Economic Liberalism And Social Democracy
Many politicians try to be all things to all people, but few manage to achieve it. George Osborne, the Chancellor of the United Kingdom Exchequer (aka, the Minister of Finance), is making a very good claim to be inducted into the “few that manage to achieve it” hall of fame in later life after announcing a quite remarkable “emergency” Budget last week. Indeed, it was a budget statement that could justifiably earn Osborne a new nickname – The Borrower – for he seems to have borrowed key policies from political opponents vanquished recently at the general election, particularly from the Labour Party, including a big increase in the minimum wage and the virtual extinction of non-dom tax status (although, now he’s taken them, he can’t really give them back, can he!) I can recall that when the UK first got its minimum wage in 1997 – a key Labour pledge – the Conservatives, then in opposition, were dead against it, fearing it would increase employment costs and lead to job losses. However, the Conservatives now plan to force companies to pay a so-called “living wage” about 20 percent higher than the current minimum wage as part of Osborne’s plan to create a “high-wage, low-welfare” economy. The idea behind this is that those on low pay will no longer have to have their wages topped up by the welfare system in the form of wage tax credits – a hugely expensive yet cumbersome system, which was one of former Labour Prime Minister Gordon Brown’s flagship policies when he was Chancellor. Osborne’s interference in the labor market to this extent would have been unthinkable under previous Conservative administrations, particularly those led by Margaret Thatcher. In fact, there is almost a slightly Nordic flavor to this Budget, and in Osborne’s intentions to create a high-skilled, high-value-added type of economy. However, this is probably as much about politics as it is with ideals. In fact, Osborne has become the consummate pragmatist in his five years at the Treasury. With this Budget, the first Conservative one for 20 years, many think that Osborne has performed a political masterstroke, with the center ground now well and truly seized, and with it many votes that might have gone to Labour next time around. It leaves Labour, already struggling for a new direction, with only one way to go – left – which will probably see them in the political wilderness for a generation, until a new Blair emerges – if a new Blair emerges, that is. Perhaps the real genius of this Budget though is that Osborne has made many people feel like they’re getting a tax cut. In fact it raises taxes by more than GBP40bn, with more revenue due to contribute to deficit reduction than ever before. All in all, it’s a curious mix of economic liberalism and social democracy. Another measure also stands out for me: with another 2 percent corporate tax cut in the pipeline, all things being equal, by 2020 the UK will have a corporate tax rate just 1 percent higher than Singapore’s and 1.5 percent higher than Hong Kong’s. UK corporate tax rate will also be less than half the combined federal/state income tax rate currently faced by firms in the US. Few commentators have picked up on the significance of this, but if nothing else it confirms that, unlike much of the EU, the UK Government still firmly believes in the merits of tax competition.