Osborne's dynamic plan

How a technical change in Treasury forecasting could help scrap the 45p tax rate.

At the Treasury Select Committee yesterday, in between being quizzed by MPs angry at the extent of the pre-budget leaks, George Osborne revealed that he was planning to enable the OBR to make greater use of so-called "dynamic scoring" when they prepare their economic forecasts – but only when examining tax plans. It may not sound it, but if he made that change, it would be a huge coup for the right.

Dynamic scoring is the practice of including behavioural changes in economic forecasts. Without it, in a static model, changes to revenue after something like a tax hike are facile to calculate. If VAT at 17.5 per cent takes in (say) £175bn, then VAT at 20 per cent will take in £200bn. Similarly, if you are trying to calculate the effects on government revenues of spending £100m buying new trains for the east coast main line, then you can conclude that it will cost £100m – you buy the new trains, everyone carries on riding the line, and nothing changes.

What a static model says is that people are blind to the effect that government actions have when they are choosing what to do. Clearly, that is untrue. But it is also very easy to calculate, which is why it has stuck around for so long.

Dynamic models include all these changes of behaviour. So when looking at a dynamic model for rail investment, you can take into account the fact that nicer trains will make people more likely to travel, boosting ticket revenue; and when looking at a dynamic model for VAT rises, you bear in mind the fact that as prices rise, people buy fewer things, so that an 11 per cent rise in VAT won't lead to an 11 per cent rise in VAT revenue.

The problem for economists is that dynamic models are a lot harder to calculate. Not only are there far more variables to take into account, but you open yourself up to more avenues of attack from political opponents. The combined effect of all the assumptions you must make means that your conclusions can be deeply flawed if you get too many wrong, and, as the IFS says (pdf), can "[open] the door to large controversies if these guesses are made – or perceived to be made – in a politically biased way." While static models contain assumptions that are obviously false, dynamic models still contain assumptions, which can still be just as false. And unlike static models, we can't know which ones these are until it is too late.

So why does George Osborne want to introduce dynamic scoring into OBR models? Does he believe that the government's economists have uncovered a breakthrough understanding in behavioural responses to government intervention?

A clue can be found in HMRC's report into the 50p tax rate, which found that dropping the rate down to 45p would cost far less than expected, because of expected behavioural changes. Indeed, this sort of dynamic thinking is the cornerstone of the Laffer curve, the economic theory that, past a certain point, increasing tax rates reduces revenues.

What Osborne will be hoping is that allowing the OBR to make its models more dynamic still will strengthen the rationale for scrapping the 45p rate entirely, as well as for cutting corporation tax all the way down to 20p by the end of parliament.

Yet while the OBR will be "informed" by these new dynamic models when it comes to tax policy, they won't be taking account of the same information when examining the justification for government investment, where, far from strengthening Osborne's preferred policy, it would weaken it. If dynamic scoring is indeed implemented in this narrow fashion, Osborne will have scored a stealth victory for future Tory policy.

Money on the mind: A 19th century phrenology chart. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Want your team to succeed? Try taking a step back

From the boardroom to the sports ground, managers need to step back for creativity to thrive.

Everyone is in favour of creativity, usually at the expense of creative people. The concept is in perpetual boom. Give us creative midfielders, creative leadership, creative solutions, creative energy. It’s with the “how” that the problems start – with extra meetings and meddling, over-analysis and prescriptiveness, whiteboards and flow charts. Professional systems rarely support the creativity that they allegedly seek. The creativity industry system is at odds with its stated goals.

The novel was an early casualty. Nothing makes me close a book more quickly and finally than the creeping realisation that the author is following a narrative map purchased on an American creative writing course. Life is too short for competent novels. The creativity industry pulls up the worst while dragging down the best.

Something similar happens inside professional sport, even though creativity is so obviously linked to performance and profit. Yet sport, especially English sport, has suffered from excessive managerialism. Perhaps guilt about English sport’s amateur legacy gave “professionalism” free rein, however pedestrian its form.

Here is sport’s problem with creativity: professional systems crave control, but creativity relies on escaping control. If an attacking player doesn’t know what he is going to do next, what chance does the defender have?

So when truly unexpected moments do happen, they take on a special lustre. This month, Olivier Giroud scored an unforgettable goal for Arsenal. Bearing down on the goal, he was already launched in mid-air when he realised that the cross was well behind him. With his body far ahead of his feet, Giroud clipped the ball to the top corner of the net with the outside of his left ankle – a so-called scorpion kick.

It was, in retrospect, the only option available to him. Football, for a moment, touched the arts – not only beautiful, but also complete. Nothing could have been added or taken away.

I once tried to compare the perfect cricket shot to Robert Frost’s celebrated description of writing a poem: “It begins in delight, it inclines to the impulse, it assumes direction with the first line laid down, it runs a course of lucky events, and ends in a clarification . . . Like a piece of ice on a hot stove the poem must ride on its own melting.”

A great goal, however, fits that poetic model better than a cricket shot. Cricket shots come in many aesthetic grades, but they are all intended as shots. A goal, on the other hand, is more than just a very good pass, only better. There is an act of transformation within the event.

Frost’s acknowledgment of luck (distinct here from fluke) neatly defuses the accusation. Saying that a great goal involved luck does not to diminish it. Many unearned factors must interact with the skill.

“But did he mean it?” some people have wondered about Giroud’s goal. That isn’t the point, either. There wasn’t time. Giroud had solved the problem – to make contact with the ball, however possible, directing it towards the goal – before he was fully conscious of it. That doesn’t make it an accident. The expertise of a striker, like that of a writer, is opportunistic. He puts himself in positions where his skills can become productive. It is a honed ability to be instinctive. “If I’d thought about it, I never would have done it,” as Bob Dylan sings on “Up to Me”, an out-take from Blood on the Tracks.

Pseudo-intellectual? Quite the reverse. There is nothing pretentious about recognising and protecting creativity in sport. Over-literal decoding is the greater threat: instinctive performance needs to be saved from team meetings, not from intellectuals.

Having described a creative goal as unplanned – indeed, impossible to plan – what can coaches do to help? They can get out of the way, that’s a good start. It is no coincidence that the teams of Arsène Wenger, who is sometimes criticised for being insufficiently prescriptive, score more than their fair share of wonder goals.

The opposite arrangement is bleak. A friend of mine, a fly-half in professional rugby union, retired from the game when his coaches told him exactly which decisions to make in the first six phases of every attacking move. In effect, they banned him from playing creatively; they wanted rugby by numbers.

Not everything can be rehearsed. One useful book for coaches scarcely mentions sport – Inside Conducting, by the conductor Christopher Seaman. “I’ve never had much sympathy for conductors who ‘program’ an orchestra at rehearsal,” Seaman writes, “and then just run the program during the performance. There is much more
to it than that.”

Dan Vettori, the rising star among cricket’s Twenty20 coaches, is rare for having the bravery to echo Seaman’s theory. He believes that cricketers are more likely to play well when they feel slightly underprepared. It’s a risk and a fine balance – but worth it.

As I explored here last month in the context of Daniel Kahneman and Amos Tversky, there is a danger of slotting players into false stereotypes and classifications. Giroud, for example, is slow. Slow yet athletic. That’s an unusual combination and partly explains why he is underrated.

We often think of pace as the central and definitive aspect of athleticism. But speed is just one component of total athletic ability (leave to one side footballing skill). Giroud has an outstanding vertical jump, power and great balance. Because he is big and slow, those athletic gifts are harder to spot.

Management systems overestimate both labels and top-down tactics. A braver policy, pragmatic as well as aesthetic, is to be less controlling: allow opportunity to collide with skill, directed by an open, expert and uncluttered mind. l

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 12 January 2017 issue of the New Statesman, Putin's revenge