The Chancellor’s cynical attempt to embrace populism will backfire
George Osborne’s tax grabs are likely to cost proEU multinationals more than Brexit ever would
Hurt your friends and hug your enemies: George Osborne’s Budget strategy at least had the virtue of originality. Those multinationals and business lobbyists who have been so supportive of the Government’s anti-Brexit campaign must be ruing the day they signed their names on the dotted line, staking their reputations on such a divisive cause. They have been rewarded with a major tax assault by an ungrateful Chancellor, with the UK’s largest firms set to lose heavily from a series of radical changes that will redefine in arbitrary and often incoherent ways how companies are levied. The cost will be at least £9 billion over the next few years, inflicting profound damage on Britain’s competitiveness.
By contrast, smaller firms, many of which are deeply Eurosceptic, will broadly be better off, which of course is good news. Hundreds of thousands of smaller businesses will be taken out of business rates, and entrepreneurs and the self-employed will be taxed less. While big companies such as Coca-Cola or PepsiCo will be hammered by an exorbitant new tax on soft drinks, small manufacturers will explicitly be exempt; while Amazon will pay more, small retailers will pay less.
In part, the Chancellor is implicitly apologising to Britain’s entrepreneurs for burdening them with a much higher minimum wage, oodles of extra labour market regulation, a higher dividend tax and the pension auto-enrolment system; but he is also deliberately going out of his way to show that he wants to hurt these multinationals. When Ed Miliband infamously distinguished between supposedly “predatory” and “productive” businesses, he was rightly ridiculed by the Tories; it is, therefore, a matter of immense regret that Mr Osborne has embraced his own version of this fallacy.
So what is the Chancellor’s game? Why bother cutting corporation tax if it is now gradually being clawed back in other ways? Why is he hitting the banks and insurers again? Why is he quietly stripping away the historic principle that exempts companies from paying corporation tax on debt interest payments and on past losses, a huge, retrospective change slipped in almost by stealth? Why is he launching a major assault on property developers and now also institutional investors, just when he needs their help to build more homes for sale and rent? Does he not see that all of this will damage the economy, inject the very uncertainty that he claims to be fighting against, and discourage investment and job-creation?
The reason why it is so hard to detect a coherent vision in all of this is that none exists: the purpose, instead, is to address two related short-term problems. The first, of course, are the public finances; these are deteriorating thanks to Mr Osborne’s earlier imprudence and lower economic growth. The Chancellor is not only going to borrow much more over the next few years, he has also failed to cut the national debt as a share of GDP in 2014-15 and is set to breach his welfare cap every single year. So he has targeted big business, a sector with few friends, to raise the cash he needs so he can claim, implausibly, that he will still balance his books by 2019-20. Big firms are allergic to Jeremy Corbyn, are terrified of Ukip and have made a pact on Europe with the Chancellor. They are, therefore, stuck with Mr Osborne, who is making the most of his monopolistic position.
The second short-term problem is the Brexit referendum. The Chancellor is seeking to both tap into and neutralise the rise in populist sentiment, an international phenomenon which he worries will give the Out side a dramatic boost. By aligning himself with the big-business bashers, he hopes to show that he is “standing up for the little guy”, as Mr Miliband also tried to do last year. The idea, presumably, is that this will make it harder for Eurosceptics to portray the Remain camp as establishment stooges. But it won’t work, and could actually backfire on Mr Osborne: if big business is so bad, why listen to its proEU views?
Yet the Brexit vote is also why he is also doing so much to help savers: they are another restless group. Mr Osborne is well aware of the demographics of populist, middle-class insurrections: the Poujadiste movement in France was made up of angry shopkeepers, and Donald Trump voters in the US are angry, working- and middle-class folk who believe that they have been let down by political and corporate elites. By hitting out at big business, while freezing petrol and alcohol duties, he is trying to move on from his unpopular recent tax deal with Google, jumping on to the global bandwagon ahead of the referendum. It’s nothing like as bad as Trumponomics – but there are certainly parallels.
Mr Osborne’s attempts at selfpreservation, though, will come with a hefty price tag for the British economy, with the tax system becoming even more complex and difficult to understand. Take capital gains tax: the levy is being cut, which is good, but not for residential property or for private equity partners’ carried interest. Some gains are thus deemed to be more “deserving” than others: for a supposed liberal, the Chancellor is becoming just as judgmental as Gordon Brown, who was equally keen on complexity and micro-management.
We saw this time and again: Mr Osborne is taxing buy-to-let owners – one kind of property investor – more heavily, while creating a special loophole for AirBnB users, who rent out rooms and thus also derive income from property. He is relaxed about those who wolf down Creme Eggs or live off hamburgers, but angry at those who have the temerity to enjoy the odd glass of lemonade, unless of course it was produced by a tiny start-up.
Perhaps that particular inconsistency will eventually be remedied by further taxes: if I were a restaurant business, or food producer, I would be thinking twice about investing too much in this country. The Chancellor is desperate to portray Brexit as a political shock that would chase capital out of the UK. Yet his own tax grabs are likely to cost pro-EU multinationals – along with many of their staff and customers – more than his improbable worst-case Brexit scenario ever would. It is the great paradox of this unfortunate Budget.