Osborne’s speech: New Politics,Old Economics
John Cridland of the CBI described George Osborne’s speech last night as “manna from heaven”. Time to panic, in my view, since the CBI had an identical perspective on the light touch financial regulation that has served us so well in recent years.
But the striking thing about Osborne’s commitment to cut the headline rate of corporation tax is how it is straight out of the knee-jerk Thatcherism of the past.
Lazy orthodoxy says cut business taxes and business flourishes. But given the vast challenges facing the UK economy – infrastructure development, skills shortages, low global demand, unemployment, weak credit flows etc. etc. – plus the fact that the effective corporation tax rate is already in the low twenties (PDF), I can’t help feeling Osborne’s proposal is the wrong solution to the wrong problem.
Politically, I also wonder whether it is really possible to ramp up personal and sales taxes while cutting business taxes. The argument that the latter will help the economy grow and so aid deficit reduction will start to wear a bit thin if Larry Elliott is right and growth is but a distant dream.