25 November 2015

What happened to Osborne fixing the roof while the sun is shining?


George Osborne is the first trillion pound chancellor. I have been watching Budgets for longer than is healthy and I don’t think I have ever heard a chancellor use the number “a trillion pounds” and certainly not in a good way.

Yet in the autumn statement he used it twice, or even three times. He committed to “£4 trillion of spending” over the next five years; “half a trillion pounds” for the NHS; and his forecasts show that by 2020 he will be spending £821 billion, well on the way to the magic trillion number.

Rhetoric and positioning are important because chancellors are politicians first and financiers second. When put alongside his ostentatious scrapping of a prior plan to trim tax credits – which only three weeks ago supposedly triggered a constitutional crisis when the House of Lords blocked it, Mr Osborne’s message is clear: austerity is over. Finished. Done.

After surprisingly winning the Labour leadership in the summer, Jeremy Corbyn has scored another victory. His anti-austerity agenda has apparently been adopted by the Conservative party.

Should everybody be breathing a sigh of relief? Will the junior doctors get a bung to stop them going on strike? Perhaps. The Labour party might rejoice that its message is getting through to the chancellor, but it is hard to know what the point of them is these days.

True capitalists, based offshore, remain out of the Treasury’s reach. But the common or garden home grown variety – who used to be called wealth creators – are now struggling with possibly the most punitive tax regime in British history, on dividends, capital gains, income, hiring people (a new 0.5% levy on payrolls called the Apprentice Levy, raising £3bn a year), investing in new machinery and equipment, second homes, you name it.

By coincidence I had lunch with two entrepreneurs as the chancellor spoke and both them blurted out: “He has bottled it.”

What could go wrong? Very little at the moment. The sun is shining on the economy and if the roof is not exactly fixed, it has been patched up. The risks are being piled up for 2018 onwards. The accompanying forecasts published by the Office for Budget Responsibility yesterday showed that the perennial output gap will have closed by then. In other words, the economy will be going full pelt, running at full capacity.

It is only that bullish forecast which allows the chancellor to claim future revenues will come rolling in. Yet the risk is that in an economy running hot, inflation picks up suddenly and interest rates rise too. But by then the trillion pound man should have moved next door, into Number Ten, or should that be No. 1,000,000,000,000.

George Trefgarne is founder of Boscobel & Partners, a communications firm.