8 Oct 2012

Downbeat speech from a resolute chancellor

It was a downbeat speech where George Osborne recast himself as the sensible middle man between Labour profligacy and the fiscal headcases arguing for much faster spending cuts.

He strongly defended the scrapping of the 50p rate. He may feel a little exposed on this, because whatever the rights and wrongs of that move, it has undoubtedly opened up all manner of attacks after his problematic Budget 2012.
That said, this chancellor is mired in more red ink, anticipating yet more tough fiscal decisions in eight weeks’ time. Indeed the chutzpah-loving Labour Party even decided to release a deficit clock to coincide with Mr Osborne’s speech.

But there was little indication or advance admission about two likely missed fiscal targets. Nor was there any suggestion of an about-turn towards an investment stimulus. Clearly much will depend on how well funding for lending, and other existing economic boosts help the economy out of recession.

I have not now got a text, but I did not hear him mention the AAA rating, which formed the centrepiece of his economic case at previous landmark speeches.

Perhaps losing this rating from at least one agency is now the expectation in our flat economy.

There were two small surprises from the chancellor’s speech. An announcement of a special new zero capital gains tax arrangement for employee shareholders, and a new preferential tax treatment for investment in shale gas.

The former is part of a “deal” between employers, employees and the taxman, says Mr Osborne, to reflect the Beecroft-esque agenda to slash employment relations red tape. The deal would be a voluntary “rights for shares” to waive rights for unfair dismissal and redundancy, in return for a tax efficient stake in the company. It is a novel proposal. It is also relatively novel for shares in start-ups to be worth much.

On shale gas, the chancellor is looking to the US, which has quietly become a net gas exporter on the back of massive shale gas finds. We in the UK have our own nascent industry, and the chancellor wants to encourage it with tax breaks. There are, however, many sceptics that Britain’s geology is appropriate for this development.

Lastly, the earmarking of £35m of Barclay’s FSA Libor fine for injured soldiers would have stretched credulity in the Treasury. The chancellor did move quickly to seize the fine, which under the previous system would have been used to lower the FSA fees to other bankers. But suggesting that the £35m comes from the £59.5m Barclays’ fine is a rather untested new form of hypothecation.

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