‘The British economy is healing,” UK chancellor, George Osborne confidently asserted this week, but without offering much evidence to sustain his claim, or to relieve the pain of the British public. The healing process will take far longer than Mr Osborne first anticipated in 2010. Then he forecast five years of austerity before Britain’s public finances would be back in balance. This week he again extended his austerity deadline – this time to eight years. Fitch, a credit rating agency, concerned by this apparent loss of fiscal discipline, has placed Britain’s triple A credit status under threat of a downgrade.
Mr Osborne in presenting his autumn statement, a mini-budget of sorts, opted to take more time to resolve the budget deficit and debt problem – in preference to keeping his fiscal plan on schedule by tax hikes and spending cuts. Britain’s national debt is expected to peak at some 80 per cent of national income in 2016, much lower than Ireland’s likely debt ratio at the time.
Mr Osborne’s approach in other respects was not dissimilar to some decisions the Government took in the budget. Mr Noonan and Mr Osborne both favoured reducing pension tax relief for those on higher incomes. The latter announced a sharp reduction in the UK’s rate of corporation tax – down to 21 per cent in 2014 from 24 per cent now – the lowest rate of any major western economy. That would intensify competition for foreign direct investment between Ireland, with its 12.5 per cent rate, and the UK. The increased British challenge for jobs helps explain the Government’s reluctance to raise the universal social charge (USC) for high earners in the budget. Mr Noonan readily acknowledged that a high marginal income tax rate could discourage multinational companies and their key executives from locating here. Ireland is heavily reliant on export-led growth for economic recovery. But the sluggish state of the British economy and the poor medium-term growth prospects that Mr Osborne has outlined, are not reassuring.