“…Perhaps I can find new ways to motivate them.” - the force of the tax incentive

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The force is with us.

That is the force of tax incentives it seems:

Chancellor George Osborne met executives from Disney-owned Lucasfilm in London earlier this year to discuss the plans and the production is thought to be eligible for a tax break.

Now let's think a little more about what this means. Yes, folks, you've got it - reducing taxes on businesses increases business investment. So why is it does in this favour-mongering, no longer smoke-filled rooms inhabiting manner? Perhaps it's so the Chancellor of the Exchequer can tweet gleefully of his success or maybe it's just a consequence of the lunacy of over-taxing businesses.

It seems to be that the nation is privileging one sort of investment - making blockbuster feature films - over the totality of business choice and investment option. Are we to offer tax incentives to a company that wants to do something more prosaic, perhaps building a recycling plant or setting up a cleaning company?

I am delighted that the jobs and money from this production are to come to the UK. But let's learn the lesson - cutting business taxes helps investment and job creation - if it's good for Disney it's also good for some South Korean company you've never heard of or indeed for the wholly homegrown business. So cutting those taxes makes sense (and will make it a whole lot less likely that businesses will engage is complicated schemes to reduce liability - but that's another story) and it supported by evidence:

...we find that a higher provincial statutory corporate income tax rate is associated with lower private investment and slower economic growth. Our empirical estimates suggest that a 1 percentage point cut in the corporate tax rate is related to a 0.1–0.2 percentage point increase in the annual growth rate.

So George, rather than doing behind doors deals with favoured businesses, just cut corporation tax some more - perhaps, as some argue, to as low as 10%:

At the same time, he could also announce his intention to reduce it even further – to 15% or even 10% once the appropriate anti-avoidance measures are in place. Such a move would have numerous benefits. For one, it would boost business confidence, encourage new investment by businesses (as it would improve net returns) and would send a strong signal that the Coalition is taking the supply-side measures necessary to restore growth. It would also immediately fulfil the Coalition pledge to “create the most competitive corporate tax regime in the G20”.

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NEF and George's medicine - more evidence-free economics from the masters...

George plans his spending cuts

Now as you know dear readers I am an especial fan of the New Economics Foundation. Their brand of greeny-greeny, evidence-free economics with a twist of Keynesian nonsense, is just what I need to reassure me that my ever so slightly grumpy view of economics is right.

Today – courtesy of New Start – I stumbled across the opinion of this august body of mythic thinkers on the “cuts”.

Andrew Simms, policy director at the New Economics Foundation, said: ‘George Osborne is set to apply the economic equivalent of medieval medicine to the UK economy. Unfortunately bloodletting an already ailing patient is unlikely to improve their progress. To strengthen the economy and make it more resilient and fit for current challenges, we need to invest comprehensively in new low carbon infrastructure. This modern medicine will improve security, create jobs and boost the economy.’

Now leaving aside the image of George Osborne as some form of hedge witch administering a tincture of wood sorrel and elderberry to the ailing British economy, I am struck by the transference implicit in NEF’s argument. For it is the green economists who prescribe medieval remedies for modern ailments – indeed, NEF’s economic ideas has about as much link to the science of economics as homeopathy does to the effective practice of medicine.

After all this is the organisation that thinks we can get by with only working three days a week (I vaguely remember those days – happy ones for an eleven year old but less happy for older folk), who think that jobs aren’t created by enterprise but by the magic of public sector intervention and who persist in misunderstanding the Keynesian multiplier. I could go on to talk about how NEF believe there’s another credit crunch on its way and how Britain should be more like poverty stricken Ecuador. All in all a fine bunch of pseudo-economists (remember this is “new” economics so it can ignore nearly 200 years of evidence, research and study).

When we get to the crunch, NEF are simply a bunch of socialists and peddle the same tired (and disproven) solutions as all the socialists of past times. Despite its low-carbon tinge NEF’s economics is more red than green and its application would represent a huge leap backwards to a protectionist, interfering, over-taxed, over-regulated and producer dominated economy. The sort of economy that nearly ruined Britain in the 1970s. That NEF want investment to be in a “low carbon infrastructure” is irrelevant – this is just repeated the disasters of socialist capital investment led, import substitution strategies.

But then, like Gordon and the Labour Party, NEF have a money tree…

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Sound money, lower taxes...you're getting there George!

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I am feeling quite reassured – partly by Cameron’s speech today (although I didn’t watch it so am just seeing what most of the public will see) and partly by the reaction to Osborne’s Mais Lecture from economists who share my rather bleak view of our current economic condition:

“Mr Osborne is the only senior serving British politician…who has grasped the gravity of our situation. As such his Mais Lecture pledged an “early start” to budget deficit reduction, in order to “establish the credibility with the financial markets that buys you time.” That’s exactly right.” (Liam Halligan)

“Tyler is somewhat reassured by this speech. It is a weightier offering than the kind of politicking stuff George has sometimes served up in the past. It may not have quantified targets for spending cuts, and we still need to see him adopt clear fiscal rules - including that all-important third rule to govern spending - but this speech does have the makings of a serious plan for government (and see the TPA view here).” (Wat Tyler, Burning Our Money)

“I've only just got round to reading George Osborne's Mais lecture of a couple of days ago and it is rather good, one of the clearest expositions of the economic challenges facing Britain you'll come across.” (David Smith, Sunday Times)

Still a way to go – and not much time – but the Conservative economic agenda gets clearer. And coupled with some tax cuts presents the core message to the electorate – we’re on your side:

“The Prime Minister unleashes the forces of hell, I want us to unleash the forces of enterprise…

Our first budget will contain funded measures to boost enterprise and create jobs. We will abolish the tax on new jobs created in new businesses. We will cut the corporation tax rate paid for by removing complex relefis and attract international headquarters to Britain.

We will reduce the small companies tax rate by simplifying the tax code and make it far easier to get a business started.

For I am absolutely passionate about supporting small businesses. Together these will help power an enterprise revolution. A growing private sector, freed from the burdens of red tape and complex taxation, able to offer those without work hope.

A private sector in which our entrepreneurs are given every help they need to build our economic future and create the jobs Britons desperately need.” (George Osborne)

On economic policy we’re there – not everything in place but a clear strategy that faces up to reality. Certainly better than the Viv Nicholson economics of Gordon Brown