Friday 28 October 2016

Osborne's choices will have knock-on effect for Ireland

Published 10/07/2015 | 02:30

George Osborne
George Osborne

George Osborne presented his seventh budget - and first purely Conservative budget - in the House of Commons the other day. It was not one of the more exciting events of the week.

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By comparison with the dramatic events in Greece and China, Mr Osborne's big day was almost timid. He tried to make it sound otherwise. But it would have taken a very naïve person, or a dedicated Tory, to react with shining eyes or a thumping heart.

Admittedly, he did sound ambitious. He has a five-year plan (we know all about five-year plans in Ireland) "to keep on moving from a low-wage, high-tax, high-welfare economy to the higher-wage, lower-tax, lower-welfare economy we intend to create".

But keeping on moving is a long way from daring initiatives. And his description of Britain's current status did not come at the best possible time.

True enough, the economy is not just in a comfortable situation relative to other countries. It is highly comfortable when compared with the very best.

Mr Osborne told the House of Commons that Britain is in better shape than the United States, Germany or France. A slight exaggeration, perhaps. For example, the cleaning-up of the British banks has some way to go. More ominous is the sudden bad news from China. The dramatic fall in share prices there has prompted pessimists to hark back to the Wall Street Crash of 1929 and even to forecast another Great Depression.

But even if one leaves out China - and Greece, for that matter - the Chancellor gave no indication that the measures he proposes will bring about radical changes in the economy and society.

The changes that he does propose are not all to everybody's taste. Besides, he seems in no great hurry to implement them.

If a week is a long time in politics, five years is forever. If the exchequer is so full of money, why postpone balancing the budget until the year 2020? Mind you, I like to see finance ministers moving cautiously, but it's possible to be too cautious for comfort.

Of course, the real significance of 2020 is that there will be another general election in that year - thanks to the previous government.

The Tory-Liberal Democrat coalition instituted - correctly, in my opinion - fixed-term parliaments. That eliminates the kind of uncertainty and irritation that we in Ireland feel at present, while we wait for Enda Kenny to make up his mind whether to hold the general election in November or February.

In Britain, no uncertainty exists. However, old rules apply in other ways. No politician, least of all a British politician, should ever forget what Harold Macmillan said: "Events, my dear, events." Anything can happen in five years.

As to all the hype about visionary societies, lower taxes for the deserving (and the affluent) and so on and so forth, we can take it with buckets of salt.

The trouble with present-day Conservatives is that they believe their own propaganda even when it conflicts with stark reality. Over the next five years, taxes will rise, not fall. Admittedly, the figures are small. Most people will find it impossible to tell the difference.

Some, however, will see and feel the difference all too clearly. I can't for the life of me see the rationale for cutting welfare by £12bn. There are plenty of other ways to find the money.

And we got an insight into Tory thinking from the decision to abolish inheritance tax on estates of £1m. The Tories can argue that a million sterling (including the value of a house) isn't that much money nowadays. True enough: you have to pay more than a million for a nice little house in a good location in London. But it's still a small plum for the affluent.

More instructive, perhaps, is the decision to abolish grants for university students from low-income families and replace them with loans. I don't - I can't - argue with the principle. But the move will certainly discourage some young people from going to university.

Surely no sensible government wants that. Britain needs more higher education, not less. It also needs to make the education system less class-ridden. And here's a question. Is there a connection between the defects of the system and the one blot on the British economy specifically admitted by Osborne, namely that the country lags behind in productivity?

We in Ireland have an important stake in all this. By and large, what is good for Britain is good for Ireland. And Britain's society and economy are not helped by the enormous "two nations" gap that yawns between London and the rest of the country.

Looked at in the round, that should worry us more than the old chestnut about corporation tax. Some people have taken fright at the chancellor's plan to reduce Britain's corporation tax to 18pc, compared with Ireland's 12.5pc. (I assume the 18pc rate will apply to Northern Ireland, but I doubt if that will have much effect.)

From our own viewpoint, I don't think these figures indicate much need for fear. Our problem is not the stated tax levels but getting multinational companies to pay the right amount instead of a small fraction. And in this area, I am deeply suspicious of pledges by Mr Osborne (or any similar office holder in any country) to cut tax avoidance by £5bn. Right now we are supposedly in the middle of a huge world-wide campaign to make everybody pay up.

I'll believe it when I see it.

Irish Independent

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