Monday, October 11, 2010

George Osborne's first roll of the dice

The Conservative Party have opened their annual conference alongside with the first annoucements of cuts issuing in a new series of "austerity measures" meant to help roll back Britain's debt burdens. The Party has argued that cuts must be enacted swiftly and they may be painful.

There should then be many eyebrows raised by the Chancellor's, George Osborne, first announcement of cuts . . . which will not come into effect until 2013. These cuts are to child benefits and they will affect those earning about £44,000 or more.

This policy announcement appears to be a first roll of the dice. The Conservative Party has been eager to present themselves as the party of fairness and social justice, in an attempt to chip away at the Labour Party's support base. Many may not be too upset about ending this universal benefit for the higher earners. This policy makes some political sense in helping make this case more concrete. The Conservatives have been keen to remind us that we are all "in it together" on cuts. It is widely expected that we will soon have further announcements on unemployment benefits. Thus, it is claimed we will all feel some pain.

I do think this gamble may backfire for Osborne.

One reason is that the families hit will most often be single earning families where either the father or mother works. This may cap the aspirations of many who may not wish for that next promotion as it may cost them about £2,500 per year.

A second reason is that people earning £44,000 are not rich. Why lower the threshold to this number and not, say, £75,000 or higher?

A third reason, again, is that Osborne claims this will only be a temporary measure. We need to act now in order to reduce the debt. If it is so important to move swiftly on such a temporary measure, then why wait about three years to implement it? Hopefully, the economy would have been on its way to recovery removing any need for further austerity measures.

A fourth reason is that this may turn potential voters off. Many are already worried about the security of their employment, against the backdrop of likely cuts to unemployment benefit as well. Voter anxiety is rising. A cut like this will affect many -- and persons always highly likely to vote anyway -- and the risk is they will turn to other parties. A better alternative might have been to aim at making savings in structural changes that are more impersonal. Cuts are fine, so long as they don't interfere with the standards of living for most people. It's a difficult balancing act for sure. I suspect the gamble may not pay off.

Finally, the Conservative Party were keen to stress the need to support marriage with tax breaks (estimated at about £150 per year), as they were pro-family. Surely, it is a bit odd for the same party to support removing child benefits worth up to £2,500 from families shortly afterwards?

Osborne has rolled the dice. We shall see what the political fallout will be in due course . . .

UPDATE: Now the BBC reports that the Conservative Party plan to introduce a tax break for married couples. During their election campaign, this amounted to no more than £150. If this report is accurate, then I predict the amount will be more substantial and aimed at relieving some of the criticism the Tories have felt since the policy announcement yesterday. It does not seem to have gone over well . . .

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