Thursday 15 February 2024

More tax cuts will endanger public services

The Financial Times this morning has a story that Jeremy Hunt is considering further cuts in public expenditure to make room for tax giveaways to boost Tory election hopes.   As the Pink 'Un notes, Hunt's current plans to increase public expenditure by just 1 per cent would imply real cuts.

We are surrounded by examples of deteriorating public services in 'broken Britain'.  Many people cannot access NHS dental services and have had to extract their own teeth.  There is a huge backlog in the courts and buildings are in such a poor state that trials have been delayed.  Even well-run local authorities don't have enough cash to meet their statutory duties. 

Of course, Hunt is setting a trap for Labour who, apart from some modest increases, have pledged not to increase taxes.   The tax burden is at its highest for a very long time, but it is very difficult to see how needed improvements in public services can be funded.

Unfortunately, voters can't have it both ways: lower taxes and better public services.  With the economy in a technical recession and generally flat lining there is no medium-term path out through growth.  As a report from Goldman Sachs make clear, Brexit has hit GDP.

It is possible that interest rates will start to fall and this will reduce the very high cost of servicing the public debt.  About a quarter is index linked and new gilts are being used at higher rates than previously.

Kicking the can down the road doesn't help with the the PFI contracts favoured by New Labour coming home to roost with schools having to over pay for maintenance.

Who would be a decision-maker?

Friday 9 February 2024

What are the lessons of 1992?

A young relative told me yesterday that after Keir Starmer reduced Labour's planned funding for green investment he will vote Green rather than Labour.  There were similar responses from Radio 5 listeners.

Last week The Spectator had an interesting article on the Green threat to Labour,  Apparently, local polling shows that the Greens are just four points behind in Bristol West, the seat of the shadow culture secretary.

In many ways I think that Labour could also lose some votes to Reform in red wall seats for rather different reasons.   Other Labour voters may stay at home and I think that turnout will be down despite the importance of the election.

Keir Starmer was caught between a rock and a hard place.   He was open to charges of fiscal irresponsibility.   The public finances are in a shocking state.   Conservative plans for public spending allow for only very small real increases when the problem of 'broken Britain' is all too evident.

Reference is quite often made to the surprise Conservative victory in 1992.  Circumstances were different and it is easy to draw the wrong lessons.

I have contributed a chapter to a forthcoming book on John Smith and my concluding paragraphs are relevant:

'One lesson that has lodged itself in the Labour Party’s collective memory has been the myth of the shadow budget.   It is thought to demonstrate that the party must be very cautious about any proposal to increase taxation.  However, the Smith legacy is more complex than that.   Reassuring the international financial community, the City of London that Labour offered a safe pair of hands ‘tended To squeeze out anything too radical or distinctive, diminishing any positive sense of what the Labour Party stood for … Labour risked being portrayed as a pale imitation of the Conservatives.’ 

Labour runs that same risk today under Keir Starmer.  Of course, any new Labour government would have a difficult economic inheritance: low growth, poor productivity and historically high levels of taxation.   It is not unreasonable to reassure business that there would be a more constructive relationship and less erratic policy-making than under Boris Johnson or Liz Truss.  However, Labour has to offer something beyond a more competent version of the Conservatives.  Policy commitments are continually being diluted.   A policy that has become emblematic of this tendency is the refusal to contemplate removing the Conservative Government’s two child benefit cap.   Potential Labour voters faced with an offer of prudence and business as usual may decide to vote for the Greens or not vote at all.'



 

[ii] Stuart, John Smith, p.194.


Monday 5 February 2024

No silver bullet for UK economy

UK in a Changing Europe has brought out an important report on the state of the UK Economy in 2024 edited by Anan Menon and Jonathan Portes.   It shows that there is no silver bullet for the UK economy and many of the problems are very familiar.   However, it is thorough, authoritative and comprehensive: https://ukandeu.ac.uk/research-papers/the-state-of-the-uk-economy-2024/

Monday 9 October 2023

Brexit regrets, but little appetite for change

A report on the attitude of voters to Brexit shows that they feel negatively about the course it has taken so far and are pessimistic about future prospects.  However, relatively few would change their vote (albeit more Leavers) and there is little appetite for a new referendum and a real sense of fatugue wth the whole debate: https://ukandeu.ac.uk/wp-content/uploads/2023/10/UKICE-Exploring-Bregret.pdf

Tuesday 26 September 2023

Familiar challenges, new solutions?

This is a good summary of the economic performance and institutional challenges facing the UK: https://options2040.co.uk/economic-growth-and-the-productivity-puzzle-the-choices/

As someone who has been following the economic performance debate since the mid 1960s, it doesn't tell me much that is new, but that in a sense just reinforces the size of the challenge, particularly given the fiscal constraints.

Whilst the UK clearly needs a systematic industrial strategy rather than the ad hoc one we have at present, we need to learn from the policy mistakes of the past.

Tuesday 12 September 2023

Short termism: the British disease

Short termism is a British disease.  It is driven by an over active stock market, now reinforced by the activities of hedge funds and private equity companies.  Short termism is not the only reason the UK has a chronic productivity problem. but it is certainly part of the picture.

I was struck by the following comment in the Financial Times yesterday about the success of Aldi and Lidl: 'Being private allows Aldi and Lidl to keep prying eyes at bay and not be held to ransom by shareholders if they do not meet their sales or profit forecasts.;

The chief executive of Aldi for the UK and Ireland said 'this is an absolutely tremendous strength of our business.  It means we can make very long-term decisions even when the road is bumpy.'

Solving or at least tackling the productivity problem may require structural change that is not politically feasible.


Thursday 17 August 2023

My failed bid for membership of the new elite

I have been puzzling for some time whether I am a member of Matt Goodwin's new elite which is apparently calling the shots in the country although we have a Conservative Government.  I can't say I feel very powerful: after all, I was on the losing side of Brexit.   I drive a 08 registration car, often shop in Tesco and support two unfashionable football clubs (Charlton and Leamington).

One of the criteria for membership is an elite education at a Russell Group university.  I went to Leicester, Strathclyde and Exeter.  But I did teach at Warwick for over 40 years so I have given myself a score of 0.5 on that one.

The new elite, we are told, has shifted behind left-leaning parties.  I did join the Labour Party once Corbyn had gone so I suppose I score 1.0 there.

Apparently new elite members are descended from the professional and managerial classes.  I was the first person in my family to go to university.  My father was a carriage and wagon fitter and my mother was a hairdresser.  0.0

There is a new epistemic class which filters what is desirable or not in the national conversation.  I can't recall ever having much influence on anything, except possibly the wider use of biological controls as an alternative to chemical pesticides.  0.0

As for galleries, I am an active supporter of Compton Verney here in Warwickshire, but have no say on exhibitions policy.  0.0

The new elite live in enclaves in affluent or trendy districts in London or university towns.  Leamington Spa could count as a university town, but the really rich people here are associated with the Silicon Spa games industry. I bought my house when it was far less fashionable.   0.5

Likely to marry members of tthe elite graduate class.  My late wife was a graduate and taught in a CFE.  My current partner left school at 16 and worked her way up in the oil and gas industries to middle management.   0.5

So 2.5 out of 7.   I don't think I qualify.