I enjoyed this rather quirky piece from The Guardian in which Simon Jenkins sets out his explanation as to why the Chancellor, George Osborne, seems to have won hands down the argument about how to pull the UK economy out of recession.
According to Jenkins while talking tough, George Osborne has continued to curry favour with key groups such as drivers by abolishing the rule tax escalator at a cost of £22 billion over 5 years.
But of course the Labour Party would probably have done just the same even though the last Labour Government introduced the policy in the first place - the point being that there are still big giveaways to key interests groups in these austere times.
For example, people with mortgages continue to benefit enormously from the artificially low interest rates that the UK has enjoyed since 2008 and while Labour bangs on about the cost of living crisis - nowhere is the much lower costs of paying a mortgage factored into this equation.
How Janus-faced George Osborne defied stereotype and triumphed
For a chancellor four years into office after presiding over the worst slump since the war, his popularity is remarkable
By Simon Jenkins - The Guardian
'If Osborne is happy to cut revenue in the hope of stimulating growth – Keynes rather than Laffer – the sky is the limit.' Photograph: Matthew Horwood/Getty Images
The Osborne star continues to rise, even as his Tory party slumps. In the latest Guardian/ICM poll, the Conservatives dropped three points against Labour, yet George Osborne as manager of the economy is ahead of Labour's team by two to one. For a chancellor four years into office after presiding over the worst slump since the war, this is remarkable.
How can it be? Osborne was supposedly the great Satan of the recessionary economy. To many Guardian readers, his perceived austerity, his love of bankers and his cruelty to underdogs have made him the new Thatcher in Tory demonology. Besides, chancellors are supposed to run behind their parties, especially when times are tough, not ahead of them.
Ever since Tony Blair it has become near impossible to construct a plausible narrative for the British economy, such is the consensus on such topics as taxation, centralisation of government and the public/private split. It is nowadays a matter of visceral tribalism and tedious cliches. Osborne's "hard-working families" are pitted against Ed Balls's "cost of living crisis". Labour's "squeezed middle" is pitted against the coalition's "government for the rich". Hard-hearted cuts fight against "a fairer way". There is no give in this. British politics in the run-up to an election is Jets and Sharks, cowboys and Indians.
The key to Osborne's success has lain in defying his stereotype. He has held his position as Colbert to David Cameron's Louis XIV through double-dip recession and into recovery, thereby able to claim vindication for his policies. Given the nature of this cycle, any chancellor able to stay that long can seem to have "rescued" Britain from whatever horrors afflicted it.
More crucial has been Osborne's assiduously crafted Janus face, stern austerity towards the outside world and a wholly different approach towards the public finances. As should be repeated over and again, Osborne has been no iron chancellor. He is firmly in the mould of Gordon Brown and Alistair Darling – high spending, high borrowing and a sucker for every trendy aircraft carrier, railway or wind turbine going.
On coming to office, Osborne did indeed cut the "planned rate of increase" in public spending, as Darling had pledged to do. In 2009 total spending was £634bn. By next year it will be £732bn, higher even in real terms. The only big item truly butchered has been local government, and the coalition cares not a fig for that. Osborne has missed all his budget balancing targets and is way off course on borrowing, which still hovers around £100bn. He would be savaging Balls if the latter had been in office. Compared with Greeks or Spaniards, Britons do not know the meaning of austerity.
On Monday, Osborne issued a revelatory document. It purported to show the success of his 2010 freeze on the fuel tax escalator, a device to raise the tax on petrol each year by inflation plus 1p per litre. The aim was to avoid the political unpopularity of raising it in each budget. Osborne reversed this objective and courted popularity by abolishing the escalator altogether. The cost over five years has been a staggering £22bn. He likewise began to reduce corporation tax from 28% to 21%. From an austere chancellor such giveaways to drivers and corporations were reckless.
Osborne now tries to rebut the charge by claiming his Treasury witches have stirred eye of newt and toe of frog – "behavioural economics and detailed modelling" – in the pot to prove the giveaways so boosted private spending that they earned enough in VAT and income tax to make up half the lost revenue. That gets back £11bn. This would give the economy a boost of up to 0.5% of GDP. These figures do not add up. They suggest that cutting petrol duty was indeed a big giveaway.
If Osborne is happy thus to cut revenue in the hope of stimulating growth – Keynes rather than Laffer – the sky is the limit. He clearly takes the same view of alcohol taxes, which he eased at the last budget. Was this to boost the economy as drinkers would spend the difference elsewhere?
And what of the second biggest industry in Britain, tourism? Osborne levies VAT on every holiday at home, yet not on foreign travel. This is a direct subsidy to spending abroad and explains why no travel agent ever advertises a British holiday in their window. The chancellor is directly subsidising a loss to the balance of payments.
He does likewise with his green super-tax on energy users and super-spends on subsidised energy investment, largely imported or generated by foreign firms and equipment. Another area of his tax largesse is house-building. But the bulk of the housing market, especially for first-time buyers, has nothing to do with his favourite mortgage-aided green-field estates. It is the renovation and conversion of existing urban properties. Yet he relieves new building of all VAT and imposes a discriminatory 20% on all renovation and urban renewal. This is a straight tax on the most efficient form of new housing.
All these cases show Osborne not as a demon cutter but as a normal political being among chancellors. The crazy vagaries of British tax policy have nothing to do with some underlying economic reality, let alone with Laffer curves. They are a ragbag of past giveaways and incentives, the detritus of lobbying pressure over years, if not decades, defended as crucial to the fate and finances of the chancellor's party. The energy companies, the house-builders, the drinks industry, the airlines, all troop through party conferences and down Whitehall corridors. They give the best parties and sing the best tunes – or in the case of airlines, offer the best upgrades. They are the hidden rulers of Britain, and we still have the cheek to accuse foreign governments of corruption.
When Osborne was depicted as a crazed axeman who ate little children for breakfast and smashed the economy, it suited his foes to associate him with austerity. Now the British economy is growing faster than any in Europe and earnings may this week overtake inflation. So Osborne is popular. Do his enemies really want austerity to get the credit? It surely makes more sense to tell the truth. It was not austerity that pulled the British economy out of recession but good old-fashioned borrowing and spending.
Cost of Living (4 December 2013)
In recent weeks the Labour Party has shifted the focus of its political attacks on the Coalition Government.
No longer does Ed Miliband argue that the economy is stalling or flatlining - instead he says that the benefits of the economic recovery that appears to be slowly gathering pace are not being passed on to hard working families - and that the UK is experiencing a cost of living crisis.
Now clearly this is not true for everyone and while there may be people who struggle to pay their bills and/or put enough food on the table - lots of others are actually much better off because of the artificially low interest rates the country has been experiencing since 2008.
For example, anyone with a large mortgage may be thousands of pounds a year better off - even if they are in a job where the pay has increased very little, if at all, over the past few years.
So it stands to reason that the people facing a big hit to their standard of living has to be someone without a mortgage - someone who pays rent - because their housing costs will have gone up rather than down since the UK economy went from boom to bust.
All of which means that all this talk of a general cost of living crisis is untrue - and that a much fairer policy would be one which targeted help on citizens paying rent because they have not been fortunate enough to have been handed a big financial windfall - courtesy of nothing more than a sudden and fortuitous collapse in interest rates.