The Great British Economic Miracle is an Illusion
Sunday Mail, January 31st 2016
Something is wrong with the British economy.
George Osborne seems to be experiencing his own ‘Boom and Bust’. Just before Christmas he was singing the joys of the British economy on the mend. Yet a few weeks later he changed his tone talking of the uncertain economic times.
He hasn’t had to look too far for his troubles – from the tax credits’ chaos where he had to do a U-turn, to this week’s judgement that the bedroom tax was illegal and discriminated against domestic violence victims and disabled people.
If that wasn’t bad enough there was his ‘deal’ with Google where Osborne reached an agreement that they pay £130 million in lieu of taxes over the last ten years. This is a paltry 3% corporate tax rate – the lowest in the developed world.
The ghost of a former Chancellor hangs over Osborne – Gordon Brown – the man who said he ‘abolished Boom and Bust’. The similarities are two-fold: political and economic. Both have positioned themselves as the heir apparent behind their more electorally appealing colleague, David Cameron for Osborne and Tony Blair for Brown.
Both have spent years as second-in-command – building support on the backbenches, using patronage and persuasion to make sure they inherit the throne. Tory MP Nadine Dorries said Osborne has ‘spent the last 10 years giving out sweeties to Conservative backbenchers’ to get to the top.
More serious are the economic shortcomings of the two. Both have got carried away proclaiming ‘the great British economic miracle’, while obsessing on short-term changes.
Neither have tackled the fundamental weaknesses: the excessive personal and private debt, the burgeoning Balance of Payments deficit, the over-valued pound, and the productivity gap of British workers compared to our competitors.
Much of economic debate is froth. Merryn Somerset Webb, editor of ‘MoneyWeek’, recently said that the UK needed to get back to the ‘shareholder capitalism of the 1980s and 1990s’. Trouble is it didn’t exist in the way she meant as people who bought shares in privatised companies tended to sell them as quickly as they could.
‘Shareholder capitalism is the problem in this country’ replied economist Mariana Mazzucato – in other words, the short-term, dividend obsessed and narrow business focus on quarterly and annual profits rather than any wider measurement of success.
Osborne’s deal with Google captured the headlines, but fits the pattern of a host of high profile companies – Apple, Amazon, eBay and Facebook – once seen as the friendly face of ‘fuzzy capitalism’ but paying as little tax as they possibly can in the UK.
The Tories are hugely funded by hedge funds and the City of London. New Labour were only marginally better at their peak, while Corbyn’s Labour barely seem to have a single coherent policy on the economy or business.
Where is the serious party that is pro-business and for a social agenda in the UK? The focus for the last thirty years has been on deregulating the world of work to aid employers, and presenting the UK as ‘open for business’ to anyone from Russian plutocrats to the Chinese Government.
The UK is one of the tax haven centres of the world – the Cayman Islands, Bermuda and Virgin Islands – virtual black holes in the global economy whereby billions of pounds escape taxation and transparency.
While the UK has jailed one banker (the unfortunate Tom Hayes of UBS and Citibank in the Libor scandal), this Tory Government considers that one of the main impediments to economic prosperity is the powers of trade unions, and is passing legislation to make it even more difficult to strike.
The British political establishment has in recent decades told the world how the UK has been transformed economically, and is a model to everyone else in the developed world.
Nothing could be further from the truth. The British economy is like the English Premiership – built on quicksand with no firm foundations, no focus on long -term investment or planning, and most of the football clubs are foreign owned with offshore tax arrangements. No one in SKY TV and BT Sport football discussions asks: what will happen when this bubble bursts?
Similarly, tough questions need to be asked about the UK economy. What happens when personal debt and consumer spending can’t underwrite the economic boom, or when the property bubble bursts again?
‘The Great British Economic Miracle’ is a mirage and illusion, and George Osborne will be remembered not only in the same breath as Gordon Brown, but as someone much more flawed: who was warned by the crash, but continued with the old ways. Who will be left to pick up the pieces?