Introduction:
The annual UK Budget Speech is pure political theatre, it can be funny at times, and it gives the chancellor a chance in the limelight. But for the real details, those of us geeks have to wait traditionally for the chancellor to sit down and the civil servants to press the buttons to send a wad of documents. That is the fun. In the old days, pre the Internet, all national newspapers would have teams of messengers and couriers waiting outside the Treasury door to grab hold of their copies of the various documents as soon as the speech ends. This year was slightly different, some of the content – most of the content – was really meaningful and, if only this government could be humble for the time it takes to read the speech, there may be a few lessons they could learn from it.
Lessons:
The part of the speech that appealed to lots of Caribbean people, in particular the press and politicians, was the reduction in the Air Passenger Duty – imposed by Labour and removed by a Tory-led Coalition. After the announcement some Caribbean politicians and tourism industry officials started behaving like wild animals as if their stagnating economies will suddenly burst in to unexpected life by the changes. In fact a saving of an average £60 per person on a flight will hardly convince would-be travellers one way or the other. What really is extortionate about flights from Britain to the Caribbean, and is little discussed, is the cost of airline tickets, with Virgin and BA operating an unofficial duopoly.
But then again if our politicians and business people cannot even get LIAT right, then how can they run commercial, money-making flights from Europe. Remember Air Jamaica and BWIA? In under an hour, Mr Osborne, a Tory chancellor in a right-leaning Coalition government gave a Budget that neither the Blair or Brown governments could even dream about. And it was a masterclass for Chris Sinckler and the other visionless, incompetent finance ministers in the English-speaking Caribbean.
Mr Osborne was on fire with what he boastfully called a ‘Budget for building a resilient economy.’ Sticking to his deficit reduction strategy, even if most macro-economists do not fully agree with him, he has managed to reduce spending by a third, this year it will fall to half and by 2018 the Budget will be in surplus. (According to the last figures, Britain had a debt to GDP ratio of 88.7 per cent). Ignoring the fluff about tax-free childcare, it was the radical policies he introduced on savings and pensions that will secure his place in political history.
On savings, he removed the barrier between cash and stocks and shares individual savings accounts, making them a single savings vehicle, and extended the annual limit to £15000 per person aged over 18. In the 15 years since we have had tax-free ISAs, Britons have accumulated over £400bn in their Isa accounts, the most successful savings vehicle since the end of the Second World War. Mr Osborne, in a radical departure from all post-war chancellors, has liberated pensions allowing savers to control their money, rather than having the nanny state do it for them. He has signalled the death knell for annuities, again something many people have been saying for ages; why should an annuitant who sadly dies shortly after buying an annuity have his savings grabbed by insurance companies. And, in a jurisdiction like Barbados which I honestly believe has some of the most fraudulent and badly supervised and regulated insurance companies, anyone buying an annuity from some of these companies is either putting hope over experience or simply silly. In effect, Mr Osborne has marked the beginning of the end of traditional insurance companies with their opaque actuarial assumptions and poor risk management.
It is a policy that is another masterclass in freeing up huge amounts of cash which can be invested in the real economy by ordinary households. Of course, there is a moral hazard: some people may spend their money too quickly and carelessly, and others may live much longer than they imagined, thereby becoming a burden on the state. But this can be hedged by good financial education, even given the superlative education that Barbadians enjoy in everything, and the introduction of new restrictions on such long-term savings, such as stipulated entry points: births, marriages, university fees, home ownership and deaths.
These, I humbly suggest, are ideas that even Chris Sinckler can steal and some which would do the Barbados economy no end of good. First, it will return savings to households, it will add further liquidity to the economy, providing funding for would-be homeowners and small and medium enterprises in light of the reluctance of the foreign-owned banks to lend. More than that, by introducing legislation making it compulsory for savers to hold their savings exclusively in a state-owned or approved post office bank (or in one modelled on a cooperative or mutual bank), the government would, at a stroke, marginalise those Canadian, Trinidadian and American-owned banks that are simply milking ordinary Barbadians. Chancellor Osborne has also introduced new restrictions on the right of corporate bodies to buy residential homes; again something many of us have been calling for ages in order to control the foreign invasion on the West Coast, buying up greatly over-priced luxury homes through bogus companies, subsidised by Barbadian taxpayers. If a British Tory chancellor, a very rightwing one at that, can introduce such measures, then why cannot a social democratic DLP Barbadian finance minister?
Mr Osborne also introduced new legislation for a new Garden City on the Thames river bank in Kent, setting aside an initial £200m to provide at least 150000 new homes for aspiring young men and women. Mr Osborne is using existing planning legislation to create an Urban Development Corporation to oversee the development. I have been calling for sometime for a rejuvenation of the slum dwellings right in the heart of our City, something that Sir Grantley Adams realised in the 1950 when the Pine Housing area and Grazettes were built to rehouse the drifters who had settled the putrid alleys and gutters of Bridgetown. The only real difference then and now is that the people who now run our nation claim that we are First World while Sir Grantley was more real. Mr Osborne has set aside a further £500m builders’ finance fund for further building and there is no real reason why Mr Sinckler could not do the same, on a much smaller level, which could be used to fund small and medium contractors (bypassing the big boys) in a massive urban renewal scheme. But Mr Osborne went much further than such infrastructural developments, however necessary, to rekindle manufacturing, stimulate the export market and encourage employers to invest in training and modern machinery. The whisky industry was also given a leg up, something that this government could do to the Barbadian/Bajan rum industry, only a lot more. We need a legal definition of Barbadian/Bajan rum, to comply with World Trade Organisation rules; we need to train more young distillers; we need new rum manufacturing businesses; and, most of all, we new a new hypothecated levy on the sector to spend on global marketing. Of course, it was not the perfect Budget, with Mr Osborne wrongly removing the automatic escalator for alcohol duty. Sin taxes should only go up.
Analysis and Conclusion:
In his radical transformation of the pension landscape, George Osborne has hit on an idea, which if adopted in Barbados, will return a lot of money to the tax authorities. It is comparable in scope, if not more so, as the Singapore’s Central Provident Fund. But his attack on the legalised fraud of millionaires buying residential properties under the umbrella of offshore companies, subsidised, of course, by the poor Barbadian taxpayers, is another lesson for Chris Sinckler. The other radical development is the imposition of higher taxes on homes left empty for most of the year, or are occupied by ‘friend’ of the owners. Again it is an idea we should look at. There is no doubt that Mr Osborne’s Budget was political and meant to appeal to Tory voters – more pensioners vote than young people – and would-be Ukip supporters, but it also appealed to many of those not of a Tory persuasion. Nevertheless, it is dynamic and one that would provide the necessary growth and prosperity that governments are meant to provide for their people. Here is Britain, a nation that suffered more than most from the 2007/8 global banking crisis and spent more on rescuing its banks, six years later it is still positive in outlook and dynamic in execution – and this from a rightwing Tory Chancellor in a right-leaning Coalition government. By being more radical, more adventurous, more open to new ideas, this DLP government is in a position to transform Barbados in a similar way in to the little Switzerland of the Caribbean. That it resembles more little Botswana than Switzerland is because of the short-sightedness of the people who have led us since constitutional independence.
Chris Sinckler, Freundel Stuart and the DLP Government have reached a fork in the road: they can remain stubborn and largely ignorant and inflict further economic punishment on the people of Barbados, or they can learn from other governments and economies and designed a rescue package that is fit for Barbados. The decision is theirs.
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