It should be no surprise that in the weekend before the budget both the Financial Times and The Economist have published profiles of the Chancellor of the Exchequer, George Osborne. The one in the FT magazine is particularly long and favourable and looks as if it could have been 'placed' by the Chancellor's political advisers.
However, the message of the two pieces is essentially the same: the Chancellor is no longer Boy George. Before the election there were concerns that he would not be up to the role. He was seen as too preoccupied with scoring political points. But he has grown into the role well. Although not a workaholic, civil servants think that he has mastered the technical aspects of his brief well. He has an appetite for reforming taxes, rather than just cutting them.
He also has a good working relationship with the prime minister, symbolised by the fact that he works most of the time out of No.11 Downing Street rather than the Treasury. The door to No.10 is kept pinned open and the Chancellor takes a leading role in regular strategy discussions. The relationship between the Prime Minister and the Chancellor is the fulcrum of government and when it breaks down (Lawson and Thatcher) or is tense (the Blair-Brown 'dual monarchy'), the reverberations are felt throughout Whitehall.
David Cameron has a long way to go as Prime Minister and is currently enjoying a good war. However, Osborne is now seen as a potential successor in a way that he wasn't before. The Tory right see him as more attuned to their way of thinking than the Prime Minister.
One problem is Osborne's public image. He doesn't expected to be liked, but he does hope to earn the respect of the people. However, an Economist poll shows that William Hague is seen as the most likely successor, followed by Nick Clegg! Osborne only gets 9 per cent.
In part this reflects the way in which Nick Clegg is the public No.2 in the government and has acted as a lightning conductor for its policies. What is also interesting about the Economist poll is that although the electorate have taken on board Labour's message that the government is cutting too far, too fast and that the poor will suffer most, they also largely blame the existence of the deficit on Labour. That effect may, of course, fade over time and a big responsibility rests on Osborne for restoring the economy to better health.
Sunday, 20 March 2011
Sunday, 13 March 2011
Labour still lacks new growth model
Labour still lacked a new growth model argued Professor Colin Hay at an End of New Labour? workshop at the University of Warwick last Friday. This would involve the channelling of credit out of the housing market to targeted export oriented sectors of the economy. An alternative account to the crisis of debt in terms of a crisis of growth could just about be detected.
It was difficult to see how a model of privatised Keynesianism (reliant on debt to fuel growth) could be resuscitated. High levels of private debt had increased the sensitivity of demand in the economy to interest rate variations.
There was a large interest rate spread between the LIBOR wholesale rate and mortgage and commercial lending. This functioned as a form of bank recapitalisation and was a drain on consumer demand and investment.
A manufacturing rebalancing of the economy would be very difficult to achieve. There was a need for downward pressure on the actual cost of borrowing. One could politicise the spread of credit, shaming banks. The Bank of England should be made responsible not only for base rate but for monetary policy more generally. Mortgage holders were likely to respond positively to such a strategy, but it was not sufficient.
Andrew Gamble asked how, given the extent of financialisation and individualisation, could this be reversed politically? How could the state change the supply of credit, what capacity would it need?
Peter Burnham raised the question of whether government needed a growth model. Jim Bulpott would have argued that it need it politically, but not economically. As far as manufacturing was concerned, the value chain was broken and three-quarters of what was left was in workshops employing small numbers of workers. One could not impose rates on any bank.
In summary the discussion suggested that there was no easy route out of the current crisis.
It was difficult to see how a model of privatised Keynesianism (reliant on debt to fuel growth) could be resuscitated. High levels of private debt had increased the sensitivity of demand in the economy to interest rate variations.
There was a large interest rate spread between the LIBOR wholesale rate and mortgage and commercial lending. This functioned as a form of bank recapitalisation and was a drain on consumer demand and investment.
A manufacturing rebalancing of the economy would be very difficult to achieve. There was a need for downward pressure on the actual cost of borrowing. One could politicise the spread of credit, shaming banks. The Bank of England should be made responsible not only for base rate but for monetary policy more generally. Mortgage holders were likely to respond positively to such a strategy, but it was not sufficient.
Andrew Gamble asked how, given the extent of financialisation and individualisation, could this be reversed politically? How could the state change the supply of credit, what capacity would it need?
Peter Burnham raised the question of whether government needed a growth model. Jim Bulpott would have argued that it need it politically, but not economically. As far as manufacturing was concerned, the value chain was broken and three-quarters of what was left was in workshops employing small numbers of workers. One could not impose rates on any bank.
In summary the discussion suggested that there was no easy route out of the current crisis.
Wednesday, 9 March 2011
The competence theme
Ed Miliband made the competence of the Government his organising theme at PMQ's today. However, he is going to have a bit of an uphill struggle according to the results of a new Populus poll.
44 per cent of those interviewed said that they trust the coalition's key economic figures to manage the economy as against 33 per cent for Labour. 41 per cent agreed that the Conservatives have 'a good team of leaders' as against 34 per cent for Labour.
However, Labour's lead on 'shares my values' has gone up from 1 per cent to 9 per cent, while the number agreeing that Labour is 'for ordinary people, not just the best off' has also gone up.
The Liberal Democrats have taken a big hit on whether they are 'honest and principled' down from 40 per cent in September to 24 per cent now. No longer can they claim to be above or beyond politics.
44 per cent of those interviewed said that they trust the coalition's key economic figures to manage the economy as against 33 per cent for Labour. 41 per cent agreed that the Conservatives have 'a good team of leaders' as against 34 per cent for Labour.
However, Labour's lead on 'shares my values' has gone up from 1 per cent to 9 per cent, while the number agreeing that Labour is 'for ordinary people, not just the best off' has also gone up.
The Liberal Democrats have taken a big hit on whether they are 'honest and principled' down from 40 per cent in September to 24 per cent now. No longer can they claim to be above or beyond politics.
Wednesday, 2 March 2011
Living standards may never recover
Mervyn King has warned that living standards may never recover from the current economic crisis: Crisis
He is surprised that people are not angrier, but they may just be despairing. The global economic balance is shifting against countries like the UK and the hope of each generation's living standard being better than the last one may no longer be achievable.
Each day I drive past a petrol station and each day the price seems to have gone up by a penny a litre. Of course this is partly a consequence of an overreaction by the markets to events in Libya which only accounts for 2 per cent of world oil production.
It's difficult for families to cut down their use of petrol in the short run as most journeys are more or less essential, particularly at this time of year. As a consequence, budgets can stretched and even low end retailers like Primark are now feeling the pinch.
On economic and political grounds the Government would probably be advised to suspend the increase in fuel duty planned for April even though it will cost them £500m. The notion of an automatic stabiliser is more problematic as it could punch a big hole in the public finances.
He is surprised that people are not angrier, but they may just be despairing. The global economic balance is shifting against countries like the UK and the hope of each generation's living standard being better than the last one may no longer be achievable.
Each day I drive past a petrol station and each day the price seems to have gone up by a penny a litre. Of course this is partly a consequence of an overreaction by the markets to events in Libya which only accounts for 2 per cent of world oil production.
It's difficult for families to cut down their use of petrol in the short run as most journeys are more or less essential, particularly at this time of year. As a consequence, budgets can stretched and even low end retailers like Primark are now feeling the pinch.
On economic and political grounds the Government would probably be advised to suspend the increase in fuel duty planned for April even though it will cost them £500m. The notion of an automatic stabiliser is more problematic as it could punch a big hole in the public finances.
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