The Autumn Statement may have given us the perfect demonstration of why good government in the UK requires competent opposition, argued Janet Daley in The Daily Telegraph last week. And she's right. While several pundits lined up to applaud the political wizardry of George Osborne's U-turn on cutting tax credits, and his cunning ruse of leading everyone to expect cuts to policing that never actually materialised, anyone who actually cares about the long-term state of the UK economy should have been dismayed by last week's show.
Osborne pulled a rabbit out of the hat this time on the basis of revised forecasts from the Office for Budget Responsibility (OBR). The OBR said he'd have £27bn more than he expected, due to higher expected taxes and an assumption that interest rates on Britain's debt would remain lower than it had previously thought. As Daley notes, if "the Treasury ends up with more money than was originally predicted, surely if he believes what he believed he should use that windfall to pay down the debt so that we ensure economic security for the future".
Instead, he used it to fund his U-turns. This is a classic Gordon Brown play revising the figures when they're not adding up in quite the way that you want them to and it wasn't the only leaf he took out of Brown's book. As my colleague Merryn Somerset Webb has noted elsewhere, Osborne has made an art form of presenting fiddly tax changes as "feel-good stories" by "hypothecating" them diverting VAT on tampons to women's health charities, for example, or describing the 0.5% additional company payroll tax as an "apprenticeship levy".
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But the reality is that Osborne bottled it. His tax credit cuts were more than justifiable given the sheer rate at which spending on them has grown (more than quadrupling in "real", inflation-adjusted terms between 1998 and 2011). And if he can't make them now early on in a parliament, and up against an opposition that's as unelectable as it's likely to be then he will never be able to do so.
The risk for Osborne, of course, is that by avoiding making those tough decisions now, they might come back to bite him. Rising interest rates could reverse that "windfall" overnight and the last thing he wants when he's a leadership hopeful in the run-up to 2020 is for the country to be staring another debt crisis in the face yet again.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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