In my early twenties I spent memorable holidays crewing on a yacht in the Mediterranean. One afternoon we were entering the creek-like port of Ciudadella in Menorca when we realised that a departing car ferry was heading straight for us, gathering speed. Our entire crew, including me, began hollering uselessly and pleading with the youthful helmsman to take evasive action, while nearby fishermen gesticulated wildly, possibly to suggest that we throw ourselves overboard and swim for it. But our helmsman, wise beyond his years, ordered us to shut up. ‘I have chosen my course,’ he announced calmly, ‘and I intend to hold it.’ So he did, and we passed under the bows of the ferry into the calm of the inner harbour.
It was a life lesson I have never forgotten, and I offer it now to George Osborne. A fortnight before Budget day a flotilla of problems and special-interest pleas bears down on him, the clamour to change course is relentless, the narrow haven of fiscal balance coupled with a return to growth looks not much closer than it did when the coalition came to power. What nerves of steel his task requires.
Take, for example, the price of petrol. With impeccably bad timing, nervousness about Iran has sent pump prices to record highs. A respectable think-tank, the Centre for Economics and Business Research, says a 2.5p cut in fuel duty (currently 58p per litre, plus VAT) would boost consumer spending, add 0.3 per cent to GDP and create 175,000 jobs in a year with no net loss in tax revenues. It would also aid the survival of thousands of small businesses, a point I made here last year ahead of the Chancellor’s autumn statement. And it would take some sting out of the renewed threat of inflation which, contrary to recent official forecasts, now looks more likely to run above target well into 2013.
Osborne did make one concession in the autumn: he deferred a 3p fuel duty rise from January to August this year, and cancelled a 2p ‘inflation increase’ that would have come with it. But even to scrap the forthcoming duty rise as a response to the recent price spike, never mind offering a cut, would be a gamble of the kind this Chancellor has shown no inclination to take. It would also set an awkward precedent — who knows how high oil will go if it suits Barack Obama’s electoral purposes to allow prime minister Netanyahu of Israel to bomb Iranian nuclear sites. And it would be a red rag to Lib Dem greens who are already in a deep sulk over the uprising against wind power. So don’t expect it to happen, however much noise the road lobby makes — and brace yourself for the £100 fill-up this summer.
Here to stay
Likewise, the 50p tax rate above £150,000 of income. Stretching my nautical metaphor, we might imagine the hollering on this one to be coming from the cocktail decks of nearby super-yachts — except of course that they are largely populated by people who pay little or no tax anywhere. The argument that this punitive rate will drive many other successful people to join the offshore crowd, thus generating a net negative result for the Treasury, remains a matter of supposition, and HMRC’s own review, which may or may not inform the Budget, is unlikely to illuminate it.
What we do know is that 308,000 people are now paying the 50p rate, broadly corresponding to the top 1 per cent of taxpayers, who pay 28 per cent of all income tax and thereby deserve some respect — especially the entrepreneurs among them, who say the 50p tax is a deterrent to investment, and therefore to job creation and recovery. Occupy protestors who study HMRC stats might say most of the 161,000 payers in London and the south-east are City fat cats who’ve got it coming to them — but among the 147,000 in the provinces are many hard-working business owners who really do merit a sympathetic hearing. To distinguish the virtuous in this way would be impossible, however, and the Lib Dem alternative of a ‘mansion tax’ would be grossly unfair to tax-paying Londoners whose house values have multiplied as a result of an influx of non-taxpaying foreigners. So the 50p rate is with us, I suspect, not only for the duration of this parliament but until such time as we have a Tory government with a working majority — whenever that might be.
A reversal of the VAT increase, from 20 per cent back to 17.5 per cent, to counteract inflation? Way too expensive. A corporation tax cut to promote private-sector growth? Way too unpopular in the current anti-capitalist mood. No, even though the Chancellor is set to undershoot his own deficit forecast after better-than-expected tax receipts in January, we can expect little from him except small-business schemes, rhetoric about conserving our credit rating, and crowing at Ed Balls over the prospective avoidance of the double-dip which is, as it were, the bow of the biggest oncoming ferry. This column will take it as a compliment if Osborne actually says, ‘I have chosen my course and I intend to hold it.’ And in the end, I suspect we’ll all admire him for it.
Welcome Invitation
Good news from my favourite car factory. Having built a record 480,000 cars last year, Nissan at Sunderland is tooling up for a new model, the Invitation, which could bring 2,000 extra jobs to the plant and its local suppliers. The project was won against ‘competitive bidding’ from other Nissan units around the world — and what’s notable about the Wearside workforce is that they have succeeded in this global skills market not by robotic submission to Japanese factory practices (no early-morning callisthenics here) but by mixing them with elements of British ingenuity and design excellence, to produce the best of both worlds. Still, the Japanese concept of kaizen (‘continuous improvement’) is at the heart of the operation, as is poka-yoke (‘Cut the cock-ups,’ as a Nissan worker once translated it for me).All public-sector managers should be sent to Sunderland for work experience — unpaid.
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