The Budget: Tragedy with Banality

I wanted to blog about the Budget, but in a sense there’s so little to say.  It had been so heavily trailed (what a contrast to the days when the most trivial pre-Budget leak from a Chancellor was a resigning matter!) that nothing was new, nothing was interesting.  The scale of Gordon’s debt problem is so awful that we are beyond being shockable.  His excuse that this is a global problem has been sunk by the data: it may be a global problem, but our deficits are worse than other people’s.
 
A hint of a silver lining: it may yet prove that the devalued pound puts us in pole position to exploit an export-led recovery, if and when recovery comes.  That’s a benefit we could only have dreamed of if we’d joined the euro in 1999, as so many siren voices urged us to do.
 
Darling had a few, almost trivial, incentives for jobs and industry, but they amount to no more than a hill of beans.  And his only real “initiative” was his decision to raise marginal tax rates in high earners to 50%.  This is a spiteful populist gesture to appease the left, but it will raise no extra revenue.  Recall that when Margaret Thatcher reduced the top rate of tax from 60% to 40%, revenue went up.  This is the “Laffer Curve” effect which has been repeated over and over again in dozens of countries over decades.  As sure as night follows day, Darling’s tax hike will reduce government revenues, for well-known reasons which I have argued too often to repeat here.
 
What Darling will have achieved is another nail in the coffin of Britain’s reputation as a good place to do business.  The damage will not only be to immediate revenue, but to inward investment as well.
 
So as Boris Johnson was asked last night on the BBC, should Conservatives pledge to reverse the hike?  Boris said NO.  He was right.  We shouldn’t pledge now.  But George Osborne should do it in his first budget.  Right now, we should be sending the markets clear but non-specific signals that we will make Britain a business-friendly, investment-friendly country again.  But a specific pledge to reverse the 50% tax rate would simply be a hostage to fortune which Labour would seek to use against us in the General Election.

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