It has been a favourite weapon of governments over the years: fiscal drag. In other words, don't fully compensate taxpayers for inflation or earnings growth in terms of tax allowance. I don't blame the Coalition Government for using it, but quire a few people are going to be surprised to find that they are paying a marginal tax rate of 40 per cent.
Before Labour came into office in 1997 there were only 2.1m higher rate taxpayers in Britain. This rose to 3.87m just before the recession struck and has fallen back to 3.1m now.
Quite reasonably, the Government is seeking to make sure that increases in the starting tax rate intended to benefit the least well off do not also benefit the most prosperous. Quite how many people will fall in the higher rate tax band by the end of the Parliament is open to question:
1. Grant Thornton estimate the number will go up to 6.1m, i.e., almost double.
2. The Institute for Fiscal Studies estimates 5.7m by 2014-15: that's still nearly a doubling.
3. It is possible to interpret Government figures in a way that gives a figure of 6.25m.
Anway, it's clearly going to more or less double. Given that commuters into London are going to face (yet again) above inflation increases in rail fares, some voters in marginal seats in the south-east may not be happy bunnies.
James Brown at IFS argues that this increase is not contrary to past principles: that there is a very long basic rate tax band and only a few high earners should pay more.'
There is also now a higher band of 50 per cent which is not going to go any time soon so introducing, say, a 30 per cent band for the first 5k above the basic rate band would make the system even more complex when ideally one wants greater simplicity to reduce transactions costs for the tax authorities and taxpayers.
Tuesday, 29 June 2010
Monday, 28 June 2010
Ring fencing the NHS
The British Medical Association, the doctors' trade union, has complained that 'haphazard' cuts are harming the National Health Service: Cuts This announcement comes on the eve of their conference, but also when Conservative backbenchers are starting to complain about 'ring fencing' the NHS in the Comprehensive Spending Review.
If one does that, and also tries to keep cuts in defence and education down to ten per cent, that means that some departments could have to cut expenditure by a third in real terms which is very dificult to achieve without, for example, drastically cutting environmental protection services.
Some cuts could hit the NHS directly, for example cutting back on social care for the elderly could make it more difficult to get them out of hospital, leading to bed blocking. Warwickshire County Council is already proposing increases of fees for some services delivered to the home of 1,000 per cent, admittedly from a very low and hopelessly uneconomic base level.
The NHS does face the problems of an ageing population, an expanding medical technology frontier that drives up costs and rising patient expectations. Howver, here are a few suggestions:
1. Mrs Thatcher famously said 'we have dealt with the opticians' (or words to that effect, I don't have the transcript in front of me). I went my first eye test last week and it was free. Should that be the case for someone who is not poor? I was also interested to read on the back of the form that I was given that I could get a voucher towards my spectacles if I was a prisoner on leave.
2. Should prescriptions for free for everyone who is elderly? Or should the better off be at least asked to pay for a season ticket of £100 or so a year?
3. Anyone who was talked to GPs infornally will know that patients make considerable differential use of the service regardless of their state of health. Should charging be introduced, again with exemptions? Of course, that would really hit at the idea of a NHS free at the point of use and need and would probably be too politically controversial.
The Conservative pledge on the NHS was politically expedient. But does it make for good policy? Vince Cable didn't think it made economic and political sense and the former Labour health minister doesn't think it makes sense now.
If one does that, and also tries to keep cuts in defence and education down to ten per cent, that means that some departments could have to cut expenditure by a third in real terms which is very dificult to achieve without, for example, drastically cutting environmental protection services.
Some cuts could hit the NHS directly, for example cutting back on social care for the elderly could make it more difficult to get them out of hospital, leading to bed blocking. Warwickshire County Council is already proposing increases of fees for some services delivered to the home of 1,000 per cent, admittedly from a very low and hopelessly uneconomic base level.
The NHS does face the problems of an ageing population, an expanding medical technology frontier that drives up costs and rising patient expectations. Howver, here are a few suggestions:
1. Mrs Thatcher famously said 'we have dealt with the opticians' (or words to that effect, I don't have the transcript in front of me). I went my first eye test last week and it was free. Should that be the case for someone who is not poor? I was also interested to read on the back of the form that I was given that I could get a voucher towards my spectacles if I was a prisoner on leave.
2. Should prescriptions for free for everyone who is elderly? Or should the better off be at least asked to pay for a season ticket of £100 or so a year?
3. Anyone who was talked to GPs infornally will know that patients make considerable differential use of the service regardless of their state of health. Should charging be introduced, again with exemptions? Of course, that would really hit at the idea of a NHS free at the point of use and need and would probably be too politically controversial.
The Conservative pledge on the NHS was politically expedient. But does it make for good policy? Vince Cable didn't think it made economic and political sense and the former Labour health minister doesn't think it makes sense now.
Friday, 25 June 2010
Grasping the retirement nettle
It looks as if the Government is going to tackle the state pensions timebomb by bringing forward the increase of the retirement age to 66 to 2016. After that it seems that the plan is to increase the retirement age every five years on through a link with life expectancy on the Swedish model.
So far we have dealt with the increase in the pensionable population by holding the pension down at a level below most comparable countries. No one could live on it and it has to be topped up by means tested benefits for some but those are not always claimed.
The unions have objected that it is not possible for people to carry on undertaking strenuous manual work beyond their mid-sixties and that a lot of people will be effectively transferred to the unemployment register. What one needs, however, is a labour market that will make other sorts of jobs available, particularly part-time work. We need to move byeond the 'falling off a cliff' fixed retirement age.
As it is, a lot of people cease being economically active, or at least stop working full-time, before the state retirement age, although economic activity rates in the pre-retirement group have been increasing. Raising the retirement age means that some of these early retirements would take place somewhat later.
As for the argument that extending working life denies younger people jobs, that is to subscribe to the 'lump of labour' fallacy. For many younger people there are still problems with skill deficiencies and attitudes to work.
Some grumbles about raising the retirement age have come from the holiday industry as apparently the early retired are important customers for the 'shoulder' season. Certainly travelling the world is a preoccupation for many of the early retired. I am looking forward to spend less time in airports and on lomg-distance flights.
So far we have dealt with the increase in the pensionable population by holding the pension down at a level below most comparable countries. No one could live on it and it has to be topped up by means tested benefits for some but those are not always claimed.
The unions have objected that it is not possible for people to carry on undertaking strenuous manual work beyond their mid-sixties and that a lot of people will be effectively transferred to the unemployment register. What one needs, however, is a labour market that will make other sorts of jobs available, particularly part-time work. We need to move byeond the 'falling off a cliff' fixed retirement age.
As it is, a lot of people cease being economically active, or at least stop working full-time, before the state retirement age, although economic activity rates in the pre-retirement group have been increasing. Raising the retirement age means that some of these early retirements would take place somewhat later.
As for the argument that extending working life denies younger people jobs, that is to subscribe to the 'lump of labour' fallacy. For many younger people there are still problems with skill deficiencies and attitudes to work.
Some grumbles about raising the retirement age have come from the holiday industry as apparently the early retired are important customers for the 'shoulder' season. Certainly travelling the world is a preoccupation for many of the early retired. I am looking forward to spend less time in airports and on lomg-distance flights.
Thursday, 24 June 2010
Peter Walker
The death of Peter Walker announced yesterday reminded me of a couple of incidents that happened round about 1980. I happened to get in the lift at the Department of Trade and Industry building in Victoria Street at the same time as the 'mad monk' Sir Keith Joseph. As we ascended to the top floor, Sir Keith stared at me all the time as I was something that the cat had brought in.
In the old MAFF building in Whitehall Place, I got in the lift with Peter Walker. 'How are you. How's everything going?' he asked. He didn't know me, but clearly thought I was a relatively junior civil servant.
Peter Walker came from a skilled working class background in London (something we share). By the age of 30 he was self-made millionaire. As chairman of the Young Conservatives, he bagged what was then a safe seat at Worcester (Worcester Woman delivered it to New Labour in 1997 and it has only just returned to the Cameroonies).
Walker got over his antipathy to the common market and hitched himself to Ted Heath's bandwagon, running his successful leadership election campaign in 1965. His managerial approach fitted in with Heath's modernising style and he headed up the new Environment department in 1970 before going to Trade and Industry.
However, he lacked that extra something that singled out a future party leader and in any case his brand of Conservatism was going out of favour. He could certainly spot an emerging issue as in the case of the 1972 Deposit of Poisonous Wastes Act which presaged later environmental legislation (and about which I wrote a case study in our book on the CBI). However, it is arguable that he botched the reform of local government and also took a 'courageous' decision to invest heavily in the steel industry just when it was going into decline.
Mrs Thatcher, whom he had turned down as a minister of state, put him into the relative backwater of the Ministry of Agriculture. Here he bought into the productivist agenda, producing a white paper called 'Food From Our Own Resources'. He wasn't too pleased to be shifted to Energy but was then in charge of defeating the miners' strike, as well as privatising British Gas and laying the groundwork for electricity privatisation (arguably not well done).
Before the 1987 election he was so much on the edge of the platform that he was in danger of falling off at an election launch event involving the Cabinet. However, he outlived all the other 'wets' in the Cabinet like Sir Ian Gilmour and Jim Prior. This was exemplified in the title of his memoir 'Staying Power'.
Mrs Thatcher made him Secretary of State for Wales and gave him a free hand to pursue interventionist policies in the principality where he went down well. 'Just look at what Peter Walker is doing in Wales,' Ian Gilmour once said to me.
Peter Walker had a happy family life. He stayed married to Tessa and had five children. He had few interests outside business and politics, but he pursued those interests to the full.
In the old MAFF building in Whitehall Place, I got in the lift with Peter Walker. 'How are you. How's everything going?' he asked. He didn't know me, but clearly thought I was a relatively junior civil servant.
Peter Walker came from a skilled working class background in London (something we share). By the age of 30 he was self-made millionaire. As chairman of the Young Conservatives, he bagged what was then a safe seat at Worcester (Worcester Woman delivered it to New Labour in 1997 and it has only just returned to the Cameroonies).
Walker got over his antipathy to the common market and hitched himself to Ted Heath's bandwagon, running his successful leadership election campaign in 1965. His managerial approach fitted in with Heath's modernising style and he headed up the new Environment department in 1970 before going to Trade and Industry.
However, he lacked that extra something that singled out a future party leader and in any case his brand of Conservatism was going out of favour. He could certainly spot an emerging issue as in the case of the 1972 Deposit of Poisonous Wastes Act which presaged later environmental legislation (and about which I wrote a case study in our book on the CBI). However, it is arguable that he botched the reform of local government and also took a 'courageous' decision to invest heavily in the steel industry just when it was going into decline.
Mrs Thatcher, whom he had turned down as a minister of state, put him into the relative backwater of the Ministry of Agriculture. Here he bought into the productivist agenda, producing a white paper called 'Food From Our Own Resources'. He wasn't too pleased to be shifted to Energy but was then in charge of defeating the miners' strike, as well as privatising British Gas and laying the groundwork for electricity privatisation (arguably not well done).
Before the 1987 election he was so much on the edge of the platform that he was in danger of falling off at an election launch event involving the Cabinet. However, he outlived all the other 'wets' in the Cabinet like Sir Ian Gilmour and Jim Prior. This was exemplified in the title of his memoir 'Staying Power'.
Mrs Thatcher made him Secretary of State for Wales and gave him a free hand to pursue interventionist policies in the principality where he went down well. 'Just look at what Peter Walker is doing in Wales,' Ian Gilmour once said to me.
Peter Walker had a happy family life. He stayed married to Tessa and had five children. He had few interests outside business and politics, but he pursued those interests to the full.
Wednesday, 23 June 2010
Boosting the competition
This new British politics blog from LSE looks very interesting and authoritative:
LSE
LSE
Vince lays it on the line
One of the news channels commented that Vince Cable looked 'hemmed in' as he sat on the Treasury bench during the Chancellor's speech yesterday. In truth there isn't much room on the front bench, although there was a certain irony in Vince being placed next to Iain Duncan-Smith.
In this article, Vince does not trip the light fantastic, but lays it on the line about why there was no alternative to a tough budget and why he has channged his mind on some issues: Vince
In ambushing the university vice-chancellors over their pay hikes, Vince showed that he can be a grizzly bear as well as a cuddly one. He can play hard ball, which is as it should be.
One of the constitutional ironies of yesterday's performance was that it was preceded by questions to the Church Commissioners, their spokesman on earth now being Tom Baldry, the member for Banbury.
In this article, Vince does not trip the light fantastic, but lays it on the line about why there was no alternative to a tough budget and why he has channged his mind on some issues: Vince
In ambushing the university vice-chancellors over their pay hikes, Vince showed that he can be a grizzly bear as well as a cuddly one. He can play hard ball, which is as it should be.
One of the constitutional ironies of yesterday's performance was that it was preceded by questions to the Church Commissioners, their spokesman on earth now being Tom Baldry, the member for Banbury.
Tuesday, 22 June 2010
The unavoidable budget
That is how George Osborne billed his emergency budget today. He also described it as 'tough but fair'. No doubt subsequent debate will focus in part on how far it is.
The Chancellor said that a position in which one pound in every four spent by the Government was borrowed was not sustainable. Nor was it acceptable to have nearly half of national income spent by the Government. A quarter of a trillion pounds will be spent in debt interest over the lifetime of the Parliament.
77 per cent of the target of eliminating the structural deficit over a five year period would be met by spending cuts and 23 per cent by tax increases, largely through a 20 per cent increase in VAT from next January. The current exemptions from VAT remain in place.
Among the most controversial measures will be a two year pay freeze for the public sector (athough the 28 per cent of those earning under £21,000 a year will get a flat £250 increase in each year) and a three year freeze in child benefit. The Chancellor argued that means testing child benefit would have involved too many transaction costs.
One interesting commment by the Chancellor was that the UK was over reliant on financial services and a bank levy will be introduced in 2011. He also said that Conservative governments in the early 1990s made a mistake when they cut capital rather than current spending.
In a sense we will get a second instalment of the pain when the results of the public expenditure review are revealed on Ocrober 20th. However, there is now a credible medium-term fiscal strategy in place which should satisfy the international markets. Credbility with them was a criterion that the Chancellor specifically mentioned.
The Chancellor said that a position in which one pound in every four spent by the Government was borrowed was not sustainable. Nor was it acceptable to have nearly half of national income spent by the Government. A quarter of a trillion pounds will be spent in debt interest over the lifetime of the Parliament.
77 per cent of the target of eliminating the structural deficit over a five year period would be met by spending cuts and 23 per cent by tax increases, largely through a 20 per cent increase in VAT from next January. The current exemptions from VAT remain in place.
Among the most controversial measures will be a two year pay freeze for the public sector (athough the 28 per cent of those earning under £21,000 a year will get a flat £250 increase in each year) and a three year freeze in child benefit. The Chancellor argued that means testing child benefit would have involved too many transaction costs.
One interesting commment by the Chancellor was that the UK was over reliant on financial services and a bank levy will be introduced in 2011. He also said that Conservative governments in the early 1990s made a mistake when they cut capital rather than current spending.
In a sense we will get a second instalment of the pain when the results of the public expenditure review are revealed on Ocrober 20th. However, there is now a credible medium-term fiscal strategy in place which should satisfy the international markets. Credbility with them was a criterion that the Chancellor specifically mentioned.
Sunday, 20 June 2010
Preparing for the budget
The sentence being used in briefings for the Sunday press on the Budget was 'A budget that is popular the day after is not a good budget'. The public has been prepared for medicine which will be nasty, but may turn out to be a little bit less unpleasant than expected.
Any VAT increase cannot be implemented immediately for practical reasons. Indeed it is difficult to see how it could be introduced until the autumn and it would not be too popular just before Christmas. So I would not expect it to be intoduced until after the January sales and possibly not until April.
One off the wall prediction which will probably be wrong: an increase in the current VAT rate of 5 per cent on domestic fuel. It is below the EU average of 8 per cent and could be sold as a carbon reduction measure.
The fiscal Nimbyists were out in force today. People in Sheffield were upset because of the withdrawal of the loan to Sheffield Forgemasters, but if it is such a viable project, why can't it be funded commercially? On Midlands television, people from Bromsgrove were complaining because they won't get an admittedly needed new station.
Although talk of a double dip reception is overdone, the Government does need to be careful about how it cuts capital projects. These are usually cut severely in times of public expenditure restraint, because it is a way of achieving quick results in cutting spending.
However, the downside is that necessary infrastructure improvements which can contribute to economic growth do not occur. The construction industry is a labour intensive one and has already been hit hard by the downturn in house building which may be intensified by the Government's promised 'Nimby's charter' to block development.
It is clear that the Government is prepared to 'think the unthinkable' about benefits and Frank Field has been brought back to finish the job that he should have been allowed to undertake by New Labour. 'Two brains' Willetts made it clear yesterday that while some universal benefits would always be part of the welfare state, there was a need to re-consider the balance between them and selective benefis.
With increasing life expectancy, generous public sector pensions are no longer affordable and John Hutton has been brought in to tackle this thorny problem. He was immediately denounced by the soon to be ennobled Prezza as a 'collaborator': at least he didn't use the phrase 'class traitor'. As someone remarked it's the revenge of the Blairites.
Any VAT increase cannot be implemented immediately for practical reasons. Indeed it is difficult to see how it could be introduced until the autumn and it would not be too popular just before Christmas. So I would not expect it to be intoduced until after the January sales and possibly not until April.
One off the wall prediction which will probably be wrong: an increase in the current VAT rate of 5 per cent on domestic fuel. It is below the EU average of 8 per cent and could be sold as a carbon reduction measure.
The fiscal Nimbyists were out in force today. People in Sheffield were upset because of the withdrawal of the loan to Sheffield Forgemasters, but if it is such a viable project, why can't it be funded commercially? On Midlands television, people from Bromsgrove were complaining because they won't get an admittedly needed new station.
Although talk of a double dip reception is overdone, the Government does need to be careful about how it cuts capital projects. These are usually cut severely in times of public expenditure restraint, because it is a way of achieving quick results in cutting spending.
However, the downside is that necessary infrastructure improvements which can contribute to economic growth do not occur. The construction industry is a labour intensive one and has already been hit hard by the downturn in house building which may be intensified by the Government's promised 'Nimby's charter' to block development.
It is clear that the Government is prepared to 'think the unthinkable' about benefits and Frank Field has been brought back to finish the job that he should have been allowed to undertake by New Labour. 'Two brains' Willetts made it clear yesterday that while some universal benefits would always be part of the welfare state, there was a need to re-consider the balance between them and selective benefis.
With increasing life expectancy, generous public sector pensions are no longer affordable and John Hutton has been brought in to tackle this thorny problem. He was immediately denounced by the soon to be ennobled Prezza as a 'collaborator': at least he didn't use the phrase 'class traitor'. As someone remarked it's the revenge of the Blairites.
Saturday, 19 June 2010
No love affair with the beautiful game
It's claimed that England win the World Cup only when Labour are in office, but then there's only one example to back up that argument. However, there's no doubt that New Labour had a love affair with the beautiful game. After all, it was a way of blokes who had become middle class showing they could still connect with their working class roots.
Andy Burnham, now running for the Labour leadership, had an Everton ring tone on his mobile. Alastair Campbell, a long-suffering Burnley supporter, includes 68 references to football in the full version of his diaries as against 55 for the likely next Labour leader, the admittedly wonkish David Miliband. Tony Blair, who claimed to be a Newcastle United supporter, demonstrated his 'man of the people' street cred by doing headers with Kevin Keegan. Gordon Brown, a faithful follower of Raith Rovers of 'they're dancing in the streets of Raith' fame, is said to have limited his small talk to 'Did you see the match?'
It's all a bit different now. David Cameron claims to be an Aston Villa supporter (like Prince William), but it's unclear when he last went to a match. William Hague is into judo. Any awkward foreign customers had better watch out or they will be wrestled to the floor by the Yorkshire charm merchant! Nick Clegg likes to ski and probably judiciously avoids declaring an allegiance to either Sheffield team.
Of course, it was also top level civil servants who were into football. Cabinet Secretary Gus O'Donnell is a supporter of Manchester United: it is believed that his Irish father was as well. At Warwick University he played for the 1st XI and also for a six-a-team dominated by Chelsea supporters called the Blue Strollers.
Andy Burnham, now running for the Labour leadership, had an Everton ring tone on his mobile. Alastair Campbell, a long-suffering Burnley supporter, includes 68 references to football in the full version of his diaries as against 55 for the likely next Labour leader, the admittedly wonkish David Miliband. Tony Blair, who claimed to be a Newcastle United supporter, demonstrated his 'man of the people' street cred by doing headers with Kevin Keegan. Gordon Brown, a faithful follower of Raith Rovers of 'they're dancing in the streets of Raith' fame, is said to have limited his small talk to 'Did you see the match?'
It's all a bit different now. David Cameron claims to be an Aston Villa supporter (like Prince William), but it's unclear when he last went to a match. William Hague is into judo. Any awkward foreign customers had better watch out or they will be wrestled to the floor by the Yorkshire charm merchant! Nick Clegg likes to ski and probably judiciously avoids declaring an allegiance to either Sheffield team.
Of course, it was also top level civil servants who were into football. Cabinet Secretary Gus O'Donnell is a supporter of Manchester United: it is believed that his Irish father was as well. At Warwick University he played for the 1st XI and also for a six-a-team dominated by Chelsea supporters called the Blue Strollers.
Friday, 18 June 2010
The last of the Keynesians?
Was Wynne Godley, who has died at the age of 83, the last of the Keynesians? I did not know Godley, but once he phoned me up to ask, with great old fashioned courtesy, a series of questions about the Common Agricultural Policy about which he was proposing to write a letter to the FT.
Godley came from an impoverished aristocratic background. His father was an alcoholic and his mother was clearly deranged. He was brought up a violent maiden aunt and attended a particularly unpleasant prep school. No wonder he had an 'disastrous encounter' with psychoanalysis in mid-life.
However, he went on to be an accomplished professional oboist, before abandoning his musical career (he suffered from bad stage fright) to join the Metal Box Company (a major company in its day) as an economist and then the Treasury in 1956 when Keynesianism was the established orthodoxy. It also did one no harm in those days in the Treasury to have a serious interest in music. He later became a director of the Royal Opera House.
He became deputy head of the economics section before departing in 1970 for Keynes's old post at King's College, Cambridge. He then became an advocate of import controls, although he claimed somewhat unconvincingly that he was only trying to reduce the propensity to import. Godley came across to me as a rather old fashioned 'drenching wet' Conservative, but some of his colleagues in the Department of Applied Economics in Sidgwick Avemue were well to the left and signed up to the now largely forgotten Alternative Economic Strategy.
Godley had no time for the Thatcherites once describing their policies as 'gigantic con trick'. As it became evident that he was not 'one of us', he was punished by having the grant for his forecasting group abruptly withdrawn in 1982. He did enjoy a late flowering when he became a member of the Treasury's Panel of Independent Forecasters or 'six wise men' from 1992 to 1995.
The FT obituary described him as a 'Maverick who endured with ideas undimmed'. He certainly did not lack intellectual courage. In a sense Keynesianism is back in fashion again with the torch being carried by the former colleague with whom I taught for some years, Robert Skidelsky (Lord Skidelsky of Tilton). He is undoubtedly a great intellectual, but one political economist aptly described his book on Keynes: the Return of the Master as 'eloquent, but not convincing.'
The notion that we can spend our way out of trouble is misguided: we would simply end up in an even bigger hole rather like the sinkholes that have been appearing all over China.
Godley came from an impoverished aristocratic background. His father was an alcoholic and his mother was clearly deranged. He was brought up a violent maiden aunt and attended a particularly unpleasant prep school. No wonder he had an 'disastrous encounter' with psychoanalysis in mid-life.
However, he went on to be an accomplished professional oboist, before abandoning his musical career (he suffered from bad stage fright) to join the Metal Box Company (a major company in its day) as an economist and then the Treasury in 1956 when Keynesianism was the established orthodoxy. It also did one no harm in those days in the Treasury to have a serious interest in music. He later became a director of the Royal Opera House.
He became deputy head of the economics section before departing in 1970 for Keynes's old post at King's College, Cambridge. He then became an advocate of import controls, although he claimed somewhat unconvincingly that he was only trying to reduce the propensity to import. Godley came across to me as a rather old fashioned 'drenching wet' Conservative, but some of his colleagues in the Department of Applied Economics in Sidgwick Avemue were well to the left and signed up to the now largely forgotten Alternative Economic Strategy.
Godley had no time for the Thatcherites once describing their policies as 'gigantic con trick'. As it became evident that he was not 'one of us', he was punished by having the grant for his forecasting group abruptly withdrawn in 1982. He did enjoy a late flowering when he became a member of the Treasury's Panel of Independent Forecasters or 'six wise men' from 1992 to 1995.
The FT obituary described him as a 'Maverick who endured with ideas undimmed'. He certainly did not lack intellectual courage. In a sense Keynesianism is back in fashion again with the torch being carried by the former colleague with whom I taught for some years, Robert Skidelsky (Lord Skidelsky of Tilton). He is undoubtedly a great intellectual, but one political economist aptly described his book on Keynes: the Return of the Master as 'eloquent, but not convincing.'
The notion that we can spend our way out of trouble is misguided: we would simply end up in an even bigger hole rather like the sinkholes that have been appearing all over China.
Thursday, 17 June 2010
Lib Dem blogger gives it large
A Lib Dem blogger gives it large in response to an invitation from Derek Simpson of Unite to tear up his membership card. Amusing and to the point: Unite (What is more the guy is an ice hockey fan, Edinburgh Capitals I presume).
Thanks to my fave Lib Dem MP Jo Swinson for tweeting this link.
Thanks to my fave Lib Dem MP Jo Swinson for tweeting this link.
Tuesday, 15 June 2010
Cuts message has not got through
It seems that many members of the public think that public expenditure cuts will only hit a few background bureaucrats and will have no effect on them, even though the Institute for Fiscal Studies has said that the budgets of some 'unprotected' departments may need to be cut by as much as a third.
Despite warnings by the prime minister that 'every single person' will be affected, more than two out of five respondents to a ComRes survey think that spending cuts will affect them only a little, if at all. Fewer than one in four people, 23 per cent, expected to be affected a lot by the cuts.
One of the worrying aspects of the current situation is that the output gap - which is effectively a measure of the amount of spare capacity in the economy - is smaller than expected. Whilst there is spare capacity in labour, as indicated by the increasing number of people in part-time work, it may not have the necessary skills. There is a concern that some physical capacity has been destroyed for ever by the recesion. This would help to explain why inflation has been so high which may mean that the Bank of England will have to raise interest rates before too long.
The Social Market Foundation has argued that 'universal benefits' would have to go, including paying child benefit and winter fuel payments to the better off. It was always assumed that the social contract that supported the welfare state required that the better off get some benefits from it, but it may be that such universalism is no longer feasible or even required.
Despite warnings by the prime minister that 'every single person' will be affected, more than two out of five respondents to a ComRes survey think that spending cuts will affect them only a little, if at all. Fewer than one in four people, 23 per cent, expected to be affected a lot by the cuts.
One of the worrying aspects of the current situation is that the output gap - which is effectively a measure of the amount of spare capacity in the economy - is smaller than expected. Whilst there is spare capacity in labour, as indicated by the increasing number of people in part-time work, it may not have the necessary skills. There is a concern that some physical capacity has been destroyed for ever by the recesion. This would help to explain why inflation has been so high which may mean that the Bank of England will have to raise interest rates before too long.
The Social Market Foundation has argued that 'universal benefits' would have to go, including paying child benefit and winter fuel payments to the better off. It was always assumed that the social contract that supported the welfare state required that the better off get some benefits from it, but it may be that such universalism is no longer feasible or even required.
Monday, 14 June 2010
Growth outlook is gloomy
The Office of Budget Responsibility is expected to publish growth forecasts today that will show those that Labour was working on were hopelessly optimistic. No suprise there.
Many independent analysts have been calling for some time for a body like the OBR. Of course, how independent it really is will be the subject of debate. But, unlike politicians, it does not have an incentive to make out that things are better than they really are.
The boom revenues from taxation are unlikely to return. Public sector net debt is forecast to rise from 36 per cent of national income in 2007-8 to 75 per cent in 2004-15. This alone would raise interest payments to close to 2 per cent of national income.
Moreover, these figures do not take into account the effect of an ageing population on public sector pensions, state pensions and the NHS. Nor do they take into account payments on PFI projects which often have a duration of thirty years.
Retirement ages and life expectancy have got completely out of kilter. However, these are evidently not going to be tackled soon and the Government has no evident appetite to means test free bus passes or winter fuel payments.
We are in for a period of slow growth, rising unemployment and reductions in public services. Whether the public are really ready for this is questionable.
Many independent analysts have been calling for some time for a body like the OBR. Of course, how independent it really is will be the subject of debate. But, unlike politicians, it does not have an incentive to make out that things are better than they really are.
The boom revenues from taxation are unlikely to return. Public sector net debt is forecast to rise from 36 per cent of national income in 2007-8 to 75 per cent in 2004-15. This alone would raise interest payments to close to 2 per cent of national income.
Moreover, these figures do not take into account the effect of an ageing population on public sector pensions, state pensions and the NHS. Nor do they take into account payments on PFI projects which often have a duration of thirty years.
Retirement ages and life expectancy have got completely out of kilter. However, these are evidently not going to be tackled soon and the Government has no evident appetite to means test free bus passes or winter fuel payments.
We are in for a period of slow growth, rising unemployment and reductions in public services. Whether the public are really ready for this is questionable.
Where was Dave?
I took my oldest granddaughter round Madame Tussaud's on Saturday. I haven't been there since our children were around her age and I have to say that it has much improved. It has also clearly globalised to reflect the clientele.
However, in the 'world leaders' section I was hoping to see David Cameron and possibly even Nick Clegg. Gordon Brown had gone, of course, but of Dave there was no sign. Now, of course, it takes a while to make these models and the prime minister has more important things to think about, but he was leader of the opposition for some years and expected to become prime minister.
To add insult to injury, Bozza was prominently displayed, although I suppose that reflects the London theme of the exhibition.
However, in the 'world leaders' section I was hoping to see David Cameron and possibly even Nick Clegg. Gordon Brown had gone, of course, but of Dave there was no sign. Now, of course, it takes a while to make these models and the prime minister has more important things to think about, but he was leader of the opposition for some years and expected to become prime minister.
To add insult to injury, Bozza was prominently displayed, although I suppose that reflects the London theme of the exhibition.
Friday, 11 June 2010
Kicking of ass
There is starting to be a reaction against President Obama's 'kicking of ass' approach to the oil spill in the Gulf of Mexico. Here is one of the better pieces, written by Sir Malcolm Rifkind: Obama
No one is claiming that BP have handled these events well, but let's consider why they happened in the first place:
1. Americans have an insatiable appetite for cheap gas. They account for some 5 per cent of the world's population but consume 25 per cent of its oil. That's an awful lot of a finite resource.
2. Barack Obama let the oil companies drill deep water wells in the Gulf in the hope that they would go easy on his low carbon plans.
3. Obama has been criticised for his slow reaction to the Gulf crisis. So what better way to distract attention from your own failings than to engage in some bashing of a foreign company?
David Cameron seems to have been a bit behind the curve in responding to all this, with Bozza leaping in first. Cameron may have felt that he was being statesmanlike in not damaging Britain's relations with the US by defending a company that had evidently made serious errors of judgment. But the stigmatising of BP has gone a bit too far: the origins of this crisis lie in oil politics in the US and that is as toxic a mix as any oil spill.
No one is claiming that BP have handled these events well, but let's consider why they happened in the first place:
1. Americans have an insatiable appetite for cheap gas. They account for some 5 per cent of the world's population but consume 25 per cent of its oil. That's an awful lot of a finite resource.
2. Barack Obama let the oil companies drill deep water wells in the Gulf in the hope that they would go easy on his low carbon plans.
3. Obama has been criticised for his slow reaction to the Gulf crisis. So what better way to distract attention from your own failings than to engage in some bashing of a foreign company?
David Cameron seems to have been a bit behind the curve in responding to all this, with Bozza leaping in first. Cameron may have felt that he was being statesmanlike in not damaging Britain's relations with the US by defending a company that had evidently made serious errors of judgment. But the stigmatising of BP has gone a bit too far: the origins of this crisis lie in oil politics in the US and that is as toxic a mix as any oil spill.
Oasis of opportunity in middle England
Chris White, the new MP for Warwick and Leamington, has made his maiden speech: White
He paid the customary tribute to his predecessor whom he described as 'an honourable member'. As is usual, he painted a picture in words of the constituency, describing its historic heritage, but also drawing attention to its pockets of deprivation. He pointed out that some 800 people were drawing the jobseekers' allowance in 2005, but the figure was now 2,166. Nevertheless, he described the comstituency as 'an oasis of opportunity' in Middle England and expresseed the hope that the green economy might create new job opportunities.
Much of his speech was focused on the people at the bottom of society and he was congratulated by the Labour member who followed for his 'passion for poverty'. He gave the example of a constituent who had been on benefits, obtained a part-time job ten miles away and found herself worse off after she had paid her travel costs.
The one thing I mildly objected to was the description of Whitnash as the third 'town' in the constituency. Because Whitnash was part of the old Warwick District it has its own town council: the town council, the district council seats and the county council seat are all held by the vociferous Whitnash Ratepayers who are really the creation of one man, Bernard Kirton. A former Labour activist who campaigned under the slogan 'Be certain, vote Kirton' he was an employee at AP for which Whitnash was a dormitory suburb.
I've no doubt that the Whitnash Ratepeayers do a very good job in looking after their voters. It is also an important swing area in general election terms so Chris is tactically astute to refer to it. However, I can assure you that any Martian approaching in his spaceship would think it was another suburb of Leamington with which it is contiguous. But such is political geography!
He paid the customary tribute to his predecessor whom he described as 'an honourable member'. As is usual, he painted a picture in words of the constituency, describing its historic heritage, but also drawing attention to its pockets of deprivation. He pointed out that some 800 people were drawing the jobseekers' allowance in 2005, but the figure was now 2,166. Nevertheless, he described the comstituency as 'an oasis of opportunity' in Middle England and expresseed the hope that the green economy might create new job opportunities.
Much of his speech was focused on the people at the bottom of society and he was congratulated by the Labour member who followed for his 'passion for poverty'. He gave the example of a constituent who had been on benefits, obtained a part-time job ten miles away and found herself worse off after she had paid her travel costs.
The one thing I mildly objected to was the description of Whitnash as the third 'town' in the constituency. Because Whitnash was part of the old Warwick District it has its own town council: the town council, the district council seats and the county council seat are all held by the vociferous Whitnash Ratepayers who are really the creation of one man, Bernard Kirton. A former Labour activist who campaigned under the slogan 'Be certain, vote Kirton' he was an employee at AP for which Whitnash was a dormitory suburb.
I've no doubt that the Whitnash Ratepeayers do a very good job in looking after their voters. It is also an important swing area in general election terms so Chris is tactically astute to refer to it. However, I can assure you that any Martian approaching in his spaceship would think it was another suburb of Leamington with which it is contiguous. But such is political geography!
Thursday, 10 June 2010
Teenage ministers
I watched a good part of Treasury questions on the BBC Parliament channel. I think that George Osborne could do a little less of the partisan point scoring, most of us have got the message that Labour made serious fiscal policy errors. It would be better if he cast himself as someone above the fray steering the nation through a serious financial crisis.
Lord Lawson when he was Chancellor used to complain about 'teenage scribblers' which was slightly ironic as he had once been a financial journalist himself. Looking at the Treasury bench with Danny Alexander sitting there it looked as if we now have teenage ministers, although I suppose this is the equivalent of saying all the policeman look young today. Alexander is no doubt very smart, but he does gravitas less well than his predecessor.
Alexander was thrown quite badly by a question from a grumpy Scottish Labour MP about the No.10 comms director, Andy Coulson, an Essex boy made good (a label that could also be applied to me). It was interesting to see George Osborne reassuring him after the exchange and the chemistry between them seemed to be good.
I still find it a little odd to hear Lib Dem ministers and Conservative MPs referring to each other as 'my honourable friend', but that's Coalition Government.
Lord Lawson when he was Chancellor used to complain about 'teenage scribblers' which was slightly ironic as he had once been a financial journalist himself. Looking at the Treasury bench with Danny Alexander sitting there it looked as if we now have teenage ministers, although I suppose this is the equivalent of saying all the policeman look young today. Alexander is no doubt very smart, but he does gravitas less well than his predecessor.
Alexander was thrown quite badly by a question from a grumpy Scottish Labour MP about the No.10 comms director, Andy Coulson, an Essex boy made good (a label that could also be applied to me). It was interesting to see George Osborne reassuring him after the exchange and the chemistry between them seemed to be good.
I still find it a little odd to hear Lib Dem ministers and Conservative MPs referring to each other as 'my honourable friend', but that's Coalition Government.
Tuesday, 8 June 2010
Fiscal Nimbyism
It's becoming evident that the public response to the proposed cuts in public expenditure is what is called 'Fiscal Nimbyism': I'm in favour of cuts, provided they don't affect me. It is also reminiscent of an old joke about the British: they want Swedish public services and American taxes.
Whilst one can understand the electoral pressures that lead the National Health Service to be treated as a sacred cow, it is questionable whether it is sensible to fence off a fifth of the budget in this way. Of course, there will be cuts in the NHS: the so-called 'efficiency savings' will see to that.
But isn't it time to have a more fundamental debate about how we deliver health care that gets beyond complaining about the number of administrators?
Whilst one can understand the electoral pressures that lead the National Health Service to be treated as a sacred cow, it is questionable whether it is sensible to fence off a fifth of the budget in this way. Of course, there will be cuts in the NHS: the so-called 'efficiency savings' will see to that.
But isn't it time to have a more fundamental debate about how we deliver health care that gets beyond complaining about the number of administrators?
Sunday, 6 June 2010
PMQs
Whenever I can I watch PMQs and occasionally make observations here. However, I have now come across a blog that looks at what happens in detail and makes informed and interesting comments, particularly about where a given MP is coming from. You can find it here: PMQs
An interesting comment about Alan Beith being in his 'twilight years'. He could presumably have gone to the Lords, but perhaps he thought that the Speaker might get into trouble and he could have another bite at that particular cherry.
I knew Alan Beith quite well when he was a political scientist, although he was one of those political scientists who is an academic while they are waiting to get into Parliament, not that there is anything wrong with that (and he took quite a perilous route). He wrote an autobiography a couple of years ago and I quote from it in my forthcoming history of the Political Studies Association.
The last time I ran across him was at No.11 Downing Street during the Blair-Brown transition period.
An interesting comment about Alan Beith being in his 'twilight years'. He could presumably have gone to the Lords, but perhaps he thought that the Speaker might get into trouble and he could have another bite at that particular cherry.
I knew Alan Beith quite well when he was a political scientist, although he was one of those political scientists who is an academic while they are waiting to get into Parliament, not that there is anything wrong with that (and he took quite a perilous route). He wrote an autobiography a couple of years ago and I quote from it in my forthcoming history of the Political Studies Association.
The last time I ran across him was at No.11 Downing Street during the Blair-Brown transition period.
PM lays it on the line
An interview in the Sunday Times with the prime minister was undoubtedly part of the 'softening up' process for the substantial public expenditure cuts and significant tax rises to be expected in the budget.
New Labour's way out of the structural budget deficit always relied on what David Cameron called 'trampoline' growth rates which I have always doubted were attainable in the medium term and look less likely now. They also assumed that interest rates would not go up very quickly, but once they do, the cost of servicing the debt - which brings no benefits to users of public services - will also increase.
On the tax side, the prime minister refused to rule out an increase in VAT. Of course, considerable revenue could be raised by broadening its base, but some of the revenue obtained would not be worth the political trouble. VAT on books, even at a lower rate, would be portrayed as a 'tax on knowledge'. VAT on newspapers would upset the press barons. VAT on construction would upset an already battered industry. But that doesn't mean that nothing can be done.
On the expenditure side, the Conservatives intend to tackle the very large amounts paid out in disability and incapacity benefits. New Labour did start to try to tackle this, but it is a political minefield. Lower back pain can be very debilitating and mental health problems are always difficult to assess. Freezing benefits for a year would bring in over £4bn and would be quite politically popular. However, it is puzzling that the Government appears to rule out means testing the winter fuel allowance and similar benefits. Should it be available to higher rate taxpayers?
However, it does seem that quite a lot of the cuts will fall on public sector pay, public sector pensions and public sector jobs. This would bring quick returns and might be quite popular with those not working in the public sector, but would also involve the Government in confrontations with the most unionised sector of the economy.
Nick has given his own version of the story in The Observer where he emphasises the need to make cuts sensitively. It seems that Nick and David are getting on very well, texting and E-mailing each other. Nick has been round to David's for dinner (which he refused to do before the election), but Sam Cam wasn't there as she and the children have been taking a holiday in Ibizia as they face up to life 'above the shop'. Apparently, the prime minister's sleep has been disturbed by the chimes of Big Ben at night.
David Cameron has had to deal with the tragedy in Cumbria (which I thought he did in exemplary fashion) and the Sunday Times says he is already looking his age. The job certainly aged Tony Blair. It's a tough task at the best of times and times are not easy.
New Labour's way out of the structural budget deficit always relied on what David Cameron called 'trampoline' growth rates which I have always doubted were attainable in the medium term and look less likely now. They also assumed that interest rates would not go up very quickly, but once they do, the cost of servicing the debt - which brings no benefits to users of public services - will also increase.
On the tax side, the prime minister refused to rule out an increase in VAT. Of course, considerable revenue could be raised by broadening its base, but some of the revenue obtained would not be worth the political trouble. VAT on books, even at a lower rate, would be portrayed as a 'tax on knowledge'. VAT on newspapers would upset the press barons. VAT on construction would upset an already battered industry. But that doesn't mean that nothing can be done.
On the expenditure side, the Conservatives intend to tackle the very large amounts paid out in disability and incapacity benefits. New Labour did start to try to tackle this, but it is a political minefield. Lower back pain can be very debilitating and mental health problems are always difficult to assess. Freezing benefits for a year would bring in over £4bn and would be quite politically popular. However, it is puzzling that the Government appears to rule out means testing the winter fuel allowance and similar benefits. Should it be available to higher rate taxpayers?
However, it does seem that quite a lot of the cuts will fall on public sector pay, public sector pensions and public sector jobs. This would bring quick returns and might be quite popular with those not working in the public sector, but would also involve the Government in confrontations with the most unionised sector of the economy.
Nick has given his own version of the story in The Observer where he emphasises the need to make cuts sensitively. It seems that Nick and David are getting on very well, texting and E-mailing each other. Nick has been round to David's for dinner (which he refused to do before the election), but Sam Cam wasn't there as she and the children have been taking a holiday in Ibizia as they face up to life 'above the shop'. Apparently, the prime minister's sleep has been disturbed by the chimes of Big Ben at night.
David Cameron has had to deal with the tragedy in Cumbria (which I thought he did in exemplary fashion) and the Sunday Times says he is already looking his age. The job certainly aged Tony Blair. It's a tough task at the best of times and times are not easy.
Saturday, 5 June 2010
How should ministers travel?
I note from the Financial Times this morning that George Osborne and his Treasury team have travelled to China by business class. To me this seems perfectly reasonable. I have to travel round the world in coach, unless I am fortunate enough to get the occasional upgrade to Economy Premium or Business, and there is a difference in the level of comfort.
Osborne and his team are there to represent British interests and to promote British trade with China (trade missions were rather neglected by New Labour). It seems to me that it is desirable that they arrive in as fresh a condition as possible and should also be able to work on the plane.
David Cameron has adopted a rather hairshirt attitude to facilities for ministers on the 'don't do as I say, do as I do' principle. On one level, that is reasonable enough. The old Government Car Service (now Goverment Cars) had become rather bloated. Incidentally, Geoff Dudley wrote an interesting history of it which I have seen in manuscript, but it never seems to have been published: Dudley
Some ministers need to travel by car for security reasons. For others walking or getting the underground might be more democratic, but it eats into the time they can spend on public business.
There is room for economies, but there can also be false economies.
Osborne and his team are there to represent British interests and to promote British trade with China (trade missions were rather neglected by New Labour). It seems to me that it is desirable that they arrive in as fresh a condition as possible and should also be able to work on the plane.
David Cameron has adopted a rather hairshirt attitude to facilities for ministers on the 'don't do as I say, do as I do' principle. On one level, that is reasonable enough. The old Government Car Service (now Goverment Cars) had become rather bloated. Incidentally, Geoff Dudley wrote an interesting history of it which I have seen in manuscript, but it never seems to have been published: Dudley
Some ministers need to travel by car for security reasons. For others walking or getting the underground might be more democratic, but it eats into the time they can spend on public business.
There is room for economies, but there can also be false economies.
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