A stimulus Osborne can live with

If the Chancellor won't boost infrastructure spending, tax cuts are the best alternative.

Next Wednesday's Budget will be yet another reminder of the tough economic climate we're in. Over the past year, real GDP has increased by just 0.8 per cent, and forecasts for 2012 are not looking any better.

George Osborne will deliver his Budget against a backdrop of anaemic growth, high inflation, and unemployment rates not seen for 17 years. Consequently, he is under pressure to announce another Budget for growth. Expect Osborne to point to a previously announced cut in corporation tax to 25 per cent from April.

But one has to question if this is the best way forward, or if the Chancellor has got it the wrong way around. Sluggish growth has primarily been a result of both weak demand and squeezed household incomes. And the barrier facing companies is not high taxes but the uncertain outlook for demand. Given this uncertainty, companies are currently making a choice not to invest, or recruit employees - in effect intensifying the problem. An alternative and targeted solution would be to increase public spending, directly addressing faltering demand.

According to OBR analysis the effects of a change in spend are estimated to be two to three times greater than the effects of changes in taxation (although it focused on changes in personal tax rates rather than corporation tax). Increased public spending has a greater multiplier effect on the economy because more of the money goes straight into the UK economy, whereas cutting taxes can simply lead to people saving more and when they spend a substantial proportion of the stimulus is 'lost' overseas in the form of higher imports.

The best way to stimulate growth is to increase infrastructure spending. This would give the economy the kick it needs, boosting demand. Additionally, the benefits extend to the long term as infrastructure spending not only increases growth but adds to the UK's productive capacity. Yet there is no sign that the Chancellor will drop his rigid austerity agenda despite its poor track record - over 2.67 million people out of work - and waning support.

So what's the second best option given Osborne's unwavering political commitment to spending cuts? Personal tax cuts offer an alternative - and quick - method of boosting demand and a number of options exist. Temporary cuts in VAT or the National Insurance contribution would both serve to put more money directly into people's pockets, boosting demand and encouraging businesses to invest and create the jobs we desperately need. This could be largely paid for - over a six-year period - with a "mansion tax", which would hit only the very wealthy and so have little impact on the economy.

The economy is flatlining. To get the economy back up to speed we require measures that address the root of the problem - weak demand. While higher public spending offers the most 'bang for your buck' it is unlikely to happen. The next best thing would be to use temporary personal tax cuts to increase consumer demand.

Amna Silim is a Researcher at IPPR

Photo: Getty
Show Hide image

The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

0800 7318496