Economic quackery and political humbug

21st March, 2014

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.

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