Britain’s Osborne: No Turning Back on Fiscal Policy

The chancellor believes that reversing budget policy would be a “complete disaster.”

Even if Britain’s economy is projected to expand less than 1 percent next year and the government has had to push back its fiscal targets, Chancellor of the Exchequer George Osborne does not intend to revise his strategy. “To turn back now would be a complete disaster,” he said on the BBC’s The Andrew Marr Show on Sunday.

Britain’s ruling coalition of Conservatives and Liberal Democrats had extended the deadline for eradicating the nation’s structural deficit by two years. The Office for Budget Responsibility is expected to announce this week that it will take another extra year, meaning the government’s original five year plan becomes an eight year one.

Osborne nevertheless touted success on Sunday, arguing that at least one of the promises he made — “make sure that Britain pays its way in the world, that it was seen as a credible place to invest” — is kept.

He blamed the country’s lackluster economic growth on difficulties elsewhere. “The eurozone is in recession. And that is one of our largest trading partners,” he pointed out.

Stimulating growth with infrastructure investments, as the Labour opposition has proposed, is not an option as far as Osborne is concerned. “Some people say we should be borrowing more like Ed Balls,” Labour’s shadow chancellor, “but that would take us back to the problems that he created in the first place.” Nor did he agree with critics who argue that the government should be cutting faster.

But there haven’t been spending cuts in real terms at all. The Office for National Statistics reported last month that borrowing in the first seven months of the 2012-13 financial year was more than £73 billion — £5 billion higher than in the same period of 2011-12. By the time of the next election, the Treasury expects to spend £756 billion compared with £683 billion this year.

Osborne ruled out an income tax increase to mend the shortfall. “The richest have paid more in every single one of my budgets,” he said. “They pay more as a proportion of our tax revenue than they ever did under a Labour government.”

It’s completely phony as a country to think you’re taxing the rich with a top tax rate that people don’t pay.

Indeed, the previous government’s 50 percent rate caused revenue to drop £7 billion. Whereas under the 40 percent rate, 16,000 Britons reported earnings of one million or more, the number shrank to 6,000after Prime Minister Gordon Brown introduced the increased tax rate.

Osborne, in his most recent budget, cut the top rate back to 45 percent and raised the threshold at which Britons start paying income tax £1,100 to £9,200.

It doesn’t only make sense economically to lift the burden on taxpayers, he said on The Andrew Marr Show. “There’s the fairness for the individual who goes out to work and the next door neighbor is living a life on benefits. And it’s also unfair for that individual.”

So we are also going to tackle welfare bills. And that is the conservative approach to fairness. Make the rich pay but also make sure you’re tackling the welfare system that is deeply unfair to working people.

The bulk of the government’s £10 billion in welfare savings are not due to be enforced until after the next election, however.