Leader: Osborne can go further

Every time George Osborne has been in serious trouble, he has produced a tax cut — and it has worked perfectly.

Osborne can go further

Every time George Osborne has been in serious trouble, he has produced a tax cut — and it has worked perfectly. He did it again in his budget, and the reception was rapturous. Herein lies a clue. It is not just that Britain is horribly overtaxed. The battle the Chancellor is now fighting is very different to the one he prepared for. Inflation stands at its most destructively high levels for 20 years, decimating the value of savings and depressing living standards. Anxiety about cuts has been supplanted by fear about the cost of living. More than anything else, the Chancellor needs to be able to say, ‘I am on your side’. Nothing does this more eloquently than a tax cut.

This also applies to companies. His welcome 2p reduction in corporation tax — twice what he had planned — sends a clear statement that Britain knows it must compete for people in a globalised marketplace. Many of the other schemes he announced — entrepreneurs’ relief, tax simplification, a planning overhaul — are welcome. But they sit ill beside a 50p top rate of tax, the fourth-highest on the planet. The Chancellor again said this tax is temporary — but his decision to increase it to an effective 52p (by raising National Insurance) sends its own message.

Last autumn, the Chancellor laid out what purported to be a five-year plan. But as he said in his budget speech, a ‘responsible government is able to listen and respond’. And what it needs to respond to now is high inflation, which, as he admitted, will be with us for at least two years.