Chancellor taught a lesson

Chancellor Jeremy Hunt shares his surname with several people I know, but he is the only one whose name is often mispronounced in public, hilariously if somewhat rudely.

That will soon give rise, if it hasn’t already, to new rhyming Cockney coinages, such as “he’s a big fat Jeremy” and “don’t be such a Jeremy”. It’s only at that level of public discourse that his economics may make sense.

The Chancellor is obviously in need of a remedial course, and he ought to be thankful to AstraZeneca for having provided it. That company, the second biggest on the FTSE 100 list, has announced it’s building a £330 million factory in Ireland.

The company originally planned to build it in England, which seemed to make sense considering it’s based in Cambridge. But then the AZ brass got their trusted calculators out and did some arithmetic.

In Ireland, the corporate tax rate is 15 per cent. In the EU it’s 19 per cent on average, which it currently is in England. But Mr Hunt is raising it to 25 per cent in April, at the same time putting an end to a tax relief scheme.

AZ head, Sir Pascal Soriot, cited that disparity as the reason for changing his original plans, much as he’d love to build that facility in England. But that blasted calculator won’t let him.

Sir Pascal then called for a cut in corporate taxes and other levies stunting growth in the UK. That call has gone unheeded.

Mr Hunt said he was “disappointed that we lost out this time and we agree with the fundamental case they’re making which is that we need our business taxation to be more competitive and we want to bring business taxes down.”

Splendid. So what’s keeping you? Oh well, you see, “the only tax cuts we won’t consider are ones that are funded by borrowing because they’re not a real tax cut. They’re just passing on the bill to future generations.”

That worthy belief hasn’t prevented successive governments, including this one, from running up a public debt approaching £2.5 trillion. That’s a hefty bill for future generations to pick up, isn’t it?

But at least that belief isn’t wrong. What is tragically wrong is the Chancellor’s evident conviction that borrowing is the only way to fund a tax cut. That conviction is unsound for two reasons.

First, lower corporate taxes stimulate investment and therefore growth. If Mr Hunt doesn’t believe that, he should ask Sir Pascal. And then he should get his own calculator and count the amount of tax revenue the Exchequer has lost – and will continue to lose for years – from this one fiasco.

Then he should multiply that number by however many counterparts of Sir Pascal are, or will be, making a similar decision. Done? Suddenly a teeny-weeny doubt about the advisability of high tax rates is beginning to creep in, isn’t it?

This is the kind of arithmetic that enabled Arthur Laffer to construct his famous curve, showing that lower tax rates produce higher tax revenue. But they don’t, as Reagan’s OMB head David Stockman found out. Not by themselves.

Parallel cuts in public spending are also essential. Yet that option isn’t even on our spivocrats’ table.

They bemoan two extraordinary developments, Covid and the war in the Ukraine, as force majeure precluding such cuts, much as they would dearly love to make them. A fair point, that.

Desperate times call for dangerous measures, to cite Guy Fawkes’s explanation of why he wanted to blow up the Houses of Parliament. And measures like high taxes and runaway borrowing are very dangerous indeed.

Yet our times may be legitimately considered desperate enough to justify such temporary aberrations, temporary being the operative word. Hence HMG used Covid as a sufficient reason to shut down the whole economy, or as near as damn.

Add to this the billions, 2.5 of them so far and climbing, in aid to the Ukraine and exactly the same amount in fines being extorted from the UK by the EU, and yes, the strain on the Exchequer is unusually great. Sacrifices have to be made, with higher taxes and spending the most obvious ones.

But they aren’t the only possible ones. For the cost of Covid, the war, and the EU fine, is pocket change compared to the trillions the government’s commitment to net zero will cost, is already costing.

So, if we can’t afford cutting taxes and public spending, which would be sound economics, how come we can afford to spend infinitely more on going along with an ideologically inspired fraud? Are these times desperate or aren’t they?

The questions are rhetorical, but I’ll answer them anyway. Lower taxes and public spending reduce the power of the state over the individual, while ruinous eco-posturing has the opposite effect. And all modern politicians, regardless of their self-identification or party affiliation, pursue power not only above all else, but also to the exclusion of all else.

That’s why the Chancellor is being such a Jeremy (sorry, couldn’t resist). If pursuing his inner imperative involves beggaring the country by a combination of economic incompetence and extortionate virtue-signalling, he is game.

Why should Mr Hunt go against the raison d’être of his profession? Why indeed. Still, AstraZeneca should charge him for that lesson in economics for people with learning difficulties.