George Osborne during a visit to the Royal Mint on March 25, 2014 in Llantrisant, Wales. Photograph: Getty Images.
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Osborne's new tax cutting agenda could mean even bigger spending cuts

The Chancellor's new assumption that tax cuts significantly boost growth could result in a higher than expected deficit. 

For years, George Osborne has opposed what he describes as "unfunded tax cuts": those that are not paid for by a tax rise or a spending cut elsewhere. As recently as February 2013, he told the US-based Manhattan Institute:

I am more of a Thatcherite than a Reaganite when it comes to tax policy...I'm a fiscal conservative and I don't want to take risks with my public finances on an assumption that we are at some point in the Laffer curve. What I would say is let's see the proof in the pudding, in other words. I'm a low tax conservative, I want to reduce taxes but I basically think you have to do the hard work of reducing the cost of government to pay for those lower taxes.

It is a stance that has long dismayed his party's Lafferites. But in a break with his past position, Osborne has now embraced "dynamic scoring": a model favoured by the US right which purports to measure the full effect of tax cuts on the economy, rather than merely the "static" cost to the Treasury. The aim is to demonstrate that tax cuts are possible even in times of fiscal constraint (the deficit was forecast to be £108bn in 2013-14) due to the beneficial impact that they have on growth.

Osborne will today publish new Treasury research suggesting that the 20 per cent real-terms reduction in fuel duty since 2011 is likely to generate enough growth to cover around half of the lost revenue (having previously published a similar study on corporation tax). According to the paper, tax cuts of this level will boost output by up to 0.5 per cent of GDP (£7.5bn) over the next two decades by encouraging people to drive more and stimulating consumption and investment. During his recent appearance at the Treasury select committee, Osborne said: "I’m not expecting some overnight change in the way Parliament and the Treasury does public finances but I think it will start this quiet revolution where people come to realise that if you leave more money in people’s pockets they tend to be better at spending it and investing it than government."

But among those sceptical of Osborne's "quiet revolution" is the Office for Budget Responsibility, the fiscal watchdog he founded in 2010, which has steadfastly refused to embrace the model. This is because, as the FT's Chris Giles notes, the Treasury research relies on some generous assumptions. For instance, "that the cost of the fuel duty cuts not offset by other increased revenues is paid for by the imposition of a pure poll tax, paid equally by every household regardless of income."

As Giles notes, "Had the Treasury used more realistic offsetting tax increases, its results would show the fuel tax cuts raised growth by less and the offsetting revenue growth would have been smaller." In addition, the research ignores the negative economic effects of cutting fuel duty such as increased congestion and pollution on the grounds that they are too difficult to measure. 

It's for this reason that the oracle of economics, the Institute for Fiscal Studies, warns that "You have to wait 20 years before you get the full response if the model is correct. Clearly there are risks there and a lot of uncertainties". The danger is that Osborne, seeking to woo the Conservative right (whose support he will need in any future leadership contest), banks the anticipated revenue from the fuel duty tax cuts, leaving the government exposed if it fails to materialise. And should the deficit prove larger than expected, there is little doubt that the Chancellor will rely on spending cuts, rather than tax increases (which he has promised to avoid), to plug the gap. 

George Eaton is political editor of the New Statesman.

Photo: Getty
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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.

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