Rising world oil prices, but Osborne is making same mistakes of 1979 – Ed’s column in Tribune

The turmoil and revolutions we’ve seen in the Middle East and North Africa will have profound consequences – for democracy and millions of citizens in that region, but also for living standards and growth here in Britain and across the world.

We’ve been here before. The two global recessions in the 1970s were both linked to the supply and cost of oil from that region which the whole world is dependent on. The 1973-75 recession followed the collapse of the OPEC deal which saw a big rise in oil prices. And in 1979 it was the revolution in Iran and the deposing of the Shah which forced up world oil prices, with petrol hitting £1 a gallon.

Both times global downturns hit Britain hard. But in 1979 things here were made much worse by the austerity budgets of the incoming Thatcher government – near-doubling VAT, cutting spending and forcing up mortgage rates.

Sound familiar? I fear George Osborne may be making the same mistakes all over again.

He has chosen this very moment of rising oil prices and world commodity prices to hike up VAT. It’s the wrong tax at the wrong time – taking £13 billion out of the economy just when growth has stalled and unemployment is rising.

The result is that families on low and middle incomes face a real cost of living crisis over the coming years – as Ed Miliband set out earlier this week. Families are being badly squeezed by this Conservative-led government’s hit on living standards through cuts to public services, cuts to tax credits and higher taxes like the VAT rise, with the threat of higher mortgage rates on the horizon.

And to make matters worse, at a time when oil prices are already rising, George Osborne’s VAT hike has added nearly 3p to the cost of a litre of petrol – hitting millions of families and businesses which are already facing the squeeze.

Of course over the longer term we need to encourage greater use of public transport and fuel efficient cars. But with the price of a litre of petrol this week reaching £1.30 George Osborne needs to take immediate action to help hard-pressed families.

That’s why I’m calling on George Osborne to take immediate action on the cost of fuel.

First, he should immediately reverse the VAT rise on fuel. This can be paid for with the extra £800m the Treasury is receiving from the bank levy – compared to what it was expecting at the last Budget.

Second, in the Budget George Osborne should also look again at the annual fuel duty rise due in April. The last Labour government often postponed planned duty increases when world oil prices were on the up – as they are now.

Third, at a time of instability and change in the Middle East and North Africa, George Osborne must work with other finance ministers across the world to make sure the supply of oil keeps flowing and get world oil prices down – now and for the longer-term.

And finally, the Chancellor needs to come up with a plan to get our stalled economy moving again and get more people into work paying taxes and making a contribution. That’s the best way to get the deficit down.

At the moment it seems George Osborne is still in denial about the state of the economy and the tough times families are facing this year. He popped up in The Guardian this week to repeat the usual Tory myths about what caused the global recession. But he had nothing to say about the state of the economy he is presiding over today – almost a year since he abandoned Labour’s plan to halve the deficit over four years in favour of an extreme fiscal tightening.

We now have the worst of all worlds – a stalled economy, consumer confidence collapsing, rising unemployment and rising inflation. But the Chancellor has no plan other than to carry on regardless with cuts that are too deep and too fast and aren’t working.

He’s got two weeks to come up with a plan B for the Budget – a plan that puts jobs and growth first, gets our economy growing strongly again and eases the pressure on millions of families feeling the squeeze. Don’t hold your breath.

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Posted March 4th, 2011 by Ed's team

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