A combination of monetary autonomy, stable AAA rating & a credible deficit reduction programme makes the UK stand out in the current chaos of the Eurozone It’s why we can borrow as cheaply as Germany, have a Greek-style deficit and sustain Italian-style levels of state spending. George Osborne settled the markets with his credibility but the lack of growth is worrying.
Of course some of the factors impeding growth, collapsing confidence in the face of a Euro/US meltdown, are outside of Osborne’s direct control. Yet, fully within the Chancellors control, he has raised taxes and let inflation rip which seems an odd recipe for encouraging growth.
Just what is the plan for growth? We have heard much about supply side reforms; red tape ripped up, obstructive regulations removed, the tax system simplified and a restructuring of the economy towards manufacturing exports. These are all of course welcome and vital in the long term but they will do little to get growth going NOW.
So in the absence of convincing growth, step forwards Ed Balls and the left with their calls for more borrowing, more spending and tax cuts. The narrative goes that slow growth is the result of “savage cuts”. We need to get spending again and this can only be done by borrowing further to subsidise tax cuts regardless of the risk to interest rates.
These plans ignore some inconvenient truths; that state spending increased above inflation last year and is forecasted to do the same this year. Borrowing also remains stubbornly high and it totally ignores the real possibility that the tap of cheap international borrowing on which we depend may run dry again should the US ‘default’ and the Eurozone collapse. As Julian Glover puts it in today’s Guardian, ”borrowing in search of an instant sugar rush of feel good growth would be at best a gamble and at worst, in current bond market conditions, suicide”.
Osborne has done a lot to give the international markets confidence in Britain. Yet ordinary people and businesses are still too afraid, or too hard-pressed, to spend or borrow or save. In that respect I am tempted by Ed Ball’s calls for tax. Tax cuts for the low-paid would be a good start — but these MUST be funded by savings on spending NOT more borrowing. Perhaps even cuts to National Insurance and Corporation Tax. (It’s also worth pointing out that since the Government put up CGT, the revenues from it have been falling, not rising).
George Osborne has convinced the markets that Britain is unique amongst its European partners in that it has a convincing plan to deal with its deficit/debt. He must now do the same with a plan for growth.