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Has George Osborne presided over one of the largest tax cuts in British history?

By Tim Montgomerie
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I've given the Chancellor a bit of a tough time recently - eg here - but let's finish today with some good news.

The BBC has today, cautiously, acknowledged that the Chancellor is on course to to fulfil his promise to cut borrowing: "The latest data takes total borrowing in the year since April to £68.3bn, which is still in sight of the government's target of £122bn for the full financial year." The headline is qualified but The Guardian agrees: Osborne is on course to hit the Coalition's deficit target... "but good news may not last".

Serious measures next week to increase the competitiveness of the UK economy should mean that the good news can last. We can see economic paralysis in the USA and Europe as challenges but we should also see our competitors' weakness as opportunities - opportunities to attract investors to a country which is capable of taking the right decisions on the macro and microeconomy. If Britain keeps meeting our deficit targets we should retain international confidence and therefore low interest rates. The CBI has said low interest rates are the single best thing that government can give industry. They also mean that the UK government's interest payments will be much, much lower. As I argued in last week's Guardian: "You could argue that the deficit reduction strategy amounts to the biggest tax cut in history." One of the biggest, anyhow. I continued:

"Because Britain will save £16.5bn in lower interest payments over the next five years, tomorrow's taxpayers will be paying less fuel duty, less VAT and less national insurance. Extra money will now stay in Britain for our schools and hospitals; it won't be going to into the vaults of Chinese banks or to Britain's other foreign creditors."

Nonetheless, my fear is that Osborne is strong where Thatcher was weak. Thatcher got macroeconomic policy wrong by overdoing the monetary squeeze. She was rescued by inspired supply-side reform. Osborne is getting macroeconomic policy right but is almost cowardly on supply-side issues like deregulation. The consequent lack of competitiveness may yet undermine his deficit strategy. But he has an opportunity to put things right in next week's autumn statement and that is why next week is quite so important. If he dallies much longer slow-burn supply-side measures won't be making a difference until after the next election.


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