Why Britain is Doomed

News from Britain day by day confirms Peter Hitchens' assertion that the Conservative Party under David Cameron is just a continuation of New Labor under Blair/Brown and that real conservatives in Britain have no mainstream political option.

This past Thursday, the Daily Telegraph has an item which illustrates perfectly how bad this government is. Whether its greatest failing is its false ideology, its economic ineptitude or its lack of courage is difficult to decide. (HT American Thinker Blog)

George Osborne was applauded for his political acuity after the March Budget, when he imposed an unexpected windfall tax on energy, pushing up the production levy paid by North Sea oil and gas companies from 20 to 32 per cent. The £1.8 billion proceeds were earmarked to reduce fuel duty, so heading off the threat of a "summer of discontent" by hauliers and motorists. As we observed at the time, no Chancellor ever courted unpopularity by putting a squeeze on oil companies to help the motorist.

The measure does not seem quite so shrewd now. Centrica has decided to leave idle the UK's biggest gas field, South Morecambe, because the tax rise means extraction is simply not worth its while. You can see the firm's point. When other energy taxes are taken into account, the Budget increase lifted the total tax rate for the South Morecambe field from 75 per cent to 81 per cent. Centrica is better off leaving the gas beneath the sea and waiting for the price to rise, so that production once again becomes profitable.

The Chancellor cannot say he was not alerted to this development. A month ago John Cridland, the CBI's director-general, wrote to him warning that the tax rise had created fiscal uncertainty not only in the oil and gas sector, but right across the industry's infrastructure supply chain. He called for stable tax rates and greater consultation. In this business more than most, predictability is everything. The Treasury was unreceptive.

Aside from being a political problem for the Chancellor, this is an object lesson in the way tax rises can prove economically harmful. While South Morecambe is not producing, it is delivering no tax revenues; meanwhile, the shortfall will be filled by imported gas. So the tax take goes down and the cost to the consumer goes up: not a happy combination.

Let us think about what happened here for a few moments. Based on this example, is the government's greatest failing: (a) bad ideology, (b) economic incompetence or (c) lack of courage.

First, George Osborne seems to be in agreement with the widespread socialist opinion that it is impossible to tax large corporations too much. This idea is based on the belief that the big corporations have tons of money just lying around that they don't know what to do with and so it is there for the taking. This naive idea is ridiculous, but it is widespread. [BAD IDEOLOGY]

Second, the idea of taxing oil and gas companies and using the revenues to lower gas taxes on consumers is transparently a shell game. It is just moving taxes from the consumer (end user) to the producer. But how do producers stay in business? Why, they pass on costs (including higher government taxes) to - who else? - consumers. So the relief for consumers would be very short-lived. But the government is engaging here in very short term thinking; the clue in the article is the concern for the summer driving season. The government fears consumer outrage this summer. (By the way, gasoline is already the equivalent of more than $9.00 US per gallon, which is more than twice the price in the US and Canada.) This is a gambit to get to the Fall; that is how far ahead the government is thinking. [LACK OF COURAGE]

Third, note that there was no consultation with industry representatives. Socialists always think the big companies are lying all the time about profitability so they don't see any point in talking or negotiating ahead of time. Just spring it on them before they have a chance to appeal to a bunch of inconvenient facts that might suggest this is not a good idea. [BAD IDEOLOGY]

Fourth, this is a perfect example of how raising taxes can reduce government revenues. There is a reason why conservatives are against raising taxes all the time and it is not - as the socialist think - because they want rich people to keep all their profits. It is because lower taxes make more economic activity profitable and that leads to more economic activity and lower unemployment, higher tax revenue and lower government expenditure on unemployment insurance and welfare. [ECONOMIC INCOMPETENCE]

Fifth, it is almost unbelievable that this action was taken by a Conservative government. If this is the conservative alternative to the socialists in the Labour Party, then Britain is utterly and completely doomed. There is simply no viable political alternative to economic collapse.

Conclusion: Is the problem bad ideology, economic incompetence or lack of political courage? The right answer is ALL OF THE ABOVE.