Barely a flicker of growth, but Osborne mustfollow his instincts and stick to his guns
Cut taxes now, or pile more taxes on to the bankers? Cut spending even faster to compensate for flagging tax revenues, or slow the cuts to ease the dole queues and boost confidence among consumers
who still have public-sector jobs? Ban royal weddings, or at least the ones that cause the nation to stop work for a week and a half? Print more money, or tell Vince Cable to sod off and stop
rocking the boat?
George Osborne has a rich menu of choices as to how to respond to the news that second-quarter growth barely crawled into positive territory, at 0.2 per cent. But they’re all tough ones, and
apparently he now has the Prime Minister breathing down his neck as well. I said two weeks ago that Osborne is ‘doing the right thing, but against fierce external headwinds and without much
help from some of his coalition colleagues’, and I haven’t changed my mind.
He can take small consolation from the fact that the chief economist of the Office for National Statistics and author of the first-estimate growth figure, Joe Grice, says it might have been 0.7 per
cent but for the Japanese earthquake and Kate and Wills not deciding to call the whole thing off. Osborne should discourage the Bank of England from giving the time of day to Cable’s
suggestion of another bout of quantitative easing: that was an emergency tool to unfreeze the banking sector, and it had inflationary side-effects. And he can ignore Ed Balls’s banging-on
about spending cuts that ‘go too far and too fast’: they’re a minor ingredient of the stagflation afflicting us compared with global factors such as soaring energy prices.
But the Chancellor really should think about selective tax cuts, both to revive the consumer economy and to encourage business investment. The VAT rise to 20 per cent in January was a simple way of
grabbing £13 billion of revenue, and in non-inflationary times it might have passed unnoticed in a flurry of retailers’ discounts; but this time, with household incomes so painfully
squeezed, it has really stung. If the rise was partially or wholly reversed in the autumn, would the lost VAT income be regenerated through increased high-street turnover and jobs, and
retailers’ profits? Even if asking that question would constitute a concession to Balls, it’s worth doing the maths.
As for helping businesses, the Chancellor wrote last weekend about ‘reducing the costs of employing people’ and ‘doing away with very high tax rates that only damage growth and
enterprise’. Presumably he had in mind the tokenist 50 pence top rate of income tax, as well as employers’ National Insurance and other business taxes. The spin says he was slapped down
by Cameron’s remark that ‘no country can really afford another fiscal stimulus’. But it is Cameron who is the more desperate of the two for good economic news, to distract from
his other embarrassments: he should let Osborne follow his instincts and stick to his guns.
Get well soon
Meanwhile, you may well ask, how are things in the real world of business? Columnists like me are usually content when markets and City PR firms close down for the summer: the lull allows us to
write about our holidays or our hobbyhorses, or not write at all. But this summer, I have to admit, the silence has got me rattled. There’s just nothing going on out there.
News Corp’s bid for BSkyB is dead. Lloyds Banking Group is reportedly about to suspend its forced auction of surplus branches for fear of having to settle for too a low price because only two
bidders have stepped forward — the Co-op and the ‘City grandees’ consortium, NBNK. Other company stories are in such short supply that Monday’s FT gave front-page prominence
to the £120 million sale of Moonpig.com, ‘the online retailer of personalised greetings cards’, to ‘Photobox, the digital photo service’. The greetings-card sector, it
seems, is the place where the action is right now: the same edition brought news that ‘landlords are increasingly worried that troubled retailer Clinton Cards is preparing to restructure its
800-store UK portfolio’. Oh, and Tesco is ‘poised to offer free in-store Wi-Fi’, by the way. I like ‘poised’ there; it really gives you a sense of excitement.
Behind all this are the truths we already know. The retail sector is moribund. For companies large and small, finance is hard to find and many are not bothering to look: bank lending to business
actually shrank in June. Against a background of feeble growth, rampant inflation and international debt crises, the potential returns on big, strategic corporate investments are unusually
difficult to predict. Is this the moment to bet the farm on buying 632 Lloyds branches and turning yourself overnight into Britain’s seventh largest high-street bank? Probably not; nor is it
the time to launch a takeover bid for anything other than a wildly undervalued goldmine.
Congratulations
But there must be a story somewhere that bucks the gloomy trend — and I’ve been guided in my search for it by (Lord) Digby Jones, who swept through Helmsley like a Brummie tornado the
other night to deliver a tub-thumping speech based on his book Fixing Britain. One thing he’d like to fix is our habit of talking down industrial success — and he does an entertaining
riff about ‘an Airbus up there going from Singapore to Sydney, another one from Heathrow to Rio… and who made the wings? We did, in Airbus UK factories at Filton and Broughton. Who made the
engines? Rolls-Royce did, in Derby. And they’re the best in the world. And what did the French do? They made the fuselage — a big metal tube that anyone could make.’ Well, last
week American Airlines announced an order for 260 Airbus A320s, for delivery by 2022. I’m sorry to say that the engines are likely to come from General Electric of the US or its French joint
venture CFM, but let’s look on the bright side. That’s still, by my reckoning, 520 British-made wings — and it must be worth a ‘Congratulations’ card.
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