Britain should CUT not raise taxes after Brexit

After Osborne threatens harsh budget, experts say...

THE last senior politician foolish enough to ‘preannounce’ that there would be income tax increases in a future Budget was the late Labour shadow Chancellor John Smith ahead of the 1992 election. It paved the way for a dramatic victory for John Major and the Tories.

As a reputedly clever student of political history, one might have thought the current Chancellor George Osborne would have known much better than to repeat such a disastrous mistake.

It is a measure of the desperation of the Remain camp, however, that Osborne felt the need to announce his plans for a post-Brexit Budget designed to fill what he claims would be a £30bn black hole in the public finances.

Out of the window went Tory manifesto promises to leave the three biggest tax areas – income tax, national insurance and VAT – untouched. Instead, Osborne – flanked by his predecessor at No 11, Alistair Darling, who left behind the biggest budget deficit in British fiscal history – unveiled a list of tax increases totally at variance of the Tory values he has espoused in all of his Budgets.

He was either telling untruths then, or he is now.

Throughout the referendum campaign the Chancellor’s support for Remain has been bolstered by the dramatic warnings of financial and economic disruption from the major forecasting and policy institutions.

The view that Leave could disrupt Britain’s strong growth has been reinforced by the Bank of England.

The latest minutes from the Bank’s interest rate setting Monetary Policy Committee warn that it is ‘increasingly likely’ that sterling will fall after a Brexit vote and perhaps sharply. They even go as far as to suggest that there is a risk of ‘adverse spillovers to the global economy’.

Critics of the Bank are certain to see this as an indication that the Governor Mark Carney has exceeded his mandate. The truth is it is the Bank’s job to monitor market stability and the impact of a falling currency on inflation.

More problematic is the timing of the International Monetary Fund’s full report on its May inspection of the UK economy, which will be published shortly. Its lengthy analysis is likely to show that there are large risks relating to the referendum.

Managing director Christine Lagarde, who is close to Osborne, is unlikely to win any friends for bringing the report to the IMF’s executive board a week before the vote.

However, unlike the Chancellor, the Fund will not be calling for an austerity Budget. It is in fact likely to argue that in any downturn potentially caused by Brexit, the UK has the room to ease budgetary policy further if that becomes necessary. That could mean tax cuts rather than tax rises.

It is very hard to imagine that the IMF would endorse Osborne’s list of emergency Budget proposals including a rise in the basic rate of income tax by 2p in the pound, a 3p surcharge for higher rate taxpayers, higher inheritance taxes, and a hike in petrol and alcohol duties.

And if that wasn’t enough pain to announce on one day, the public spending he previously pledged to ring-fence, such as the NHS, would have to be slashed. Economists have lined up to dismiss Osborne’s threat of more austerity.

‘Tax increases or spending cuts would be entirely the wrong response to a Brexit shock,’ said Jonathan Portes, principal research fellow at the National Institute of Economic and Social Research.

Vicky Redwood, chief UK economist at Capital Economics, said: ‘Warnings from the Remain camp that the Government would ramp up austerity immediately in a post-Brexit emergency Budget do not look very plausible. It is more likely that the Government would support the economy by loosening fiscal policy.’

DAVID Cameron and his Chancellor may be fighting for their political lives with polls heading remorselessly towards Brexit, but this package not only represents the economics of the madhouse, it would be a monumental betrayal of the voters who put them in Downing Street and kept them there.

If Osborne really believes that a Leave vote would cause the UK economy to slowdown then the last thing it would need is the sledgehammer of austerity that he is now proposing.

One only has to look across the Channel to the eurozone to recognise that such policies, directed by Brussels and Frankfurt, have delivered stagnation, falling living standards and mass unemployment across Europe. Even the exacting IMF doesn’t favour such policies any longer and is urging Germany to lift the boot of austerity off the throat of Greece.

The great irony is that at the very moment Osborne was irresponsibly forewarning us of catastrophe, he should have been proclaiming the success of his economic policies from the rooftops.

The latest figures show that unemployment over the three months to the end of April fell to 5pc of the workforce – which is less than half the 10.2pc rate across the eurozone. Meanwhile, the number of people on the dole in May also fell, showing that the UK economy is still going strong.

Indeed, the most recent clutch of economic statistics have all shown improvements, despite the dispiriting forecasts from the Treasury, the IMF and the Paris- based OECD that reel off the tongues of Remain supporters.

Among the reasons that Osborne established the Office for Budget Responsibility (OBR) in 2010 was to try to take fiscal decisions out of politics. The proper post-Brexit process would be for the OBR to make an assessment of the economic conditions and then follow this up with a calm and measured process to achieve its goal.

The Bank of England has already said it stands ready to calm uncertainty on the financial markets so as to absorb any shocks after polling on June 23. Among other things, the Bank is ready to inject emergency loans into the financial system and if necessary do more quantitative easing, or printing of money.

The point is that, after any financial shock, the economy needs help, not the higher taxes which would immediately crush demand.

We should forget Osborne’s histrionics. To adopt the words of a previous Chancellor, Jim Callaghan, the correct response to current events would be: ‘Crisis, what crisis?’