Osborne’s Economy Speech: Analysis

Daniel Pryor January 6, 2014 0
Osborne’s Economy Speech: Analysis

Daniel Pryor provides comprehensive analysis of the Chancellor’s New Year economy speech.

Watching George Osborne’s speech this morning, I felt reasonably proud to be a Conservative. He convincingly argued that we must continue to live within our means, rather than returning to profligate spending and irresponsible borrowing. He explained the measures taken to ensure a sustainable, jobs-focused recovery: including key education reforms such as free schools. The Chancellor also emphasised the importance of helping the taxpayer by keeping government hands away from their pay packets, as well as their bills. All good so far. However, Osborne once again failed to stress the fact that the Coalition is doing a lot for the poorest in Britain: an omission that the left-wing press and Labour continually exploit. Moreover, his pandering to the anti-immigration lobby may appeal to many voters, but it also ignores the enormous benefits that freedom of movement can bring to this country.  Despite these criticisms however, the overall vision for Britain articulated by the Chancellor today was one that should give us a certain amount of confidence.

Debt and the Deficit

BBC News coverage following the speech showed a national debt clock in the background, and the task of tackling this debt featured prominently in Osborne’s discussion of Britain’s long-term economic prospects. At the very heart of the debt question is whether it is moral to borrow now at the expense of higher taxes for future generations – our children and grandchildren. Osborne rightly thought not:

“Do we say: the worst is over; back we go to our bad habits of borrowing and spending and living beyond our means – and let the next generation pay the bill?”

The answer should be a resounding ‘no’. Cutting the deficit by a third is a significant step on the road to dealing with our national debt, but is also (as the Chancellor described) a “means to an end”. That end is securing long-term prosperity: a dynamic, productive economy with high living standards, low unemployment and sustainable growth. Or as Osborne put it, “a country that offers security and a better life for the next generation”.

Those who charge the Chancellor with hypocrisy for continuing to borrow heavily betray a woeful ignorance of economics. For until the deficit is wiped out, borrowing will obviously continue to rise. The opposition have continually failed to articulate a credible plan to reduce the deficit, screaming hypocrisy as they presumably advocate even more borrowing than is currently taking place. Weaning the national finances off borrowing requires spending cuts; you do not borrow your way out of debt, and you do not spend your way out of a recession. Ed Balls may berate Osborne for being unlikely to meet his deficit reduction targets (after dealing with an unforeseen Eurozone crisis), but in the same breath he advocates ever-higher taxes, as well as yet more borrowing and spending!

Verdict: 9/10

The Cost of Living

“I know it has been hard for families since the crash,” the Chancellor admitted. This may prompt raised eyebrows (at the very least) from those who see the Conservative Party as ‘out of touch’. After all, how can Osborne claim that the recovery has been a “team effort” after cutting the top rate of income tax? Firmly justifying such policies, which understandably appear unreasonable to much of the electorate, should have been a part of the speech. The ‘hard truth’ is that the top 1% of earners are – following the cut to the 50p top rate – now paying record levels of income tax. Competitive tax rates maximise tax earnings, which means that the richest in Britain are contributing more than ever before to the national coffers.

These issues aside, Osborne has successfully underlined the Coalition’s commitment to ease pressures on the finances of the average Brit. Citing the increase in the tax-free allowance to £10,000 this April, another freeze in fuel duty, and that “people’s earnings are expected to go up” due to the recovery, the Chancellor showed hard evidence for the Coalition’s commitment to mitigating the hardships caused by the Great Recession. As he later remarked, “there’s no point pretending that there’s some magic wand a Chancellor can wave to make the whole country feel richer than it actually is, or that I can control the global oil price from an office in Whitehall.” Indeed, ConservativeHome’s Peter Hoskin dubbed this the “sensible – and honest – approach to take”. I couldn’t agree more.

Verdict: 7/10

Immigration, Jobs and Welfare

I mentioned earlier that my main criticisms of Osborne are that he underestimated the importance of immigration whilst failing to make a strong, positive case for the Coalition’s commitment helping the least well-off. One fleeting mention of the DWP’s flagship Universal Credit initiative was completely inadequate; as I have previously written, the scheme is destined to make work pay and substantially combat poverty. He should have proudly highlighted ‘UC’.  At least Osborne made some effort to show how the government has continued to tackle unemployment: “cutting business taxes, introducing an employment allowance that will benefit small firms most… helping with high street business rates [and] abolishing jobs tax altogether for those aged under 21.” This stands in stark contrast to opposition proposals, such as the misguided and damaging ‘Apprentice Tax’.

Sadly (if not predictably), one aspect of the Chancellor’s speech that really stood out as mistaken for me was his insistence on “reducing immigration”. Speaking to The Backbencher, Sam Bowman from the Adam Smith Institute think-tank elaborated, stating that:

“It’s hard to object to more cuts…What’s slightly disappointing, if unsurprising, is Mr Osborne’s and the government’s failure to be proactive: immigration liberalisation would make the UK more business-friendly and would probably reduce prices, if accompanied by some planning liberalisation…”

Sam also highlighted the value of reducing the “extent of the state’s regulatory influence over our lives”: not just the “economic size” of it. This was largely absent from Osborne’s speech today.

Refusing to talk about changes to universal pensioner benefits was another folly. Although means-testing winter fuel payments will be a drop in the ocean in terms of savings, The Spectator’s Isabel Hardman has correctly pointed out that “continuing to refuse to address universal pensioner benefits while hacking back at universality and eligibility for other benefits looks inconsistent”.

Many commentators welcomed Osborne’s plans to cut £12bn from the welfare budget in the coming years, but as well as the inevitable criticism from those on the Left, right-wing blogger Guido Fawkes lamented that such cuts were “barely a dent” in overall welfare spending. I would disagree and argue that only gradual cuts are sensible, pragmatic and politically feasible. If this government is to ‘finish the job’, re-election is of vital importance.

Verdict: 6/10

Conclusions

There was much to praise in this morning’s speech, but also some points to be criticised. Opponents of Osborne’s straight-talking efforts to gradually get government out of people’s lives often describe ‘the cuts’ as ideologically-driven: an accusation that aims to portray the Coalition as dogmatic zealots who are blind to the consequences of their actions. That is utter, abject nonsense. By gradually downsizing an obtrusive, meddling state that – despite good intentions – strangles wealth and job creation, the government is showing real compassion. It is aiming for results: something which no amount of tax increases, spending and borrowing for ‘good intentions’ can replace.

Overall Verdict: 7½/10

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