The ‘Osborne Austerity’ and unintelligent taxation – the forerunner to social unrest?

The ‘Osborne Austerity’ has been so successful that it’s going to cost an extra £111 billion over the next five years. Surprise surprise! No, this can’t be blamed on the Eurozone crisis, nor on the so-called ‘mess’ the Coalition inherited from Labour, nor on the weather – nor even on the Royal wedding. This is what happens when you take a huge hat pin to the economy – and puncture it.

Puncture confidence and you puncture demand, which is exactly what’s happened. Everything is slowly – or these days not so slowly  –  grinding to a halt. No growth, no jobs, no hope. The ‘Osborne Austerity’, far from reducing the deficit, is now set to increase it.

And the Eurozone crisis? Ssshh! Don’t mention it! If the Euro goes belly up, we’ll all be eating grass.

It needn’t have been like this. Yes, there had to be cuts and tax revenue increases, but if the cuts had been ‘measured and managed’ there would have been less pain, and confidence wouldn’t have been totally trashed. If tax revenue increases had come from those who could afford them, and if taxes that have a negative impact on demand had been avoided, we would be in a much healthier state than we are now.

This is a quote from General Sir Tom D’Oyly Snow in 1915, which is particularly apposite:

The higher staffs had had no practice in command, and although they had been well trained in the theory of the writing and issue of orders, they failed in the practice…Added to this we all suffered from the fault common to all Englishmen, a fault we did not know we suffered from till war revealed it: a total lack of imagination.’

George Osborne has demonstrated that he is a man of very limited imagination. The tax levers he’s used are neither new nor innovative. He’s not come up with any novel way to deal with the deficit that would have protected the most vulnerable, saved businesses and maintained confidence. Oh no, he’s done completely the opposite.

His fundamental mistake was to increase VAT. Simple to do, but it’s had a disastrous outcome. It’s become a ‘snuff’ tax, snuffing out consumer confidence. It’s affected everything and everybody. It’s increased the cost of fuel. (We’re a ‘road based’ economy, for heaven’s sake!) If you increase fuel prices, practically everything becomes more expensive. It’s affected the less well off more than others, and it’s helped to snuff out demand.

What’s the alternative? Is there an alternative? Yes there is. Why couldn’t we have had a tax similar to the tax the Germans introduced after reunification, a ‘solidarity tax’? They introduced a 7.5% solidarity tax on taxed income. (It was also applied to corporations and capital gains). The beauty of a tax like this is that it’s a targeted tax. It could have raised the same amount as an increase in VAT. It would have been fairer ( i.e. it would have been targeted at those who could afford to pay more tax), done less harm to the economy by not shattering consumer confidence, and spared the misery that is now being imposed on hard-pressed working families.

Is it too late to change? Probably. The effect of careless, unintelligent, unimaginative taxation is yet to be felt – as is the effect of slamming on the brakes without any concession to maintaining growth. If Osborne had had some business experience – let’s not beat about the bush –  if he’d had any experience, he would have known that if you bring everything to a shuddering halt, it takes years, yes years, to get things going again. Inexperience, bone headed stupidity and ‘political expediency’ has just condemned Britain to years of sustained stagnation.

Yesterday, the Office of National Statistics produced a report that says that 74% of the British people are happy with their lot, but for how much longer? The effects of the ‘Osborne Austerity’ are yet to hit home, and when they do, people’s attitudes will change very quickly indeed.

The banking crisis was heralded as being economic Armageddon, but somehow it was sorted. To Mr & Mrs ‘Little England’ in 3 Acacia Avenue, nothing really changed, so why should it be any different now? Because 2008 heralded the end of deregulated market capitalism. Everything has changed. What we are now experiencing, or rather suffering, is politics catching up with the new dynamic. Capitalism needed to be redefined, and is being redefined.  But we have a political class who has failed to realise what’s happening and whose mores are not compatible with the new dynamic. They’re also unwilling – or incapable – of addressing change. All is not well.

And what of the politically quiescent British public? There are stirrings afoot. Commentators have dismissed the ‘Occupy’ protests as being ‘unfocused discontent’. A mistake. The protests have identified a deep-seated discontent that is yet to surface and to find its true voice. It will.

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