Monday, 13 July 2015

The madness of King George

Say what you like about George Osborne (above), the UK's Conservative Chancellor - he's grown into a wily, cunning, professional and above all successful political operator. After his totally bungled 2010 General Election campaign and his disastrous 'Omnishambles' Budget of 2012, which imposed unpopular new taxes on anything from caravans to pasties, he's learned what he thinks is the main lesson of recent British politics.

That lesson? All economics is political. And all economics can be used to damage, if not perhaps even destroy, the Labour Party.

That's what he did last week, in the latest of a string of shameless - and enormously popular - political manoeuvres. For while slashing in-work benefits for the low paid, Mr Osborne made sure that he appealed to so-called 'blue collar' or 'working class' Conservatism, with a big rise in the national minimum wage to £9 an hour (by 2020). Conservatives who (rightly) urge that the party's next big electoral move forward must be into those parts of society who've always viewed them as a bunch of aloof, out-of-touch toffs were delighted. It will make the task of such 'Bright Blue' Conservatives, such as liberal-conservative commentator Tim Montgomerie and Harlow MP and Conservative Deputy Chairman Robert Halfon, that bit easier. It makes it rather more likely that there will be a stable, rather than wafer-thin, Conservative overall majority in the House of Commons in 2020, and perhaps in 2025 too. Oh, and in 2030.

So far, so good - politically.

The devil, and the shame, are in the economics, Which alternated - how shall we put this? - between cruel jokes and farce.

First, this Budget is not a Conservative one. It is an unprincipled Whig spectacular, designed to do nothing except undermine the Opposition in their time of troubles. Now, that's nothing new. Conservative leader Benjamin Disraeli 'dished' the Whigs when he brought in more radical Parliamentary reform measures than his supposedly liberal opponents were prepared to enact during 1866 and 1867. Harold Macmillan promised he'd do more on welfare than even Labour might in the 1950s (because he'd manage the economy better, and so be able to afford it). Harold Wilson and Tony Blair, Labour's most successful leaders at the polls, posed as national unifiers every bit as 'patriotic' and 'British' as their supposedly more disinterested and poised opponents. Nor does this kind of thing come as any immediate surprise, as the present set of Ministers are essentially nihilists interested in power at all and any price. But this sort of thing is now getting a bit much. Lots of policies that, just weeks ago, amounted to insurgent Marxism are now supposedly common sense: the higher minimum wage, of course (at a more generous rate than Labour was promising in May), but also tax raids on buy-to-let landlords, energy companies and rich 'non-domiciled' UK residents. For now, a leaderless and disorientated Labour Party will have to grin and bear it as lots of their manifesto gets ransacked for crowd-pleasing 'new' ideas. But this lack of intellectual coherence may come back to haunt the Government in due course.

Second, and much more importantly, the Budget does not 'make work pay' or 'fix the roof when the sun is shining' - those two beloved phrases of Conservative Ministers. Nor (to pick from their slogans at random) does it amount to a 'long-term economic plan'. Quite the opposite. Cuts to child tax credits for new claimants will leave people much worse off as they move from welfare into even the slightly higher rates of pay that they will be entitled to by 2020. Poverty, especially child poverty given the type of young parents most at risk from these changes, will inevitably increase. This move also kills forever the promise of Universal Credit, to create a new type of earnings-related welfare state seamlessly easing people into jobs, because it lowers the incentives to find work. It all amounts to the very reverse of the key Conservative principle of just reward for hard work that Mr Osborne trumpeted - while he brought in measures he must have known would have precisely the opposite effect.

Third and last, these Budget measures amount to sub-A-Level Economics posturing by some merely very clever - but not very wise - boys tinkering with their governmental toys. Take the rise in the minimum wage. The actual evidence is that a moderate minimum wage probably raises growth and employment, by increasing the cost of labour and thus the productivity of its use. But that effect stops at about 40% of the national median, and above that might then start to cost jobs. Paying £9 an hour, if a single person were to work for say 38 hours a week, 52 weeks a year, will take minimum pay in the UK way above that level. Now, it's not coming in for five years, and employers' muted response shows that they're not as worried as they might once have been. But the Government's nationalisation of minimum pay legislation - which has been looked at every year by the independent Low Pay Commission since Labour brought in the minimum wage in the late 1990s - bodes ill for the UK's spectacular job creation record. It's a welcome admission from the free-market fetishists among our commentatariat that they were wrong all along on really low pay, but just announcing this change from the despatch box, with none of the care the Low Pay Commission was required by statute to pay to the effect on employment, is a very worrying precedent indeed. Taken together with the Government's imposition of free elderly license fee payments on the BBC, it shows that Conservatives are now not above attacking the little battalions of the state - essential, in and of themselves, for any democracy to thrive - on just about any occasion when it suits them.

The treatment of incentives overall is very troubling. Massive cuts to inheritance tax, while slashing taxpayer support for low paid workers, sends exactly the wrong message about what's important in an economy. It's a deeply un-Conservative signal: that chance should stand in for skill. For now inheriting your parent's house is going to be even more important, when compared to mere wages earned by ability and sweat and endeavour. The playing field has been slanted a bit more towards older Britons, and still more against the young - little surprise given the fact that the former vote in far greater numbers than the latter. That playing field's been tipped up just a little bit more against coming off welfare, and a little more towards making sure that your mother and father seize as much property as they can before it disappears out of normal people's reach forever. Will this raise productivity? Hmm, let's think about that. Oh yes, the answer's a great big 'no'.

So Mr Osborne's politics are wonderful. They may make him Prime Minister in due course. Right now, they make a Conservative victory in 2020 look not just possible, but probable. But let's not pretend that any of this has anything to do with economics. Because it doesn't.