Being chancellor of the exchequer or finance minister must be one of the worst jobs around. It does not matter who is in office — you only get a toolbox full of hammers. And mostly sledgehammers at that.
In trying to manage economic policy, the chancellor finds it difficult to be surgical in the application of measures because there will always be collateral damage to those not intended as the target.
Take the increase in fuel duty. This has a disproportionate effect on people who have to use motor vehicles as opposed to those who choose to, for example in rural areas or where public transport is poor.
The same is the case for VAT rises. Agreed, there is a case for increasing VAT as opposed to income tax, as it taxes spending. But VAT is taken into account when calculating inflation. We now have the debate on whether to raise interest rates to combat inflation from increased fuel costs, mainly due to duty and the extra VAT.
So the governor of the Bank of England has to write to the chancellor apologising that the bank is losing control of inflation and might have to increase interest rates in an attempt to head off inflation caused by the chancellor…
Taking that money out of the economy means we will spend less, so we will head back into recession with tax revenue falling, unemployment increasing. Rather than reducing the deficit, it will get worse.
Anybody running a business knows how keen the Inland Revenue is to get it hands on the tax and NI due each month. A day late and the sledgehammer swings into action. Unless you happen to be a football club, when it seems perfectly acceptable to owe the Revenue millions at any time.
While politicians are very happy to have a crack at bankers and business leaders, I have yet to hear a single one criticise the laxity of some clubs in paying their taxes, or the ludicrous earnings of some footballers.
There are many reasons why, of course, the fine surgery cannot happen. In the case of bankers, it is to ensure that we don’t drive the financial services business out of the UK, and in the case of footballers, because it loses votes.
Instead, the rest of us await the next swing of the chancellor’s sledgehammer in March’s Budget.
If he’s not careful, what fragile recovery there is could be destroyed.
