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Monday, January 27, 2014 

Walking into Osborne's man trap.

It isn't always the case, but generally if you get a whole section of industry spitting tacks and issuing threats when you announce a new policy, it's generally a sign that you're doing something right.  It happened when Ed Miliband announced his intention to cap energy bills, when the big six squealed that preventing them from raising the cost of energy for 20 months would result in blackouts and a collapse in investment, and regardless of the merits of specifically capping bills, it focused attention on a monopoly that needs breaking up.

The fact that the usual suspects have been decrying Ed Balls' announcement he will bring back the 50p top rate of income tax should Labour win the next election, while being exactly what you would expect, also suggests that there's something in it.  It can't be that it'll raise almost no money while driving away business or cause those fabled wealth creators to flee due to having to pay an extra 5p in the pound.  Of course, it might raise hardly anything due to the fact that so many will use various dodges to avoid paying it, but that isn't the same thing.  The Institute for Fiscal Studies, while agreeing with the government that the £10bn Balls quoted isn't associated with the 50p rate, accepts that the evidence for how much it could raise or cost is uncertain.  The best insight is from HMRC itself, and associated with the 50p rate the coalition inherited and quickly binned.  Plenty of those who knew they were about to be affected gave themselves a windfall the year before it was introduced, while Osborne's announced abolition of the rate enabled them to repeat the procedure, only delaying it by a year instead.  The only way to know how much it raises is to give it a few years without messing around with the rate.  As Chris also points out, much of the reaction is just nonsense: top rates of 80p or more up until the 80s didn't affect the overall growth rate.

As much of a break with the past 20 years it will be for Labour to have an election manifesto that promises to put up income tax, it's insignificant compared to Balls' other announcement, that the party would ape the Conservatives and also aim to run a budget surplus come the end of the next parliament.  There was one important caveat, that unlike George Osborne Balls would seek to borrow to invest, and so only day-to-day spending would be capped rather than spending overall.  The Graun suggests it's the other way round, as budget surpluses have only been ran briefly in the past half century and are as it puts it, unnecessary.  Hopi Sen by contrast agrees with me.

The Graun is surely right when it calls Osborne's promise a hollow one.  To achieve the reduction in spending needed for his surplus the cuts would have to go far beyond anything the coalition has attempted so far, and even if the Tories manage to get a majority at the next election, you just can't see the politics being acceptable, even after the shit-kicking the poor and sick have received over the past few years.  When Osborne delays his fiscal consolidation even further, as he almost certainly will, the only people calling him on it will be Labour.  Just as no one has taken any notice of how Osborne has comprehensively failed to achieve even the reduction of the deficit foreseen by Alistair Darling, the same plan denounced by Osborne as being no plan at all and which would lead to us following Greece towards bankruptcy, so will everyone ignore the coming failure.

Should Labour win the next election though, the Tories and the right-wing press will constantly remind Balls of his rash promise.  We all knew there were going to be cuts, but to pledge to follow Osborne's lead, even while leaving himself more wriggle room was to walk straight into Osborne's trap.  Even if Balls were to call an emergency budget immediately after the election and row back completely on his pledge, getting the "bad" news out of the way straight off and setting out how he would really be aiming to reduce the deficit, such as through a more balanced mixture of cuts and tax rises, it's dubious as to how such a strategy would would play out.  The dishonest approach at the moment is to give the indication that you can make these drastic reductions in spending without it hurting when it simply isn't possible.  Better to set out how you would get the deficit down in time, in a realistic fashion.  It's surely a better option than getting involved in a game of who can make the most ridiculous gesture with Osborne when someone is going to lose horribly.  Despite everything, it still remains unlikely to be the chancellor.

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