Osborne's council tax freeze is an old announcement

The Chancellor promised to freeze council tax for two years in his 2008 conference speech.

You could be forgiven for thinking that George Osborne has pulled a rabbit out of a hat with his pledge to freeze council tax for a second year running. Indeed, most of the papers lead on the story this morning and treat it as a new announcement. "Tories find £805m for council tax bill freeze," says the Times, adding that Osborne, who will address the Conservative conference today, has offered "comfort" amid the "austerity drive".

But the truth is that this is merely a restatement of existing policy. Osborne first promised a two-year council tax freeze in his speech to the 2008 Conservative conference. "I can tell you today that the next Conservative Government will freeze your Council Tax for at least two years," he said.

The policy went on to feature in the Tories' 2010 election manifesto and the coalition agreement included a pledge to "freeze council tax in England for at least one year", and to "seek to freeze it for a further year."

With his growth strategy under attack from Tory backbenchers, it's no surprise that Osborne is talking up this measure. But it is indicative of the weakness of his plan that, with growth stagnant (the economy has grown by just 0.2 per cent in the last nine months), the best he can offer is a re-announced £805m council tax freeze. Families paying an extra £450 a year in VAT (owing to Osborne's decision to raise the tax to a record high of 20 per cent) will gain just £72 from the measure.

Were Osborne truly determined to stimulate growth, he would have announced an emergency tax cut such as a temporary reduction in VAT (as advocated by Ed Balls). A VAT cut would boost consumer spending, lower inflation, protect retail jobs and increase real wages. When Alistair Darling reduced VAT to 15 per cent during the financial crisis, consumers spent £9bn more than they would otherwise have done. A VAT cut today would be a similarly effective fiscal stimulus. As Boris Johnson wisely observed in his Telegraph column in July, "[I]f we were to cut taxes now, it might be best to start with VAT to get people shopping again." Osborne's decision to raise VAT (a measure he described as "permanent") by 2.5 per cent to an all-time high of 20 per cent automatically knocked 0.3 per cent off annual growth (OBR figures).

A council tax freeze will do little to stimulate growth and little to relieve families facing the biggest fall in living standards since the 1920s. We'll get a better idea of Osborne's plan when he addresses the Tories at 11:20am today (we'll be live blogging his speech on The Staggers). But so far, all the signs are that he will offer little to combat the growth crisis facing Britain.

George Eaton is political editor of the New Statesman.

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump