Economic quackery and political humbug
British readers will be well aware that the UK Chancellor George Osborne unveiled his budget statement on Wednesday. Here was the piece I wrote that afternoon:
Has there ever been a chancellor of the exchequer more entranced by the game of politics? Most of George Osborne’s Budget speech was trivial. Some of it was imponderable. The final flurry of punches was substantial. Every word was political.
Consider the substantial first: in abolishing the obligation for pensioners to buy annuities, Mr Osborne has snuck up behind an unpopular part of the financial services industry and slugged it with a sock full of coins. (No doubt he will tell us they were minted in memory of the threepenny bit and in honour of Her Majesty the Queen.) This is a vigorous but carefully calibrated tummy rub for sexagenarians with substantial private-sector pensions.
Nobody else will even understand what has been done. The benefit to pensioners is immediate and real. The cost comes later – but Mr Osborne will be long gone by the time the media begin to wring their hands about some poor pensioner who blew his retirement savings on a boiler-room scam.
His other significant moves were equally calculated. A meaningless and arbitrary cap on the welfare budget is no way to rationalise the welfare state but it is a splendid way to tie Labour in knots. A new cash Isa allowance of £15,000 will benefit only the prosperous, and has political appeal while delivering no real benefit – and no real cost to the Treasury – until long after the 2015 election.
Next, the imponderable. Mr Osborne devoted substantial time to the forecasts of the Office for Budget Responsibility, and no wonder: at last the news is good. But while the OBR is independent it is not omniscient. Like other economic forecasters, it has been wrong before and will be again. Mr Osborne forgot this and spoke of growth in future years being “revised up”. This is absurd. The OBR does not get to decide what growth in future years will be. We can draw mild encouragement from its improved forecasts, nothing more.
Finally, the trivial. Any chancellor must master the skill of announcing policies that have little or no place in the macroeconomic centrepiece of the political calendar. Mr Osborne showed no shame. The news that, for example, police officers who die in the line of duty will pay no inheritance tax is appealing but irrelevant. Police deaths are blessedly rare and, since police officers are usually young and modestly paid, inheritance tax is usually a non-issue even in these rare tragedies.
So let us applaud Mr Osborne for playing his own game well – a game in which economic logic is an irritation, the national interest is a distraction and party politics is everything.
You can read this comment in context at FT.com
8 Comments
komadori says:
Is it really that Mr Osborne is more entranced by the game of politics than previous chancellors, or just that fixed term parliaments have given him an opportunity to indulge in that game which his predecessors did not have?
21st of March, 2014Hugh Fairman says:
I doubt that any Chancellor can ‘win’ as regards the annuities question. Either the populace are treated as ‘nice but dim’, and they are all forced by law to rely on the ‘experts’ (who get quite portly in the process, or you treat them as grown-ups. If you do the former, outcomes are dismal except for the ‘experts’. If you do the latter then there will inevitably be casualties. Everyone suffers in the former case. Most do much better, except for the occasional disastrous casualty in the latter. Which will have the better outcome, the ‘single expert mind’ or the mass ‘group mind’? Group mind decisions tend to out perform the experts is what I have read.
21st of March, 2014Ernie Hayes says:
The purpose of this article appears to be to complain that the Budget is political. Of course it was – they all are.
21st of March, 2014Stephen says:
Chancellor of the Exchequer is a political office so of course the Budget is partly political, as it *always* is.
A number of the points Tim makes are either naive in the extreme or political in themselves.
“This is a vigorous but carefully calibrated tummy rub for sexagenarians with substantial private-sector pensions. Nobody else will even understand what has been done.”
Absolute rot. As the benefit of pensions has been eroded by a variety of measures*, people have increasingly lost faith in them. One of the factors in this lack of faith, has been the necessity of converting the fund into an annuity in one go. This has made it rather a lottery as to the rate achieved.
Hence people have been turning to saving in ISAs and/or buying property as pension vehicles. A better pension market may well take some money out of the property market and help to make that less of a bubble.
* Measures introduced by numerous Chancellors, of both parties. The taxing of (or removal of tax relief on) shares in pension funds by Gordon Brown is the most famous one but it was only the last of them.
“The cost comes later – but Mr Osborne will be long gone by the time the media begin to wring their hands about some poor pensioner who blew his retirement savings on a boiler-room scam.”
This echoes the words of Labour adviser John McTernan, “You can’t trust people to spend their own money sensibly”. Yes some people will be scammed, but some people already fall victim to scams. Does that mean that noone should ever have access to any of their own money?
Also, most of the people who have been sensible enough to save for decades for their retirement will be just as sensible in retirement.
“A meaningless and arbitrary cap on the welfare budget is no way to rationalise the welfare state” is again a political rather than an economic statement. It assumes that there is a negligible amount of unnecessary spending on welfare. An equally valid, and also political, assumption is that there is loads of unnecessary spending on welfare. On that basis a cap makes plenty of sense.
“A new cash Isa allowance of £15,000 will benefit only the prosperous” strikes me as coming from the politics of envy. Money put into an ISA is, in the majority of cases, money that people have saved from their already taxed income. Why should it be taxed again?
Also the lower annual limit may have suited someone in regular work who could put aside some money every year but it ill-suited the self-employed and entrepreneurs who might have poor years and good years.
“while delivering no real benefit … until long after the 2015 election” is completely bizarre. Chancellors regularly get criticised for short-term thinking now Tim is criticising Osborne for a change that will take time to have any effect.
“So let us applaud Mr Osborne for playing his own game well – a game in which economic logic is an irritation, the national interest is a distraction and party politics is everything.”
That seems to be the game that Tim is playing as well as his arguments are based on emotion and a political standpoint and not economics.
21st of March, 2014Julian Maples says:
Well, he has my vote.
A sexagenarian
21st of March, 2014Ernie Hayes says:
No Chancellor has ever been as nakedly political as Gordon Brown.
23rd of March, 2014Nick says:
When will people finally realize that we are all different? Some need protecting from their own stupidity and some don’t. It seems to me that the only way to protect the vulnerable without being a nanny state is for all financial products to have a rating that allows them only to be bought by people who have proved themselves suitably financialy competent. Surely some sort of finance course should be a compulsory part of the national curriculum anyway.
25th of March, 2014Ernie Hayes says:
Competence demonstrated by having a piece of paper or by acquiring the wealth in the first place?
25th of March, 2014