Wednesday, 27 February 2008

What will it be like when Dave is in charge?

After nearly eleven years of New Labour we are used to their way of doing things: a somewhat contradictory mix of market liberalism and social authoritarianism, leading to more regulation and an upwards creep in the tax take. Like it or not, it has become familiar as the political context.

I was at a meeting yesterday when the question was 'what will life be like under a Conservative government?' It was a good question to ask as it is a strong possibility, but it was initially greeted with blank stares.

I recently read a long speech by David Cameron on agricultural policy. Leaving aside the partisan swipes about cattle diseases being due to New Labour incompetence, it was difficult to work out what the policy actually was or at any rate how it differed from the existing policy.

There will be policy changes, no doubt, and they may be easier to discern in less complex areas than agricultural policy. But at the moment, when it comes to specifics, I have little more idea what Cameron stands for than Obama.

Tuesday, 26 February 2008

The lost leader

Michael Portillo had a ninety minute slot on BBC 4 last night reviewing the story of Thatcherism. I can't say that it contained many new insights, and there was some very familiar footage. Perhaps the highlight was seeing Dave Cameron seeking to acknowledge Thatcher's legacy while distancing himself from her. In such circumstances he always looks like the head prefect having a difficult interview with the head about an outbreak of smoking behind the bike sheds.

One of the 'ifs' of recent political history is Portillo's defeat at Enfield which was the most memorable moment of the 1997 election night. If he had survived, he would have probably become leader and his blend of economic liberalism and social tolerance might have served them better than the succession of leaders they had. There is, however, something a little smarmy about him which can be off putting.

Sunday, 24 February 2008

The First Commoner

The Speaker of the House of Commons is First Commoner of the land and is not normally a controversial figure. However, the current incumbent is under attack over various expenses issues. He has not broken any rules, but the rules look more generous than those under which many ordinary commoners have to operate. It's a tricky issue when MPs' expenses are under scrutiny with the Speaker playing a leading role.

Some of the friends of 'Gorbals Mick' are arguing that it's a revival of class war by private school educated individuals who went to Oxbridge, aided and abetted by the right-wing press south of the border. Certainly there were those who were unhappy when the usual succession rule was broken when there were two Labour speakers in succession.

There is no shortage of candidates to replace the Speaker, including the rather earnest former politics lecturer and one time Liberal deputy leader, Alan Beith. However, there is no procedure to remove the Speaker before the next general election. If he doesn't go by then, 'Mr Speaker Seeking Re-Election' could find himself facing the 'Man in the White Suit', anti-sleaze campaigner Martin Bell.

Good News for Darling

Official figures released last week showed that public finances were in a much better state than thought. A surge of income tax and corporation tax revenues in January alongside a large downward revision to government borrowing figures for the end of last year have transformed the assessment of public sector deficits this financial year.

Income tax receipts were 14 per cent higher than last January, while corporation tax revenues were 22 per cent higher, reflecting increases in profitability across the board. However, income taxes were boosted by a 25 per cent rise in receipts from self-assessment which reflects income in 2006-7 and not that earned this year.

Although fears about a more pronounced structural deterioration of the public finances have been allayed to some extent, there is still a pre-budget forecast of a £38bn deficit for the full year.

The Conservatives have been going for Alastair Darling's head, overlooking the rule that a minister is most vulnerable when there is unrest on his own backbenches. Their attacks have simply solidified support for the Chancellor who was already popular among Labour MPs who thought that he took the right course of action in nationalising Northern Rock.

Northern Rock attack misfires

Polling evidence suggest that the ferocious attack mounted during last week by David Cameron and George Osborne on the prime minister's handling of Northern Rock has not resonated with the public. A YouGov polled conducted for The Economist found that only 5 per cent of voters blamed the government for the crisis at the bank, while almost two-thirds thought the Conservatives were playing politics by opposing its nationalisation.

A Populus poll reported in The Times gave a more nuanced picture with blame shared out among Northern Rock's management, the subprime crisis in the States, the regulators and the government. But there is no evidence that this is turning into a equivalent of the 1992 Exchange Rate Mechanism crisis which severely damaged the reputation of the Conservatives as managers of the economy. Indeed, in the Populus poll, Labour has regained its lead over the Conservatives as the most competent economic manager.

All this is resonating in the Conservative Party with the website warning that there were 'real concerns about George Osborne's tendency to be too political.'

However, rich individuals are increasingly throwing their weight behind the Conservatives. £11.3m poured into the Tory coffers in the fourth quarter of last year, compared with £5.9m for Labour, of which 77 per cent came from the unions with nearly half accounted for by the Unite super union.

Admittedly, the biggest sum for the Conservatives came from Monaco-based peer Lord Laidlaw who converted £3m of loans into a donation to the party. The Sainsbury family was split, with Sir Timothy and Lord John giving money to the Conservatives, while former science minister Lord David is one of Labour's most generous donors and gave them £2m in September.

However, a Mr Gordon Brown of 10 Downing Street, SW1 donated £89,708, most of which was left over from his party leadership campaign.

Wednesday, 20 February 2008

Give it a rest, Dave

David Cameron and George Osborne run the risk of over egging the pudding in their attacks on government 'incompetence'. Earlier in the week we had George Osborne characterising Alastair Darling as a 'dead man walking' which produced predictable hilarity on the government benches.

Today, for some reason, David Cameron chose not to lead on Northern Rock at PMQs, leaving that to his stunt double, Nick Clegg. Instead he focused on what he called a 'catastrophic failure' in not taking action on some DNA data sent over by the Dutch police.

Apparently the disk laid unattended on the desk of an official who was on prolonged sick leave. Incompetent, yes; a management failure, yes. But a catastrophic failure? The crime rampage of these Dutch criminals appears to be limited to non-payment of fines and the odd case of assault.

Would such events not occur under a Conservative or even Liberal Democrat government? I doubt whether they would suddenly disappear. Their ministers would not have time to go round checking to see if middle rank officials were doing their job. Of course, I understand what Dave's aim is. He is trying to link up these discrete incidents and suggest that they amount to a culture of government incompetence. But success in terms of achieving this aim could be undermined by overstating it.

Dave was eventually provoked to ask a question on Northern Rock and the prime minister managed to get in a jibe about 'student politics' which was a riposte to Cameron's attempt to draw attention to the prime minister's 'advanced' age by congratulating him on his 57th birthday.

Brown's jibe probably struck home, because it does sometimes look as if Dave is trying to score debating points in Pop or the Oxford Union. Not to say that Gordon Brown isn't immune to the same thing. Indeed, this kind of partisan point scoring is what turns a lot of people off politics.

Sunday, 17 February 2008

Stagflation is back

Not only is public ownership back on the agenda, but we are now threatened with the return of stagflation: low growth and inflation. It does look like a return to the 1970's show.

I have noticed everyday items going up in price much more recently than for a very long time, e.g., the cost of a haircut (although with its high labour content that is always going up), fish and chips and delivery charges by my newsagent. Of course, big ticket items like second hand cars are going down so the overall inflation rate is lower than it appears to be.

But consumer psychology is such that the small ticket items are the ones that tend to stick in their minds - along with higher petrol prices and utility bills. One consequence is that people may lose confidence in the credibility of the inflation rate, already eroded by the divergence being the Government's favoured CPI measure and the higher rate of RPI.

No less a figure than the Governor of the Bank of England, Mervyn King, has warned Britons that they must face up to a 'genuine reduction in our standard of living.' This statement accompanied his presentation of the most pessimistic forecasts for growth and inflation since the Bank gained operational independence in setting interest rates 10 years ago. However, I think the real reason for his gloom was to warn that we cannot offset prices increases by demanding higher wages.

The problem is that cutting interest rates does not do anything about higher food or utility prices which are driven by global economic conditions. Nor does it translate readily into a reduction in mortgage rates, given the wish of lenders to improve their margins and the continuing shortage of liquidity.

In conditions of relatively full employment, many workers are in a strong bargaining position to seek higher wages. Retail demand still seems to be relatively buoyant and the Bank may well have taken a risk on inflation. However, it is doubtful if it would have acted as it has done without the context of the financial crisis.

Hang on to your seats for a rocky ride, economically and politically!

Osborne pledges that spending will be maintained

There has been something of an argument going on in the Conservative Party about whether the party should pledge tax cuts in its next election manifesto. The right of the party thinks that it should stick to its principles and pledge a tax cut. The leadership thinks that such a pledge might alarm the median voter who would ask which services are going to be cut.

The traditional answer is cutting 'waste' and no doubt there is waste in government, but there is no evidence that Conservative governments are any better at cutting it than Labour ones. Scrapping what is likely to be an increasingly expensive identity card scheme would save a lot of money, but after that one would have to start cutting back public services like education and health - and that is not popular.

The right saw George Osborne as 'one of us' but the savvy shadow chancellor has reiterated his pldege to match Labour's spending plans. This is oddly reminiscent of Laboir's pledge in 1997 to stick to the Conservative plans for the first two years of their administration, although the Tories would have actually revised spending upwards. Sensing disllusionment among their supporters, New Labour then moved spending upwards in their second term, arguably at some risk to the public finances.

Now Labour is cutting back its spending, arguably to a level not very different to the Conservative pledge to share the proceeds of growth between public spending and private consumption. The Shadow Chancellor has promised jam tomorrow, examining the next three year spending review due in 2009 in the light of economic conditions and the state of the public finances. That is a useful get out as a Conservative government can always claim that Labour left them in a mess.

In the meantime, the Conservatives can focus their fire on New Labour's decision to take Northern Rock into 'temporary public ownership'. It should be remembered that it was Northern Rock's management that got us into this mess in the first place and taking the company into public custodianship is probably preferable to handing over a lot of public money to Richard Branson. But if they hadn't been so frightened of being accused of going back to the 1970's, New Labour could have taken Northen Rock into public ownership months ago as Vince Cable has consistently argued.

Tuesday, 12 February 2008

Darling battered but safe

Chancellor Alastair Darling is coming under attack from within the Labour Party as well as from business, but rumours that he will be reshuffled in the summer are wide of the mark. Such a move would be a confession of failure by the Brown Government as a whole.

It never makes sense to get rid of your Chancellor or force him out. Harold Macmillan rode out the resignation of Peter Thorneycroft with the sang froid that concealed his inner turmoil, dismissing it as a 'little local difficulty'. However when he sacked Selwyn Lloyd as part of the disastrous 'night of the long knives' it was seen as a sign of weakness of his part and dented his reputation rather than restoring it.

Mrs Thatcher never really recovered from what was in effect the forced resignation of Nigel Lawson. John Major should never have appointed Norman Lamont in the first place, but the embittered Shetland Islander remained a poisonous thorn in his side, striking a cruel blow with his observation that Major was in office not in power.

Alastair Darling took over just when the economy was starting to run into trouble. However, he made things worse by some errors of his own. His handling of the Northern Rock affair showed that the skills had served him well as a low profile minister clearing up messes were less suited to the much higher profile role of Chancellor.

But what really upsets many people in the Labour Party is the way that he has undermined ten years of work by New Labour to establish itself as the natural party of business. His handling of the capital gains tax reforms led to Number 10 announcing ahead of him that they were being watered down.

Now acolytes of Mr Brown have told the Financial Times of their dismay over aspects of Mr Darling's pre-budget report, particularly the CGT reforms. Just as well that there is an economic crisis and sacking the Chancellor would be seen as a sign of panic.

Friday, 8 February 2008

Nick: we could do a deal with Dave

Liberal Democrat leader Nick Clegg has told the Financial Times that his party could consider doing a deal with Dave Cameron's Conservatives in a hung Parliament. Although the Liberal Democrats have always had an official doctrine of 'equidistance' between Labour and the Conservatives, such a deal would have been anaethema to former leader Ming Campbell and still would be to many of the party's activists.

However, Clegg, named 'Dave Cameron's stunt double', has other ideas, provided that Dave Cameron proposes genuinely liberal reforms in areas such as civil liberties, public reform and the environment. The two parties could certainly see eye to eye on identity cards. Clegg could also probably extract better terms from New Labour if he was open to a deal with the Conservatives so in that sense the move makes good tactical sense.

Clegg has also come up with an idea that epitomises why the Lib Dems are sometimes seen as the 'very silly' party. He wants to move the 'legions of very expensive bureaucrats' in the Treasury to Liverpool. The reason that they are expensive is that one wants the brightest people in the Ministry of Finance and many of them could earn much more in the City. Many of them would not move to Liverpool because of partners' jobs, plus they would prefer to live in a world city rather than a city of culture. Get real!

Sunday, 3 February 2008

Put up taxes urges IFS

The authoritative and independent Institute for Fiscal Studies has urged chancellor Alastair Darling to put up taxes in his green budget: see Budget

It thinks that the public finances are so precarious that the chancellor should raise taxation by £8bn, even though the economy faces the risk of a severe slowdown. The rise recommended is the equivalent of a 2p increase in the basic rate of income tax. The IFS said that there was a greater than 50:50 chance that Mr Darling would break the Treasury's fiscal rule limiting public sector debt to below 40 per cent of GDP.

The main differences between the IFS's budgetary forecasts and those of the government stem from lower estimates for corporate tax and stamp duty receipts this year and next, reflecting slower profit growth in the short term and falling house prices. The IFS warns that Britain is falling down the international league table for budgetary prudence which was Gordon Brown's favourite watchword.

The US has given its economy a fiscal stimulus and many economists that is what Britain needs along with lower interest rates to prevent the slowdown getting out of control. However Robert Chote, the IFS director, warned that the day of judgement could not be postponed forever.

When the econonomy was in stronger shape, it is arguable that not enough was done to build up surpluses, although government was under strong pressure to spend on the NHS.