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.

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A swimming pool and a bleeding toe put my medical competency in doubt

Doctors are used to contending with Google. Sometimes the search engine wins. 

The brutal heatwave affecting southern Europe this summer has become known among locals as “Lucifer”. Having just returned from Italy, I fully understand the nickname. An early excursion caused the beginnings of sunstroke, so we abandoned plans to explore the cultural heritage of the Amalfi region and strayed no further than five metres from the hotel pool for the rest of the week.

The children were delighted, particularly my 12-year-old stepdaughter, Gracie, who proceeded to spend hours at a time playing in the water. Towelling herself after one long session, she noticed something odd.

“What’s happened there?” she asked, holding her foot aloft in front of my face.

I inspected the proffered appendage: on the underside of her big toe was an oblong area of glistening red flesh that looked like a chunk of raw steak.

“Did you injure it?”

She shook her head. “It doesn’t hurt at all.”

I shrugged and said she must have grazed it. She wasn’t convinced, pointing out that she would remember if she had done that. She has great faith in plasters, though, and once it was dressed she forgot all about it. I dismissed it, too, assuming it was one of those things.

By the end of the next day, the pulp on the underside of all of her toes looked the same. As the doctor in the family, I felt under some pressure to come up with an explanation. I made up something about burns from the hot paving slabs around the pool. Gracie didn’t say as much, but her look suggested a dawning scepticism over my claims to hold a medical degree.

The next day, Gracie and her new-found holiday playmate, Eve, abruptly terminated a marathon piggy-in-the-middle session in the pool with Eve’s dad. “Our feet are bleeding,” they announced, somewhat incredulously. Sure enough, bright-red blood was flowing, apparently painlessly, from the bottoms of their big toes.

Doctors are used to contending with Google. Often, what patients discover on the internet causes them undue alarm, and our role is to provide context and reassurance. But not infrequently, people come across information that outstrips our knowledge. On my return from our room with fresh supplies of plasters, my wife looked up from her sun lounger with an air of quiet amusement.

“It’s called ‘pool toe’,” she said, handing me her iPhone. The page she had tracked down described the girls’ situation exactly: friction burns, most commonly seen in children, caused by repetitive hopping about on the abrasive floors of swimming pools. Doctors practising in hot countries must see it all the time. I doubt it presents often to British GPs.

I remained puzzled about the lack of pain. The injuries looked bad, but neither Gracie nor Eve was particularly bothered. Here the internet drew a blank, but I suspect it has to do with the “pruning” of our skin that we’re all familiar with after a soak in the bath. This only occurs over the pulps of our fingers and toes. It was once thought to be caused by water diffusing into skin cells, making them swell, but the truth is far more fascinating.

The wrinkling is an active process, triggered by immersion, in which the blood supply to the pulp regions is switched off, causing the skin there to shrink and pucker. This creates the biological equivalent of tyre treads on our fingers and toes and markedly improves our grip – of great evolutionary advantage when grasping slippery fish in a river, or if trying to maintain balance on slick wet rocks.

The flip side of this is much greater friction, leading to abrasion of the skin through repeated micro-trauma. And the lack of blood flow causes nerves to shut down, depriving us of the pain that would otherwise alert us to the ongoing tissue damage. An adaptation that helped our ancestors hunt in rivers proves considerably less use on a modern summer holiday.

I may not have seen much of the local heritage, but the trip to Italy taught me something new all the same. 

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear