Talking Politics

Osborne loses touch with reality

The gap between reality and fiction starts with the name. As commuters struggled to get to work because of ice on the line, George Osborne unveiled the autumn statement. There was nothing autumnal about it. This was winter all over.

By the time the chancellor got to the Commons, reality was his plaything, an annoying sound in the corner of the room which he could ignore if he put on headphones.

His tone was victorious, valedictory, magnanimous, triumphant. "It's taking time, but the British economy is healing," he began, starting as he meant to go on, with nonsense.

"The message from today's autumn statement is that we are making progress. It's a hard road, but we're getting there."

And how were we "getting there"? The Office of Budget Responsibility (OBR) says the economy will contract by 0.1% this year. Back during the Budget in March it thought we would grow by 0.8% year before that it predicted we would grow by 2.6% in 2012. Debt won't start falling as a share of national income until 2016/17.

The gap between the chancellor's self-assurance and the results of his work grows more severe by the day.

"The weaker than expected growth can be more than accounted for by over-optimism regarding net trade," the OBR found. This is a convenient figleaf for Osborne. It suggests our current predicament is all the fault of the eurozone crisis rather than the chancellor.

The growth rate of France, which is embedded much more thoroughly in the eurozone than Britain, was 1.7% in 2011. In Germany it was three per cent. If our predicament is the result of the eurocrisis, did they not seen the same dramatic fall in growth? The IMF estimates that the UK next year will grow more strongly than either France or Germany. That prediction may have the solidity of last year's OBR forecasts, but it will be a useful tether to reality with which to taunt the chancellor, if that proves to be the case.

Elsewhere, Osborne repeated the same set of policies we've heard from him before, with the confident expectation they would produce different results. He announced yet another cut in corporation tax, which falls to 23% next April and 21% by 2014. Corporate tax receipts were £7.1 billion in July this year, down £1.7 billion on the year before — a fall of 19.3%. We have no idea if the policy is bringing investment to the UK — GDP figures certainly don't suggest so. But we know it's costing the Treasury money. The policy makes a laughing stock of Osborne's pledge to get tough on multinational corporate tax avoiders like Starbucks and Amazon. First he criticises tax rate shopping, then he submits to it.

Corporations get an easy ride, while the poor suffer. There will be a further £3.6 billion in welfare cuts. It would have been £10 billion if the Liberal Democrats hadn't stopped him. Somehow, Osborne needs to find another £10 billion in the spending review next year.

Hammering those on benefits is the easy answer. Polls show the public share Osborne's prejudice against 'scroungers', the "neighbour still asleep, living a life on benefits", as Osborne put it today. He's encouraging some of the worst jealousies of the working poor, prompting people to suspect each other, to think the worst of each other. This also sets a trap for Labour. The welfare uprating bill will try to force Labour on the 'wrong' side of public opinion, while encouraging party populists like Liam Byrne to get into a firefight with the more left-wing elements. More political games from a political chancellor.

Most working-age benefits - including jobseekers' allowance, employment support allowance and income support - will be uprated by just one per cent for the next three year, just like public sector pay. It'll be below the rate of inflation and therefore a real-terms cut.

The poorer someone is, the more likely they are to spend, so taking money from public sector workers and benefits claimants hurts demand. But more importantly, Osborne's nasty caricature of those on benefits serves to weaken the British economy. Welfare is vital to re-skilling workforces hit by mechanisation, globalisation and recession. It is not money thrown into a black pit. It is money spent building a skilled and motivated workforce. Tax credits bulk up the poor wages paid by employers, keeping a consumer economy going when pay falls below a tolerable level. What's the government's solution? A paternalist welfare-to-work programme which gets less people into work than if it never existed.

There are measures against the rich. Another raid on rich pensioners, combined with an initiative with Switzerland, should contribute £8.5 billion. We don't know how much the government wants to get by hammering the poor, of course. We can't put a figure on that. It only releases data for how it hammers the rich.

While we're on the topic, there were other good things in the autumn statement. The Lib Dem quest to take the poorest out of income tax altogether continues. The £600 million in capital investment in science over three years was welcome, as were upgrades to the A1, A30, and M25 and the extension of the northern line on the London Underground.

They were small glimmers of light in an otherwise despairing picture. The most worrying part was the giddy confidence of the chancellor, speaking like a winner, pressing on with the very policies which have crippled us, seemingly unaware of what was happening around him.

"I know how difficult many families have found the cost of living," he said. He doesn't. He doesn't have any idea at all.

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