Osborne Boom

The Osborne Boom was the macroeconomic conditions prevailing in the United Kingdom at the end of the 2010s, which became associated with the policies of David Cameron's Chancellor of the Exchequer, George Osborne.

The term Osborne Boom was used by analogy with the phrase "The Barber Boom", an earlier period of rapid expansion under the tenure as chancellor of Anthony Barber in the Conservative government of Edward Heath, and the "Lawson Boom" of Nigel Lawson under Margaret Thatcher's Conservative government.



The boom in question is largely considered to have originated from the tax cuts introduced by George Osborne in the July 2015 budget, which was largely a response to the slow recovery that the UK economy had been experiencing at the time. Despite the strong pound (which traded at a peak of $1.92 and €1.58 on 10 May 2015), Osborne and many economists feared that this, combined with very low inflation, which stood at just 0.1% in 2015, could result in another recession. As such, Osborne moved to cut taxes in the hopes of stimulating consumer spending and investment. The budget cut the rate of corporation tax from 19% to 15%, the basic rate of income tax from 20% to 15%, abolished inheritance tax and simplified capital gains tax to a flat rate of 15%. In the days immediately following the budget, Osborne's approval rating as Chancellor jumped from -6% to +11%. Addressing concerns that the cuts would increase the deficit and thus necessitate more cuts to public services, Osborne asserted that they would "essentially pay for themselves" through increases in investment and spending.

Throughout 2016, 2017 and 2018, economic growth increased dramatically, from just under 2% in 2014, to above 4% by 2018, eventually reaching a peak of 4.3% in 2019 (the fastest rate since 1988), making the UK the fastest-growing economy in the G7 and one of the fastest-growing economies in the European Union. Real incomes also rose rapidly, with the increase from 2016 to 2017 being a record 7.3%. Tax revenue as a portion of GDP also fell from around 32% in 2015 to 29% in 2019, the lowest level since 1993. By 2018, Osborne's personal approval rating was at a record high of +29%. On top of this, unemployment fell considerably: having remained stagnant at around 7% from 2011 through to 2016, the unemployment rate dramatically fell to less than 4% by 2019. The tax cuts were continued by the Chancellorship of Philip Hammond under Osborne's own government, when the top rate of income tax was abolished, and basic rate personal allowance to £12,700, with plans to raise it to £15,000 by the end of 2023.

At the same time, the Bank of England extended its quantitative easing programme as part of an effort to avoid deflation, with the total value of all bonds purchased by the Bank reaching £649bn by 2016.

However, this was also accompanied by a rapid increase in inflation, from a low of -0.2% in early 2014, to 4.2% by mid-2018, the fastest inflation since 1992. The pound's value also fell substantially as a consequence, to just $1.68 and €1.41 in 2018, although it recovered to $1.83 and €1.51 in May 2019 after the defeat of Labour leader Jeremy Corbyn in the general election. In response, The Economist issued an article critical of Osborne and the Bank of England, asserting that "neither the speed nor scale of the inflation was in any part expected by the Chancellor or the Governor [of the Bank of England]". In response, the Bank of England raised interest rates rapidly, reaching 1.5% in Dec 2019, the highest rate since the 2008 financial crash.

The Osborne Boom may have improved Osborne's prospects in the 2018 Conservative Party leadership election, which he won unopposed after Michael Gove pulled out of the contest.



Criticism
Critics of Osborne's policies as Chancellor have often cited the fact that, despite the rapid rise in incomes, the fastest increases were for those with already high wealth, with the lowest quartile actually seeing a real-term fall in living standards, largely resulting from cuts to benefits and welfare programs. As such, income inequality rose dramatically during the Osborne Boom, the UK's GINI index reaching an all-time high of 39.2 in 2019. Leader of the Opposition Jeremy Corbyn often used these facts to attack Osborne and the Government during PMQs. In addition to this, the assertion that the tax cuts would "essentially pay for themselves" seemingly never came to fruition[potential bias?], with the deficit increasing from just £20.4 bn in the last quarter of 2015, to £67.8 bn in the third quarter of 2019. Some[who?] have levied criticism against Osborne on the perception that the measures taken in the 2015 budget were an ideological move, as opposed a pragmatic one based on the actual macroeconomic conditions. Others have also suggested the budget was simply a measure to sure up support on the Conservative Party's right wing, which was wavering in their support for David Cameron's government due to its generally Europhilic and moderate policies.

A number of Conservative figures, including former Chancellor Kenneth Clarke afterwards called the extent and speed of the tax cuts to be "irresponsible" in an open letter to Osborne in June 2018. The Financial Times claimed in November 2019 that the excessive speculation and malinvestment resulting from the boom would cause a crash in the early 2020s or sooner, citing the slowdown in mid-2019, and advised the Bank of England to raise interest rates further to stop the economy from "overheating".