The night of the blunt knives

It has been variously characterised as the night of the blunt knives or the night of the long plastic knives, but Theresa May's reshuffle was another presentational disaster, emphasising once again the limits of her authority.

The problems started with Chris Grayling being named as party chairman (he apparently was in the frame) only for this to be corrected some time later. Jeremy Hunt was then able to resist being moved from Health and ended up with an expanded portfolio. An attempt to shift Justine Greening to Work and Pensions ended up with her leaving the government.

If anything demonstrates the limits of Mrs May's authority, it is the grinning visage of Andrea Leadsom on Twitter this morning celebrating her continuation in office as Leader of the House. Her departure was widely anticipated, but although Mrs May is said to have a low opinion of her, she remained in place.

Apparently Downing Street cat Larry has been rebranded as Minister for Rodent Control. One thing is clear: Mrs May isn't in control. But this does not mean she is in any real danger, as there is no clear successor.

Not surprisingly, George Osborne's Evening Standard is critical, praising her for the hat trick of the worst manifesto, the worst conference speech and the worst reshuffle: Prime minister's essential weakness

Stop demonising debt

The head of the Association of British Chambers of Commerce, John Longworth, has said that politicians should stop demonising debt. He has called for infrastructure spending to be excluded from national debt targets.

He argued that infrastructure spending was an investment rather than a cost. He commented, 'Politicians are well versed in telling the electorate that we shouldn't leave today's debt for tomorrow's generation. It would be equally calamitous to leave the next generation with an economy ill-equipped to compete on the global stage.'

A BCC report called 'Bursting the Bubble' stated that current levels of investment were inadequate to deliver transport capacity, energy security and digital connectivity: Bursting the Bubble

George Osborne argues that either the deficit goes down or the country goes down. However, the current low interest rate environment offers an opportunity to improve infrastructure. If the Northern Powerhouse is to be more than just rhetoric, urgent investment is needed in transport infrastructure to replace 40-year trains made up of bus bodies welded on to bogies.

Ask the Chancellors

I can't imagine this attracted a large audience live on a Monday afternoon, but, of course, what matters is how it is 'spun' in late news programmes. I thought each slot was going to last an hour, but in fact it was half an hour and George Osborne was cut off in mid flow by a commercial. The use of boom mikes did affect the sound quality sometimes. I thought that the young woman who asked George Osborne a question about zero hour contracts said she came from Greenwich, but George Osborne seemed to think she came from the Midlands. To me, she had a London accent.

The audience seemed to be predominantly made of small business entrepreneurs and this meant that Ed Balls seemed to get a rougher ride, but I thought that he acquitted himself quite well. He had two (tougher) questions from social media and George Osborne had one. At the beginning, Ed Balls seemed to fall into his old trap of seeming to bluster, but became more convincing as time went on, particularly on the question of Europe.

George Osborne gave a smooth and confident performance, reiterating his basic messages although there is a risk that he can seem complacent. He was most put under pressure by the young woman student on zero hours contracts. It is not the case the majority of jobs take that form, but they do particularly affect the young, women and some older people. Ed Balls acknowledged that they perform a useful function for some, but felt that some employers had pushed them too far.

What struck me was that throughout both interviews, no questioner nor either respondent referred to the most fundamental structural problem facing the British economy: low rates of productivity. Neither really had a good answer on getting more houses built. Ed Balls was under some pressure on the mansion tax, but managed to put up a defence, although it isn't going to raise enough revenue to provide more doctors and nurses (the issues there aren't just financial anyway).

No longer Boy George

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.

The UK and the Irish bailout

Ireland has not got a bad deal out of the EU/IMF bailout. They have retained their low corporation tax rate which, to be fair, is necessary if they are grow out of the crisis (although most analysts think the projected figures are optimistic). The interest rate is higher than Greece was charged at a mean of 5.83 per cent, but lower than some forecasts.

Irish citizens are blaming bad government for the mess they are in, but let's not forget that some of them were willing to take the cheap money when it was available and ruin the Irish countryside with completely out of character houses in prominent positions.

Britain is putting in a package of help as are two other non-eurzone countries, Denmark and Sweden. A texter to 'Wake up to Money' this morning asked 'How can we lend money to Ireland when we are skint?'

Simples. First, we are lending money to Ireland at a higher interest rate than we have to pay for it so we should make a profit. Admittedly, the Irish could default and they will be paying 20 per cent of their taxes to meet the interest. However, I think the odds are now against a default.

In any case, Ireland takes 7 per cent of our exports and British banks are heavily exposed in Ireland. The national interest is an over used phrase but George Osborne is right to use it in this case.

However, right-wing Conservative backbenchers are not happy and may be less so if it was proposed that Britain should help out Portugal or Spain who are the next likely targets for the financial markets. Spain is over 10 per cent of the eurozone economy, but it should be noted that the 'peripheral' countries only account for 20 per cent of the eurozone as a whole.

The eurozone could move towards a fiscal and political union but that is very unlikely. In the longer run we may see a smaller eurozone which is what many people wanted in Germany in the first place, but the actual mechanisms of exit for, say, Greece, would be difficult to set up.

The Treasury story

In this article I take a look at the Treasury under George Osborne in contrast with its role under Gordon Brown: Treasury

Higher rate taxpayers to lose child benefit

George Osborne has announced that child benefit will be withdrawn from higher rate taxpayers from 2013: Child benefit . (Incidentally, one would think the Telegraph would know the difference between 'principal' and 'principle').

Universal benefits of this kind cost a huge amount of money, although they also underpin support for the welfare state from the better off part of the population.

Of the various options that have been discussed so far, this is a more equitable move than stopping child benefit at 16 or restricting it to the first two children (the latter would particularly hit poorer families).

It will be interesting to see whether there will now be restrictions on the winter fuel payment or bus passes. One has to remember that a lot of older votes are Conservatives and they have a high rate of turnout.

Bigging up Mandy

The Times is bigging up Peter Mandelson's memoirs, no doubt hope to attract paid traffic to its new website. As a subscriber to the paper, I was offered 'exclusive' video access on Saturday. I didn't bother.

No doubt Mandy's memoirs will be essential reading for those interested in the toxic conflicts at the top of New Labour. The Brown-Blair struggle had a damaging effect on the conduct of public policy and the effectiveness of the Government. Mandy says that he has rushed his memoirs out in order to inform candidates in the titanic struggle for the Labour leadership, but some commentators think he has been motivated by getting his account ahead of the Reverend Blair who is none too pleased according to some accounts.

There is a sense in which the dysfunctional struggles at the top of New Labour are yesterday's story. We now have a new Government which appears to be functioning well, the odd slip by particular ministers aside. George Osborne's ratings have shot up and William Hague is getting deservedly favourable coverage for his pragmatic yet still strategic conduct of foreign policy.

Mandy has revealed that Nick Clegg wanted Gordon Brown to go as the price of any coalition with Labour and that Gordon, reasonably enough, thought he had been humiliated enough. But most people had worked that out for themselves.

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.

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.

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.

A steep learning curve

I have to admit that I am on a steep learning curve with the Coalition Government. I have a sense of the policy ground shifting beneath my feet even in areas I am very familiar with. The final outcome is very uncertain in many cases.

Part of the problem is a lack of familiarity with the policies of the Liberal Democrats. Mea culpa, but many of us never anticipated they would be in government. I am reminded of an incident in the 2001 Parliament when I was attending a meeting at the House of Commons on higher education. A Liberal Democrat MP came and sat next to me. I knew he was and which constituency he represented. What I didn't know was that he was their spokesman on higher education which sent him into 'Do you know who I am?' mode.

In one policy area with which I am familiar, admittedly not a very high profile one, I have learnt that the Liberal Democrats have a policy which is diametrically opposite that of the Conservatives. It will be interesting to see what is said at a meeting on the subject I have to attend tomorrow.

I am not saying that it will not be possible to arrive at negotiated compromises or agreements to differ on these matters. But it is relatively uncharted territory politically and to some extent the rules of the game have to be learnt as we go along.

One area which is quite important is the role of the Treasury. I think it is no great secret that senior Treasury officials were indicating in the months before the election that they thought their department should continue to be an economics as well as a finance ministry.

George Osborne and his ultra dry Liberal Democrat Chief Secretary are clearly focused on its role as a finance ministry for understandable reasons. Quite a lot of the economic territory is being carved out by St. Vince of Cable. However, we have been here before. Challenges by the business department (in its many incarnations) have always ended up with the Treasury eventually establishing dominant control of the policy space.

Coalition tie

I never anticipated a Conservative-Liberal coalition government. In fact, I think I have only made two correct predictions over the last couple of weeks. I forecast that Chris White would win Warwick and Leamington for the Conservatives, but greatly underestimated his majority. Actually my original intuition was that his majority would be over 3,000, but I couldn't believe that the swing would be that big. If it had been across the country as a whole, the Conservatives would have a comfortable working majority.

Following Gordon Brown's resignation, my local BBC radio station rang up and asked me on air when David Cameron would arrive at Downing Street. I did a very rough calculation of the likely choreography, but it was an inspired guess that made me say 8.45 p.m. (it was 8.43).

Once the election results were known, I thought that the Lib Dems would limit themselves to a 'confidence and supply' agreement with the Conservatives and that another election would follow. Although the so-called 'progressive majority' is something of a myth and not all Lib Dem voters are natural Labour voters who have strayed, I though they would be reluctant to vacate their slightly left-of-centre political space and risk their identity.

When the National Government was formed in 1931, the Liberals split (as did Labour, although National Labour was a small faction). The National Liberals had a distinct identity into well in the post-war period with their own whips and space in the House of Commons. Some candidates stood as 'National Liberal and Conservative' or some such formulation. But they became a footnote to history.

I realised how much I changed when I saw the Lord President of the Council, Nick Clegg, leading his fellow cabinet ministers into Buckingham Palace to receive their seals of office. They must have thought they would never see the day. It is also good to see a talented young woman like Sarah Teather become a minister of state.

The personal chemistry in the coalition is so far good, with perhaps a hint of tension between Vince Cable and George Osborne. The coalition agreement, a much shorter agreement than is usual in continental Europe, needs to be fleshed out, although it was completed with commendable speed (it takes about three weeks in Germany). Mechanisms have been put in place to resolve disagreements. Some of the most difficult issues may arise because of EU directives or regulations, with decisions unfavourable to British interests on hedge funds scheduled to be taken in a week or two.

There has been some argument about the fixed term parliament proposals, with constitutional experts expressing different views. The legislation may get a rough ride in the House of Lords.

I had a look in my wardrobe this morning at my collection of ties. I don't wear a tie that often, although I have a lot. But I didn't have one that was predominantly blue with a subordinate yellow theme. So I went out and bought one.

Whilst talk of the 'national interest' has been overdone in the last few days, the country's economic and financial circumstances are such that we need this coalition government to work.

Vince wins, but what's the prize?

Vince Cable was the clear winner in last night's debate between would-be chancellors, both according to an online poll of viewers and my own judgement after watching the programme. Saint Vince did remind us that he had been right all long, but was also prepared to think the unthinkable and say we could not ring fence the NHS without leading to devastating cuts elsewhere.

George Osborne was wearing an over tight suit and was in a bit of a tight spot over the promise to reverse the proposed rise in National Insurance contributions. He claims to have discovered even more efficiency savings. We all know that they exist: on Saturday I got six separate letters with an accompanying leaflet about tax codes from Revenue and Customs. Some were for employers I had done a task for once and was unlikely to do again and once was for a pension fund I am not a member of. But as Vince pointed out, many of these efficency savings are 'pure fiction'. And if they can be made, why not use them to pay down the debt?

Darling batted well on a sticky wicket and did himself no harm. Unfortunately, the audience asked straight and clear questions, but rarely got straight and clear answers, although more so from Vince.

As George Osborne pointed out towards the end of the programme, we are either going to have a Conservative or a Labour Government sometime after May 7th, so there is no prize for Vince. One newspaper suggested this morning that we could have a Lib Dem chancellor, but the Lib Dems are not going to tarnish their identity by entering a coalition.

The scrumpy Budget

All the talk on social networking sites and on Radio 5 has been about the tax increase on cider. Apparently it has upset a lot of people in the west country, but I shouldn't think that will worry Labour too much given its lack of seats in the cider growing areas.

Although there have been a series of departmental statements about 'efficiency savings' which, of course, have to be achieved, and in any event are not likely to be painless, the real decisions have been postponed until after the election. Should Labour get back, there will be a comprehensive spending review and probably another budget before the year is out. If the Conservatives return, they have promised an emergency budget in 50 days.

Both parties are being very coy about a rise in Value Added Tax. To the annoyance of his colleagues, Alastair Darling has refused to rule it out, but under any scenario, he is unlikely to be Chancellor after the election. George Osborne was evasive when he was questioned on Radio 5 this morning, saying that he didn't have any specific plans, which does not mean that he would not do it.

Osborne was critical of the Government decision to freeze personal tax allowances which was not mentioned in the Budget speech at all, but it is difficult to see what else the Government could do in the circumstances and he made no commitment to reverse the decision.

Labour's strategy in a very political budget was clearly to try and shore up core Labour support with a 'soak the rich' approach, emphasising that 60 per cent of the tax increases would be borne by 5 per cent of the population. Broadly, I would think that the budget is politically neutral as well as fiscally neutral, i.e., it won't shift many votes either way except perhaps a few disgruntled cider drinkers.

I did the budget hour on BBC Coventry and Warwickshire last night and the guy trying to do vox pops at the bus station was getting very little response at all, suggesting a great indifference. People don't like the increases in fuel (the cost seems to go up every time one fills up) and drink, but somehow expect them.

I took part in a panel discussion at Rory Bremner's show at Warwick Arts Centre last night and what came across, not surprisingly, was a great disillusionment with the whole political process. There are no easy answers to that with successive revelations about politicians lining their pockets rather than serving the public interest.

Gideon's dilemma

The polls tell us that the public are in the mood for cuts, but it's one thing to be hypothetically in favour of them, it's a different matter altogether if the pain lands on your doorstep.

This was George Osborne's dilemma at the Conservative Party conference yesterday. The Conservatives have come under pressure to provide details about how they would deal with reducing the mountain of public debt, but the more detail one offers, the more hostages to fortune are provided.

It seems to me that the main problem with the speech is that it didn't go anywhere near far enough if one assumes one has to find £100bn (as a ball park figure). For example, families earning £50,000 a year (not large an amount in Southern England where one can easily have a £1,000+ a month mortgage) will lose their tax credits. However, this will only save £400m, but it still risks upsetting a group of potential Conservative voters. There has been talk of cutting tax credits and child benefit for those on over £30,000 a year which would save £13bn.

Accelerating the advancement of the retirement age to 66 is necessary in the context of an ageing population, indeed it probably needs to go to 67 sooner rather than later. However, this will not produce any savings in the medium term and may offend those affected.

A public sector pay freeze is more or less common ground between the parties, but it would affect 4 million public sector workers and their families. Talk of saving £3bn on 'bureaucracy' has little detail attached to it.

What this does lead one to believe is that the Conservatives must be contemplating tax rises and the most likely candidate is a rise in the rate of VAT, or even the removal of zero rating on some items.

Dave had drink while student - revelation

Apparently shortly before the general election a documentary will be screened about the Bullingdon Club at Oxford. It will show that Dave Cameron and George (Gideon) Osborne were members of this club and that its members had a few too many drinks and caused some mayhem.

This is a revelation on a par with the story that formed the lead item on the local Fox when I was teaching at Washington University. Shock horror, students at frat houses were having parties over the weekend at which kegs of beer were brought in and consumed. It was almost on a par with their story about two escaped Rottweilers on some island which showed two obese cops spraying the bush with bullets.

I think one might go to one of the lowest ranked universities in the country and find students having too many drinks. Indeed, there were occasions when I did when I was a student.

Of course the sub-text here is that this is some kind of elitist conspiracy comparable to the Skull and Crossbones club Dubya was in at Yale. Now that probably was more like an elitist conspiracy whereas the Bullingdon Club is a bunch of amatures by comparison. Admittedly, they probably drunk champagne rather than Stella Artois. Or perhaps both? No doubt the programme will tell us.

I'm not sure that the background of many Labour MPs as professional members of the political class, lawyers or teachers qualifies them any more to be in touch with so-called 'ordinary people' than Dave.

My serious point is that what should be happening is a through scrutiny of Conservative policies. This is important even for committed Conservative supporters. There is a view going around that once the Conservatives are in they will be there for at least ten years and admittedly that is the pattern of recent British governments.

However, if they get it wrong, they could pay a heavy price. And it's actually bad news for all of us.