The dismissal of George Osborne from the positions of First Secretary of State and Chancellor of the Exchequer cannot be put down solely to the result of the EU Referendum or his part in the Remain campaign and in Project Fear. His dire warnings of the consequences for the economy if the people voted to leave the EU was like water off a ducks back. His warnings were too precise and stark to be taken seriously. The only people who took notice were the traders and speculators in the markets who reacted adversely when it became obvious that the UK had voted to leave the EU. As usual they panicked, even when there was no immediate practical effect of the vote, as they had placed their bets on a vote to remain and many of them got their fingers burnt. This is especially so in the money markets where the subsequent devaluation of the Pound Sterling was unnecessary and a man-made occurrence. In effect George talked down the UK economy in his efforts to confuse voters and achieve a remain result. He has gained a reputation and in years to come parents will scold their naughty children with the threat that Bogyman George will get them if they don’t behave.
George was dismissed because he has been a failure and a loser, with the same pattern of behaviour since 2010. He was addicted to emergency budgets and to making bold headline grabbing announcements. The most notable of these was his promise to “fix the roof while the sun is shining” by eliminating the annual budget deficit, which was to be achieved last financial year. This target date slipped year by year, with the 2015 Conservative Party Manifesto revision promising; ‘This is why, in the second phase of our deficit reduction plan starting in 2018-19, we are set to move into surplus, with the Government taking in more than it is spending for the first time in 18 years. That means we can start properly paying down our debts and reducing the scale of annual interest payments – reducing the UK’s vulnerability to future shocks by fixing the roof while the sun is shining. We will achieve this by continuing to control government spending in 2018-19, no longer cutting in real terms, but instead growing it in line with inflation.’ So we had the same old recycled promise, which he had already failed to deliver, with the added promise of increased spending and a new target date.
To make his political life even more complicated the Manifesto also promised; ‘This means that we can commit to no increases in Value Added Tax, Income Tax or National Insurance. Tax rises on working people would harm our economy, reduce living standards and cost jobs. Instead, as we reduce the deficit, we will cut Income Tax, as we have done over the last five years: during the next Parliament, we will increase the tax-free Personal Allowance to £12,500 and the higher rate threshold to £50,000, so you can keep more of your hard-earned money.’ The Manifesto further promised to take the family home out of tax by increasing the Inheritance Tax threshold for married couples to £1 million.
George was the architect of the Manifesto and the chief Strategist of their election campaign. He was lauded following the Conservative Party’s unexpected and outright victory in the General Election. He has also been lavishly praised for his successful management of the economy since 2010. We have to disagree as we have always been sceptical of his ability to deliver his clearly stated objectives. We anticipated the 2008 financial crisis and identified the fundamental problem of debt. We also pointed a way forward with the need to run a balanced annual budget by eliminating borrowing and adopting a plan for the reduction of the National Debt. So we have no complaint about his strategy, but we have repeatedly questioned his tactics. Likewise, we proposed the raising of the Income Tax threshold and making the Minimum Wage in to a real Living Wage and then in to a Family Wage. Again, we had no complaint when he adopted these proposals [so far the concept of the Family Wage has eluded him]. However, he cannot claim these as his own original thinking because he is not an original thinker. He thrives on other peoples ideas, which he has picked up at meetings of the Bilderberg Group and at the World Economic Forum. He also has an ‘attention to detail deficit disorder’. This has resulted in every one of his Budgets unravelling when the impracticability of implementation became apparent. After each Budget speech a careful scrutiny of the Treasury Red Book would reveal the true nature of his proposals, and the fact that the figures did not add up.
This was like manna for his political opponents. His change to VAT rates on food resulted in it being designated the Pasty Tax. Changes to Housing Benefit were mischievously depicted as the Bedroom Tax. The property tax changes that took effect in April had unintended consequences for the ‘housing market’ and have been erroneously blamed on Brexit. The motor tax changes due for next April cannot be reconciled with the environmental promises of the Government, with this causing a new car purchase boom. So expect new car sales to drop off the cliff edge next year. His tax freeze promised in the Manifesto is irreversible due to the National Insurance Contributions and Finance Bill contained in the last Queen’s Speech. In that last respect it’s hard to understand his mentality when in the closing stages of the Referendum Campaign he declared his intention for an emergency budget if the country voted to leave the EU. This was denounced as a Punishment Budget, in effect an own-goal. He was proposing spending cuts and tax rises, but as he had painted himself in to a corner with his tax freeze it was difficult to imagine what tax rises were possible. Ever mindful of history he might have resurrected the hearth tax or the candle tax. Not much revenue from these, but people still need windows and a modern window tax might have possibilities. The news media would have a field day with that and the example of the last window tax – headlines of Day Light Robbery.
George’s debt and deficit reduction strategy has always been undermined by his refusal to make the tax take a higher percentage of the calculation and his obsession to make UK corporation taxation the lowest in the world. It is incontrovertible that the only way to reduce the National Debt is by way of tax. The only other alternative is to print money, resulting in devaluation and debasement of the currency. Either way the people pay.
His first emergency budget was in June 2010 with the formation of the Coalition Government. Our response was the post of the same month – Tough but is it Enough? – with our conclusion reprinted as follows:-
“ With the Budget now out in the open and the knowledge that the public spending cuts of 25% will be detailed in the Autumn, it is possible to make constructive comments based on facts. The first would be, why was this Budget described as an Emergency? Only the introduction of the higher capital gains tax was immediate, with the increase in VAT to take effect next January.
The main purpose appears to be an assurance for the markets – especially the gilt bond traders – and the credit rating agencies that the UK finances are to be put on a sound footing. In that respect it appears to have succeeded, but it is still not clear that the best interests of the UK are being served. Osborne is adopting the Canadian precedent from the 1990s of 80% spending cuts and 20% tax increases, but this only worked because it enabled an export led recovery on the back of a buoyant US economy. Our EU neighbours, especially in the Eurozone, are in similar economic circumstances to the UK and the devalued Pound Sterling has not resulted in an increase of exports. We can argue about the tactics, and content and mix of cuts and taxes, but the main concern should be the strategy and time scale for recovery and debt elimination.
The reason why we were not able to respond effectively to the financial crisis that started in the US was because we had no reserves and our debt had increased. The housing bubble was not controlled and public spending had been allowed to exceed the prudent level of 35% of GDP. It is therefore important that public spending and debt are brought under control as soon as possible and before the next general election, which might go the full term to 2015. The projections in the Budget are not good. Government expenditure as a percentage of GDP will drop, but will still be in excess of 40% in 2015. Government gross debt will continue to increase up to 90% of GDP by 2015, with net debt peaking at 75% in 2014. A balanced budget, with no borrowing requirement, will not be achieved within this Parliament; it will be 2016 at the earliest when the accumulated national debt will then be £1.3trillion. There is no stated plan for eliminating the national debt. Neither are there any plans for credit controls to ensure the reduction of commercial or personal private debt.
Not only must all debt be eliminated, there is also a need to create a sovereign wealth fund. Our North Sea oil and gas revenues have been frittered away; but what remains to accrue to the nation should be earmarked for the UK Wealth Fund. If we can achieve those objectives, we can free ourselves from the markets, banks and other financial institutions. It will also mean that we will survive the next global economic and financial disaster that is inevitable without reform of the current multi-national institutions. There are no signs that anything will change so we should plan for the worst case scenario.
It is in that context that we question whether enough is being done. Tough as these budget measures are, in retrospect they may be judged to have taken too long to ensure our survival in the future. The clock is ticking and we seem sure to run out of time. If we do not eliminate debt by 2018 and then start to store up resources, we will have failed. Perhaps we have failed already and it is beyond the capability of any government to tackle the magnitude of the problem; ten years too late.“
Prophetic but true. Before being dismissed George announced that the deficit would not be eliminated before the next general election in 2020 and tried to blame the Brexit vote. He is personally to blame for this situation. His pre-election budget of 2015 was just that, aimed at vote winning. On regaining power he introduced an emergency budget. His Autumn Statement later that year was upbeat, but by January 2016 it was clear the world economy was in trouble and the Bank of England cut growth forecasts. His pre-referendum budget of 2016 took no account of this as he aimed to win the referendum, already preparing for an emergency budget no matter how the vote went.
His other great failure was to rebalance the economy with a growth in manufacturing. The Sheffield Forgemasters debacle of 2010, when a development loan was withdrawn at the last minute, still rankles and gives the lie to his aim. This was then modified as a rebalancing of growth on a regional basis with the creation of the Northern Powerhouse. So far there is nothing to show any traction in that direction, and what manufacturing growth there is appears to be in the Midlands.
We have consistently described George and his chums as behaving like bullocks in a china shop. The damage they caused has got to be cleared up and quickly, with the shop restocked. Our prediction of the 2026 Great Crash is getting closer and there is no indication that the US presidential candidates are aware of the problem as neither of them have put forward any policies for dealing with the US National Debt of $22 trillion and growing at the rate of $45k per second. Meanwhile the UK National debt is now £1.75 trillion and growing at the rate of £5k+ per second.