The latest Ipsos MORI poll reported in The Observer today shows that Labour has fallen back by five points to 32 per cent since mid-November. The Conservatives and Liberal Democrats have gone up by three percentage points to 43 and 15 per cent respectively.
However, a higher proportion of the public trusts the Prime Minister and the Chancellor in the current crisis than trusts David Cameron and George Osborne (46 per cent to 33 per cent). On the issue of which team would be the best to run the country after the next election they are level pegging at 39 per cent.
On careful analysis the Darling package is flawed in a number of respects and is hardly likely to provide much of a stimulus to the economy despite its cost. Equally, the Conservatives have been relatively flat footed in the crisis, particularly in terms of spelling out an effective constructive alternative.
For the first time this year, the PSA Awards were televised (albeit at an obscure time on the BBC Parliament Channel) and the Parliamentarian of the Year award justifiably went to Vince Cable. Dr Cable, who is an economist by origin (but one with extensive business experience), is listened to with respect in the Commons on economics and financial issues because he has been proved right so often.
It was therefore quite alarming to hear him predict that the effects of the present systemic banking crisis may be felt for many years to come. I do not doubt that he is right. Rather one engaging in a blame game, what is really needed is to plot a credible forward course.
Sunday, 30 November 2008
Wednesday, 26 November 2008
The sting is in the tail
To understand the pre-budget statement you really need to read it in full which I have not had the time to do that. However, a few stings in the tail are emerging, leaving aside the discarded proposal to increase VAT to 18.5 per cent after the 'tax holiday'. Anyone who has worked on government files in the National Archives knows that proposals are often discarded at the last minute, although Dave Cameron is using it to push his recycled 'Labour's tax bombshell' theme which always invites the question 'well what would you do?'
National Insurance is a form of income tax by another name (the marginal 40 per cent rate is already effectively 41 per cent) and is to go up again. Moreover, tinkering with tax allowances means that owes earning over £100,000 are set to pay a lot more tax in the future.
Even more significant, the tax threshhold for the 40 per cent rate will not be raised setting 'fiscal drag' in motion as inflation returns and clawing more taxpayers into that band, including many public sector workers such as teachers and police personnel. They will take a hit from another direction because, after many years of perhaps over rapid growth, the public sector will receive relatively little extra money in real terms. Indeed, given the demands of an ageing population, in some respects it could lead to cuts in services.
Alastair Darling has not been quite as transparent as he would like to claim. And when the full implications sink in the euphoria about 'soaking the rich' in the Labour Party may dissipate.
There is a real incentive question here. If highly skilled and qualified people think they are being over taxed and also receiving deteriorating public services, there are plenty of other places they can go - although it seems that they may be beaten to it as far as Australia is concerned as many citizens return home.
National Insurance is a form of income tax by another name (the marginal 40 per cent rate is already effectively 41 per cent) and is to go up again. Moreover, tinkering with tax allowances means that owes earning over £100,000 are set to pay a lot more tax in the future.
Even more significant, the tax threshhold for the 40 per cent rate will not be raised setting 'fiscal drag' in motion as inflation returns and clawing more taxpayers into that band, including many public sector workers such as teachers and police personnel. They will take a hit from another direction because, after many years of perhaps over rapid growth, the public sector will receive relatively little extra money in real terms. Indeed, given the demands of an ageing population, in some respects it could lead to cuts in services.
Alastair Darling has not been quite as transparent as he would like to claim. And when the full implications sink in the euphoria about 'soaking the rich' in the Labour Party may dissipate.
There is a real incentive question here. If highly skilled and qualified people think they are being over taxed and also receiving deteriorating public services, there are plenty of other places they can go - although it seems that they may be beaten to it as far as Australia is concerned as many citizens return home.
Tuesday, 25 November 2008
Island politics
Sunday, 23 November 2008
The end of new Labour
The widely leaked proposal to create a new tax band of 45 per cent for those earning over £150,000 a year - but not until after the next election - marks the end of new Labour. Once one has such a band, why not then make it 50 per cent for those earning over £100,000 a year?
There are probably no more than 400,000 people earning over £150k a year and one might generate £1.2bn which sounds a lot but is not compared to public expenditure totals. This is symbolic politics, but symbolism is very important in politics.
Of course, it does give something of an answer to the Conservative 'how would you fund it?' question. It also puts the Conservatives on the spot because if they say they wouldn't go ahead it creates a divide on fairness, albeit a somewhat artificial one, between them and Labour.
The reason for getting rid of high tax rates was in terms of the disincentive effects compared with the lack of revenue generated. Of course, what is often overlooked is that the 40 per cent marginal rate starts at a relatively low level in Britain compared with other countries. Someone like a deputy head teacher finds themselves in the higher tax bracket.
There are probably no more than 400,000 people earning over £150k a year and one might generate £1.2bn which sounds a lot but is not compared to public expenditure totals. This is symbolic politics, but symbolism is very important in politics.
Of course, it does give something of an answer to the Conservative 'how would you fund it?' question. It also puts the Conservatives on the spot because if they say they wouldn't go ahead it creates a divide on fairness, albeit a somewhat artificial one, between them and Labour.
The reason for getting rid of high tax rates was in terms of the disincentive effects compared with the lack of revenue generated. Of course, what is often overlooked is that the 40 per cent marginal rate starts at a relatively low level in Britain compared with other countries. Someone like a deputy head teacher finds themselves in the higher tax bracket.
Timely, temporary and targeted
This was Gordon Brown's rhetoric tonight on tomorrow's 'pre-budget' report, although in practice it is more like an actual budget than the usual dress rehearsal. It appears that a central plank is to be a 2.5 per cent cut in VAT which could last for fifteen months. Whether that will be enough to boost the economy remains to be seen.
The retail economy is actually not doing that badly, although some retailers find the official figures misleading. One of the paradoxes of the present situation is that the real problem in the UK, as the IMF recently pointed out, is personal indebtedness. But given the importance of household consumption in driving the economy, shoppers have to be encouraged to splurge some more.
The IMF, business organisations and the majority of analysts agree that a substantial fiscal stimulus of more than 1 per cent of GDP is essential. Somewhat cheekily, Samuel Brittan suggested in the Financial Times on Friday that the Government could print more money without risking a monetary driven inflation.
I am afraid that Dave Cameron and George Osborne are out on a bit of a limb. Of course, I understand why they are upset. It's like someone else ordering a slap up dinner of the sort the Bullingdon Club might have enjoyed and then presenting you with the bill eighteen months later.
Taxes will have to be raised and public expenditure cut. The risk is that this would not be a temporary phenomenon, but could go on for some time, acting as a drag on the economy. But the greater risk is not doing enough now. This is a very deep crisis, as the problems faced by Citibank show.
The consequences can be seen in the normally 'cool' country of Iceland where police had to use pepper spray and batons to disperse an angry mob trying to invade a police station. Angry Icelanders want their prime minister and central bank governor to resign and for an election to be called. But how many of them were complaining when their country was floating upwards on a great iceberg of debt?
As always, I would recommend the Institute of Fiscal Studies for informed, authoritative and balanced coverage tomorrow. Visit their special pre-budget page here: IFS
The retail economy is actually not doing that badly, although some retailers find the official figures misleading. One of the paradoxes of the present situation is that the real problem in the UK, as the IMF recently pointed out, is personal indebtedness. But given the importance of household consumption in driving the economy, shoppers have to be encouraged to splurge some more.
The IMF, business organisations and the majority of analysts agree that a substantial fiscal stimulus of more than 1 per cent of GDP is essential. Somewhat cheekily, Samuel Brittan suggested in the Financial Times on Friday that the Government could print more money without risking a monetary driven inflation.
I am afraid that Dave Cameron and George Osborne are out on a bit of a limb. Of course, I understand why they are upset. It's like someone else ordering a slap up dinner of the sort the Bullingdon Club might have enjoyed and then presenting you with the bill eighteen months later.
Taxes will have to be raised and public expenditure cut. The risk is that this would not be a temporary phenomenon, but could go on for some time, acting as a drag on the economy. But the greater risk is not doing enough now. This is a very deep crisis, as the problems faced by Citibank show.
The consequences can be seen in the normally 'cool' country of Iceland where police had to use pepper spray and batons to disperse an angry mob trying to invade a police station. Angry Icelanders want their prime minister and central bank governor to resign and for an election to be called. But how many of them were complaining when their country was floating upwards on a great iceberg of debt?
As always, I would recommend the Institute of Fiscal Studies for informed, authoritative and balanced coverage tomorrow. Visit their special pre-budget page here: IFS
Not beyond our Ken
Ken Clarke is always good value and the long interview with him in The Times is worth a look: Ken
He is studiously loyal to George Osborne, pointing out that it has been 'get George Osborne fortnight', but does not rule out ever being Chancellor again, whilst emphasising that he has many interests outside politics. He could not be accused of a lack of what Dennis Healey calls 'hinterland'.
I have only met Ken once, but I must say that I find him very likeable and he is a considerable asset for the Conservatives as he always manages to deliver a few blows at Labour, as he does here on the subject of public expenditure, an area where many nonpartisan analysts would say that they have been profligate and sometimes wasteful.
He is studiously loyal to George Osborne, pointing out that it has been 'get George Osborne fortnight', but does not rule out ever being Chancellor again, whilst emphasising that he has many interests outside politics. He could not be accused of a lack of what Dennis Healey calls 'hinterland'.
I have only met Ken once, but I must say that I find him very likeable and he is a considerable asset for the Conservatives as he always manages to deliver a few blows at Labour, as he does here on the subject of public expenditure, an area where many nonpartisan analysts would say that they have been profligate and sometimes wasteful.
Wednesday, 19 November 2008
Dave and Yvette
First of all let me recommend the latest article by Peter Riddell on developments in economic policy. As always, he talks very good sense: The Economy
Yesterday I had Yvette Cooper on Radio 5 attempting to defend government policy. It was a classic series of examples of politicians not answering the question asked. She repeatedly failed to answer a question about why there should be speculation against sterling rather than any other currency.
She also claimed that the Government was able to pump money into the economy now because it had reduced debt. Well, it all depends on what you mean by debt. Do you count all the projects funded under PFI arrangements which will have to be paid back? Do you count the amounts used to nationalise Northern Rock and Bradford and Bingley as well as to buy shares in various banks? To be fair, it should be possible to recoup most of that money when the recession comes to an end.
Dave Cameron has now said that he will no longer stick to Labour expenditure plans should he gain office. I can understand why he needs a 'not me guv' defence against unpopular tax rises and public expenditure cuts.
What he will not say is where the public expenditure cuts will fall other than on 'central government waste'. Now, of course, there is always some waste in such a big operation as government which is why we have a National Audits Office and a Public Accounts Committee. One could save quite a bit of money by not proceeding with the identity cards project. But that wouldn't be enough.
Equally, Yvette Cooper would not specify what combination of tax increases and public expenditure cuts will occur in the future, as they will have to. It's going to be an interesting pre-budget report.
I think that the Government has to give a major fiscal stimulus to the economy. Already the CBI is talking of 9 per cent or 3 million employed by 2010. If no action was taken, the recession could be much worse than those of the early 1980s or early 1980s. But the Government also has to be honest about how it would rebalance the public finances - and so does Dave.
It also applies to Vince Cable as well, except that he is unlikely to be in government, so he can continue to make admittedly very shrewd attacks on policy from the sidelines.
Yesterday I had Yvette Cooper on Radio 5 attempting to defend government policy. It was a classic series of examples of politicians not answering the question asked. She repeatedly failed to answer a question about why there should be speculation against sterling rather than any other currency.
She also claimed that the Government was able to pump money into the economy now because it had reduced debt. Well, it all depends on what you mean by debt. Do you count all the projects funded under PFI arrangements which will have to be paid back? Do you count the amounts used to nationalise Northern Rock and Bradford and Bingley as well as to buy shares in various banks? To be fair, it should be possible to recoup most of that money when the recession comes to an end.
Dave Cameron has now said that he will no longer stick to Labour expenditure plans should he gain office. I can understand why he needs a 'not me guv' defence against unpopular tax rises and public expenditure cuts.
What he will not say is where the public expenditure cuts will fall other than on 'central government waste'. Now, of course, there is always some waste in such a big operation as government which is why we have a National Audits Office and a Public Accounts Committee. One could save quite a bit of money by not proceeding with the identity cards project. But that wouldn't be enough.
Equally, Yvette Cooper would not specify what combination of tax increases and public expenditure cuts will occur in the future, as they will have to. It's going to be an interesting pre-budget report.
I think that the Government has to give a major fiscal stimulus to the economy. Already the CBI is talking of 9 per cent or 3 million employed by 2010. If no action was taken, the recession could be much worse than those of the early 1980s or early 1980s. But the Government also has to be honest about how it would rebalance the public finances - and so does Dave.
It also applies to Vince Cable as well, except that he is unlikely to be in government, so he can continue to make admittedly very shrewd attacks on policy from the sidelines.
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