and Gatwick are unviable for expansion for environmental and logistical reasons.

A new airport in the Thames would cost as much perhaps as £50 billion but the effect on economic activity in those relatively depressed areas of Kent and Essex east of London, and beyond, would be immense. The environmental impact would be a concern but the least bad amongst the various trade-offs available and almost certainly preferable to the damage that would be caused by carving HS2 across the middle of England.

It would send out a message of a measure of ambition. If Mr Osborne wants an infrastructure driven dash for growth, he should fly east.

Follow Nik on Twitter @NikDarlington