I have to say that I am a bit underwhelmed. It often seemed that he was addressing the conference hall rather than the country. The speech went down well in Liverpool, especially the barbs against the Tories and Nick Clegg. But for me it didn't deliver a coherent strategy for government. It had the feeling of a speech that had been worked on a bit too much and hence sometimes came across as pedestrian when it aspired to be inspirational.
There was a theme there: I lost count of how many times values was mentioned. Ed was trying to say: these are my values and I think they are your values and the country's values as well. And Ed tried to sell himself as someone with an outsider's background who could deliver real change. He declared that he was his own man who would do things his way, making a real break with Tony Blair and Gordon Brown.
Much was made of the new bargain. This would create a society in which one got something for something, in which effort would be rewarded. A distinction between good and bad companies had been trailed beforehand, but how does one decide which company is a good one?
Ed thinks the system is flawed, and it may well be, but how does one make the link between this and the everyday concerns that people have, even though Ed tried to give concrete examples in his speech?
Tuesday 27 September 2011
Monday 26 September 2011
Labour's search for credibility
What Labour really needs out of its conference is the development of a view among voters that it is a credible alternative government. Of course, the first obstacle there is Ed Miliband. Voters do not see him as a credible prime minister in waiting. They think he lacks that indefinable but essential quality, charisma.
The answer of the Labour image makers is to portray Ed Miliband as 'one of us', cue photo opportunities with his children. Apart from the fact that the photos were rather trumped by one of Villa supporting Dave Cameron at the match at Loftus Road with his son, voters do not want prime ministers to be 'one of us'.
They expect them to have an understanding of their problems, but they also expect the prime minister to have qualities that separate him or her from the crowd, a sense of command and authority. Dave Cameron's confidence can shade into the appearance of arrogance and complacency, but he does look as if he is in charge.
When it comes to policy, there is something of a vacuum, reflecting Labour's overly complex policy review. Unfortunately, the first major announcement, capping student fees at £6,000 does not stand up to close scrutinty.
First, it is not clear what its status is. Certainly it is not a manifesto commitment (and what happened to the graduate tax anyway?) Apparently that is still on the agenda.
Second, the cut will only be of benefit to those who earn enough to repay their loans. So better off graduates could find their fees cut. Graduates earning more than £65k a year would have to pay a higher rate of interest on their loans, but in order to raise the required amount, these rates of interest would have to be prohibitively high.
This might seem to be a way of enticing students disllusioned with the Liberal Democrats, but students (and their parents) are going to look at this proposal long and hard.
The answer of the Labour image makers is to portray Ed Miliband as 'one of us', cue photo opportunities with his children. Apart from the fact that the photos were rather trumped by one of Villa supporting Dave Cameron at the match at Loftus Road with his son, voters do not want prime ministers to be 'one of us'.
They expect them to have an understanding of their problems, but they also expect the prime minister to have qualities that separate him or her from the crowd, a sense of command and authority. Dave Cameron's confidence can shade into the appearance of arrogance and complacency, but he does look as if he is in charge.
When it comes to policy, there is something of a vacuum, reflecting Labour's overly complex policy review. Unfortunately, the first major announcement, capping student fees at £6,000 does not stand up to close scrutinty.
First, it is not clear what its status is. Certainly it is not a manifesto commitment (and what happened to the graduate tax anyway?) Apparently that is still on the agenda.
Second, the cut will only be of benefit to those who earn enough to repay their loans. So better off graduates could find their fees cut. Graduates earning more than £65k a year would have to pay a higher rate of interest on their loans, but in order to raise the required amount, these rates of interest would have to be prohibitively high.
This might seem to be a way of enticing students disllusioned with the Liberal Democrats, but students (and their parents) are going to look at this proposal long and hard.
Monday 19 September 2011
Black hole in public finances
Ministers have been sounding a gloomy tone recently and it's not just because of the eurozone crisis. Work by the Financial Times using the Office for Budget Responsibility model suggests that the structural deficit is £12bn higher than previously thought, a slippage of 25 per cent.
It seems that the level of spare capacity in the economy, both in terms of plant and labour (with the right skills mix), is lower than was previously thought. I would add a note of caution here as spare capacity is more difficult to forecast than most economic variables.
What this would imply is yet more spending cuts or tax increases, but politically that is not viable given the sluggish growth in the economy which, according to the Bank of England, would have tipped into recession but for quantitative easing. What the Bank also admits that QE has pushed inflation higher than it would have been by 0.75 to 1.5 per cent. Of course, inflation also reduces the real value of the debt.
In any event we aren't going to see value added tax go up to 22.5 per cent which is what would be required to plug the gap. But it is does show how difficult will be for the Government to meet its structural deficit target and have some good economic news by the time of the next general election.
It seems that the level of spare capacity in the economy, both in terms of plant and labour (with the right skills mix), is lower than was previously thought. I would add a note of caution here as spare capacity is more difficult to forecast than most economic variables.
What this would imply is yet more spending cuts or tax increases, but politically that is not viable given the sluggish growth in the economy which, according to the Bank of England, would have tipped into recession but for quantitative easing. What the Bank also admits that QE has pushed inflation higher than it would have been by 0.75 to 1.5 per cent. Of course, inflation also reduces the real value of the debt.
In any event we aren't going to see value added tax go up to 22.5 per cent which is what would be required to plug the gap. But it is does show how difficult will be for the Government to meet its structural deficit target and have some good economic news by the time of the next general election.
Tuesday 13 September 2011
Thursday 8 September 2011
Economists disagree shock
This should come as no great surprise, indeed it could apply to any group of experts. However, I was interested to see that my colleague Mark Harrison (with whom I taught Making of Economic Policy last academic year) was one of the signatories of the letter from 20 economists in the Financial Times yesterday arguing that the 50 per cent tax rate was damaging to the economy. Today there is a reply from Andrew Oswald also in the Economics department at Warwick, although currently based in Bonn and best known as a happiness guru.
Oswald points out that the signatories produce no evidence to support their case and states that what evidence there is points in the opposite direction. The evidence that Oswald cites seems a bit limited as it is based on a case study of a tax hike in New Jersey.
In another letter, Alan Manning of LSE points out that a study of footballers, plausibly the most mobile of professions, did find that tax rates influenced location decisions, but the effect was not large and the research concluded that the revenue-maximising tax rate was well in excess of 50 per cent.
Of course one could argue that the 50 per cent rate sends out a signal about whether Britain is 'open for business'. Its main effect may not be inducing relocation, but dissuading location in the first place.
In any case the tax has not been in place long enough for its effects to be properly studied, although the Treasury is trying to make some calculations. One of the considerations has to be whether it encourages the use of tax avoidance devices.
Of course in many respects what the tax is about is political symbolism. It is a seen as a gesture towards 'fairness', although whether it does promote fairness is another matter. But withdrawing it would be politically costly when median incomes are being squeezed.
If the goal is revenue maximisation, then it is arguable that property taxes are more efficient and less distortive. A 'mansion tax', a 1 per cent levy on the amount by which a property's value exceeds £2m, would generate enough revenue to replace the mansion tax. But it might be politically difficult for many Conservatives.
Oswald points out that the signatories produce no evidence to support their case and states that what evidence there is points in the opposite direction. The evidence that Oswald cites seems a bit limited as it is based on a case study of a tax hike in New Jersey.
In another letter, Alan Manning of LSE points out that a study of footballers, plausibly the most mobile of professions, did find that tax rates influenced location decisions, but the effect was not large and the research concluded that the revenue-maximising tax rate was well in excess of 50 per cent.
Of course one could argue that the 50 per cent rate sends out a signal about whether Britain is 'open for business'. Its main effect may not be inducing relocation, but dissuading location in the first place.
In any case the tax has not been in place long enough for its effects to be properly studied, although the Treasury is trying to make some calculations. One of the considerations has to be whether it encourages the use of tax avoidance devices.
Of course in many respects what the tax is about is political symbolism. It is a seen as a gesture towards 'fairness', although whether it does promote fairness is another matter. But withdrawing it would be politically costly when median incomes are being squeezed.
If the goal is revenue maximisation, then it is arguable that property taxes are more efficient and less distortive. A 'mansion tax', a 1 per cent levy on the amount by which a property's value exceeds £2m, would generate enough revenue to replace the mansion tax. But it might be politically difficult for many Conservatives.
Tuesday 6 September 2011
Do prime ministers and chancellors always fall out?
In article in the Evening Standard yesterday reviewing Alastair Darling's memoirs the distinguished political commentator Anthony Seldon argued, 'Britain has specialised in bad relationships between prime ministers and chancellors.' If that is the case, the consequences for the conduct of economic policy would be very serious as this relationship is the very fulcrum of government.
Seldon is able to produce a number of examples to support his case: (arguably) Howe and Thatcher; Lawson and Thatcher (although not initially); Lamont and Major; and Brown and Darling.
But one could produce counter examples. Seldon has to concede Clarke and Major. Healey from 1974 to 1979 had an effective working relationship with Wilson and then Callaghan. And the relationship between Osborne and Cameron seems to be harmonious and effective.
But then Cameron allows Osborne to get on with the job. The worst situations arise when the prime minister really wants to be chancellor as well. That was a problem with Macmillan's succession of chancellors and it was with Edward Heath, having seen the untimely death of Iain Macleod in the opening weeks of his administration. Anthony Barber was arguably one of the least impressive of post-war chancellors and lacked the authority and political base to stand up to Heath.
Given the importance of this relationship, it is remarkable how little systematic research there has been on it.
Seldon is able to produce a number of examples to support his case: (arguably) Howe and Thatcher; Lawson and Thatcher (although not initially); Lamont and Major; and Brown and Darling.
But one could produce counter examples. Seldon has to concede Clarke and Major. Healey from 1974 to 1979 had an effective working relationship with Wilson and then Callaghan. And the relationship between Osborne and Cameron seems to be harmonious and effective.
But then Cameron allows Osborne to get on with the job. The worst situations arise when the prime minister really wants to be chancellor as well. That was a problem with Macmillan's succession of chancellors and it was with Edward Heath, having seen the untimely death of Iain Macleod in the opening weeks of his administration. Anthony Barber was arguably one of the least impressive of post-war chancellors and lacked the authority and political base to stand up to Heath.
Given the importance of this relationship, it is remarkable how little systematic research there has been on it.
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