Thursday, 27 January 2011

A note of caution

A welcome note of caution here about reading too much into one quarter's GDP figures, particularly when they have been distorted by bad weather: GDP

This article rightly stresses concern about inflation, although talk of stagflation in the City is a bit overdone, particularly for those of us who remember annual rates of 25%+ in the 1970s.

The pound dipped against the dollar after the figures came out because of fears that interest rate rises would be delayed, which seems likely, although two members voted for a rise at the last MPC meeting.

If the Government abandoned its austerity package, sterling would fall and inflation, which is being driven largely by world commodity price increases, would go even higher.

Tuesday, 18 January 2011

Inflation rate

There are some useful historical figures on inflation here: Inflation

Talking of a 'whopping' 3.7 per cent inflation rise seems a bit over the top when some of us experienced annual rises of over 25 per cent. But part of the problem at the moment is that public sector salaries are frozen and they are not going up that much in the private sector.

It's also worth noting that the inflation rate looks much lower when one excludes indirect taxation. In November the CPI was 3.3 per cent, but the CPIY rate, i.e., excluding indirect taxes was 1.6 per cent, under half as much.

From government's point of view some inflation is not a bad thing as it erodes the mountain of public debt.

Thursday, 13 January 2011


The Public Administration Committee of the House of Commons has published a critical report on the Government's cull on quangos which looks unlikely to realise the hoped for savings: Quangos

As I observed in earlier commentary on this subject what you need to do is first decide whether a particular function needs to be performed by government and, if so, whether it is better done by a central government department or an agency.

The Government seems to believe that quangos are less accountable and I think there are senses and circumstances when this is the case. However, the committee makes an interesting point when they state 'Stakeholders and civil society play an important part in providing challenge and criticism of public bodies on a day-to-day basis, and it is easier for them to perform this role when they have a clearly identified body to engage with, not a homogeneous central department.'

One of my concerns in the past has been that some quangos have become (or have been set up as) advocacy bodies and in general I do not think this is a proper role for publicly funded bodies. I do see them as being of value in performing regulatory tasks where ministerial intervention should be confined to clearly defined and limited grounds.

The Coalition Government was hoping to save £1bn from its bonfire of quangos, but Cabinet Office minister Francis Maude had to admit that the savings were 'hard to quantify'.

Friday, 7 January 2011

Contradictory expectations

In the latest issue of British Politics Peter Dorey shows that the electorate was opposed to every conceivable tax increase at the time of the general election by a large majority. Equally they tend to be opposed to specific cuts in public expenditure that affects them.

Listening to the vox pop from Oldham East and Saddleworth this morning, one interviewee was against the rise in university tuition fees but also against the rise in VAT. Another respondent wanted more spent on the NHS.

Unfortunately, every government that comes into office wants to reorganise the NHS, imposing big transition and disruption costs without necessarily improving the standard of patient care. What the Government has unfortunately been unwilling to tackle is a different model for delivering public health care: for example, competitive insurance provision as happens elsewhere in Europe.

What never seems to be mentioned in these discussions is the changing economic and political balance of power in the world. This is not the 19th century or even the early 20th century when Britain was top dog. Transitions to a new balance when there is no undisputed hegemon are not easy to manage.

As for the by-election, I think there will be a low turnout and Labour will hold the seat with an increased majority. This will encourage those in Labour who do not want to compromise with the electorate.