Osborne must know he can't tell the oil companies how to behave

This is economics at its most basic: the burden of tax can be shifted.

Apparently, the Chancellor is going to be "watching like a hawk to make sure that motorists get the benefit of the Budget changes and make sure that there's no funny business". Sorry, but I don't believe a word of it.

George Osborne is going to be watching like a dove: perhaps even a pigeon. What is he going to do? Give the oil companies a big ticking off if they raise prices? What information does he have about their costs? We learned many years ago that prices policies don't work.

This is economics at its most basic. It's what we teach in the very first class -- that the burden of a tax can be shifted. Consumers will inevitably end up paying at least some proportion of the tax increase because they have no alternative to petrol. And Slasher Osborne is powerless to do anything about it.

It reminds me of the announcement that he made when he was shadow chancellor, that he would go after banker's bonuses. It was just political rhetoric: he had no intention of following through in office, as it would have amounted to a private-sector incomes policy. We know that incomes policies don't work in the private sector: there are too many ways to get around them. You can promote people into made up positions, for example.

Meanwhile, the incomes policy in the public sector, as is currently being implemented with a wage freeze for higher-paid workers, will inevitably lower the quality of public-sector services. That may well be his intention: freezing wages in the public sector makes jobs in the private sector more attractive.

The tax on the oil and gas sector will have another likely effect -- the industry will lower its investment. This will be bad for growth, given that the Office for Budget Responsibility (OBR) is forecasting that business investment is a major driver of growth going forward. Indeed, the OBR is forecasting that investment will grow by 6.7 per cent in 2011; 8.9 per cent in 2012 and over 10 per cent in 2013 and 2014, which seems overly optimistic. Can it be that Osborne doesn't care that this tax will drive the oil and gas industry overseas to countries that are more pro-business? Surely not.

All this on the same day that Moody's, the credit rating agency, suggested that the UK's AAA credit rating was in doubt because Slasher's policies are likely to lower growth. Here's what it had to say:

Although the weaker economic growth prospects in 2011 and 2012 do not directly cast doubt on the UK's sovereign rating level, we believe that slower growth combined with weaker-than-expected fiscal consolidation could cause the UK's debt metrics to deteriorate to a point that would be inconsistent with a AAA rating.

Interesting.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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The Brexiteers have lost battles but they are still set to win the war

The prospect of the UK avoiding Brexit, or even a “hard” version, remains doubtful. 

Before the general election, the Brexiteers would boast that everything had gone their way. Parliament had voted to trigger Article 50 by a majority of 372. The Treasury-forecast recession hadn't occurred. And polls showed the public backing Brexit by a comfortable margin

But since the Conservatives' electoral humbling, the Leavers have been forced to retreat on multiple fronts. After promising in May that the dispute over the timetable for the Brexit talks would be "the fight of the summer", David Davis capitulated on the first day.

The UK will be forced to settle matters such as EU citizens' rights, the Irish border and the divorce bill before discussions begin on a future relationship. Having previously insisted that a new trade deal could agreed by 29 March 2019 (Britain's scheduled departure date), the Brexiteers have now conceded that this is, in Liam Fox's words, "optimistic" (translation: deluded). 

That means the transitional arrangement the Leavers once resisted is now regarded as inevitable. After the eradication of the Conservatives' majority, the insistence that "no deal is better than a bad deal" is no longer credible. No deal would mean the immediate return of a hard Northern Irish border (to the consternation of the Tories' partners the DUP) and, in a hung parliament, there are no longer the votes required to pursue a radical deregulatory, free market agenda (for the purpose of undercutting the EU). As importantly for the Conservatives, an apocalyptic exit could pave the way for a Jeremy Corbyn premiership (a figure they previously regarded as irretrievably doomed). 

Philip Hammond, emboldened by the humiliation of the Prime Minister who planned to sack him, has today outlined an alternative. After formally departing the EU in 2019, Britain will continue to abide by the rules of the single market and the customs union: the acceptance of free movement, European legal supremacy, continued budget contributions and a prohibition on independent trade deals. Faced with the obstacles described above, even hard Brexiteers such as Liam Fox and Michael Gove have recognised that the game is up.

But though they have lost battles, the Leavers are still set to win the war. There is no parliamentary majority for a second referendum (with the pro-Remain Liberal Democrats still enfeebled), Hammond has conceded that any transitional arrangement would end by June 2022 (the scheduled date of the next election) and most MPs are prepared to accept single market withdrawal. The prospect of Britain avoiding Brexit, or even a "hard" version, remains doubtful. 

George Eaton is political editor of the New Statesman.