Category Archives: Economy

The Sad Stupidity of the Tory Conference

Political discourse is at the heart of our democracy. We are allowed to disagree, to argue our corner and to present our positions without fear. This is a hugely important thing, as anyone suffering under a totalitarian regime will tell you. Perhaps the most compelling facet of this debate is analysing the extrapolations of policy from a position of ideology, and reviewing the evidence. A well-reasoned argument over a policy approach may in fact just boil down to what each side believes, because there is a case to be made for the tactic either way. It’s possible to argue, for example, that red tape is strangling business and cutting employment rights will boost the economy. I would fundamentally disagree with this, citing the importance of secure jobs and confidence from a demand perspective. However, it’s a debate.

At the Conservative Party Conference, this type of political reasoning has gone out of the window. The week has been full of ideas which at their very heart are just utterly, irredeemably, stupid. It’s a shame, because it lowers the quality of politics in this country and it leads to government by headline. I’d love to analyse the merits of the Tory’s economic approach, but we don’t get anything new, apart from a plan to swap shares for employment rights (stupid).

Here’s my inexhaustive list of the stupid things cabinet ministers have said this week:

1. George Osborne announced that companies can offer shares to new employees if they sign away employment rights and these shares will be free of CGT. There are so many stupid things about this idea that I need a list:

  • How do you value the shares in a start-up? How can you accurately measure an increase in their value if they are not publicly traded?
  • If you can value them, as an employee, how can you sell them? Do you need to wait until a takeover or floatation to get any money out? How many companies will this then apply to? (Answer – virtually none)
  • Individuals already have a CGT allowance of £10,400 a year. If you get £5000 of shares, you need them to triple in value before you are even thinking about CGT anyway.
  • Companies already have two years to dismiss employees without them having recourse to tribunals. Why would a company give away equity when this already exists?
  • Assuming ex-employees can’t hold shares, if someone is fired, the company will need to value the shares (see above) and then buy them back themselves. This means a share capital account to cover liabilities arising from the issue of shares. Why would a small company want to go to these lengths?
  • If the shares have voting rights, companies are going to be even less inclined to issue them as it would tie their hands in terms of making business decisions
  • Given all this, why on earth would an employee even want the shares in the first place, especially if it left them without the chance to request basic employment rights?

I could probably go on, in particularly about the added bureaucracy and “red tape” this would add to a small business, but I think it’s pretty clear that just about no-one will ever use this stupid scheme. We are repeatedly told about the brilliance of Osborne’s cabal of advisors. After this (and pasties, caravans etc etc), it’s hard not to think that they are in fact, stupid.

2. Chris Grayling wants to change the law to allow homeowners to attack burglars more excessively. This is so incredibly stupid I can hardly bring myself to write about it. Another list:

  • It’s a stupid solution to a non-problem. Between 1990 and 2005, SEVEN prosecutions were brought against homeowners for tackling burglars. Less than one every two years. The chances of this being relevant to the average person is so infinitesimally remote as to make winning the lottery pretty much a 50:50 thing.
  • Grayling doesn’t want people arrested if they attack a burglar. However, all his new law does is alter one (established) judgement call on the reasonableness of the action to another. If a burglar is badly hurt, the homeowner will still be arrested while a judgement on the new test of “not grossly disproportionate” is made. As we know, virtually no-one is charged anyway, so the change will make no difference.
  • How can giving the general impression that violent actions are to be encouraged help make the country safer? Obviously, it can’t.
  • This is classic, stupid, knee-jerk, right-wing garbage that desperate politicians think makes them look tough, but in fact makes them look stupid.

I think Grayling may have won “stupidest person at Tory Conference 2012” this year, but it’s such a tough call.

3. Jeremy Hunt claims he’s increasing spending on the NHS by £12bn. This isn’t actually a stupid comment, but it does assume everyone who hears it is stupid, which they aren’t, so therefore becomes stupid in context. The £12bn figure is “nominal”, which means not adjusted for inflation, or, in practical terms, irrelevant nonsense. Spending on the health service is flat “in real terms” (ie adjusted for inflation). However, the NHS is widely agreed to require an increase of 4% each year to stand still. Under Thatcher and Major, when the service nearly collapsed, there were still real terms increases, just not enough. If you don’t think claiming to be spending an extra £12bn on the NHS now is stupid, wait till it falls apart in a couple of years.

4. Theresa May wants antisocial behaviour victims to choose the punishment for those convicted of wronging them. This is another policy which nobody has sense-checked. Or if they have, they have no sense. It undermines a basic tenet of English law, that crimes are committed against the community (embodied by the Crown), not individuals. Therefore punishment is managed by the Crown’s representatives. There’s a good reason for this, which is to ensure that everyone is seen as equal in the eyes of the law. Under May’s stupid idea, it will completely depend on what the victim chooses as to how people are punished for the same crime. This sets a very dangerous precedent.

Yes, the system needs to support victims better, but this can be assisted by them trusting in the state to manage prosecutions fairly and appropriately, not by introducing a roguish element of vendetta into the criminal justice system. Stupid.

These are just some of the stupid things said this week. There have been broader stupid claims made, like the highly dubious claim to have cut the deficit by 25%, which only works if you stop counting in March 2012, include massive cuts to capital spending and ignore the fact that borrowing is rising sharply again now. Still, pats on the back all round!

The stupid claims about fairness and “all being in it together” are so ridiculous as to barely merit comment anymore. However, although the richest 10% have been hit the most in percentage terms, they are only slightly ahead of the poorest 10%, who again just do worse than the next poorest 10% and so on. And none of this analysis takes into account the disproportionate use of local services by the poorest. It’s a mendacious argument to suggest the rich are being squeezed. As another £10bn is lined up to be cut from social security, the only way the rich are to be targeted is through some tax evasion work. This apparently will happen despite the Treasury having lost 1000s of employees.

Interesting, isn’t it – while the poor get hit harder and harder, the rich are supposedly suffering because the government will try to make them OBEY THE LAW!

It’s sad the Conservatives have been so stupid. I sense a real desperation. It’s the politics of last resort and I suppose for that we should be grateful.

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Filed under Economy, General

My Manifesto for Labour – Part One, the Economy

In this series of posts, I will lay out the headline vision I think Labour should adopt as its manifesto going forward. It is not a line by line spending strategy (which would be impossible to create from a home office in Wiltshire) but it will explain some fundamental themes the party should adopt to regain support, differentiate itself and gradually become a government in waiting. It is not intended to cover every aspect of every policy area, but instead to give some vital focus to the Labour approach.

Part One – The Economy, Business and Growth

The coalition plan isn’t working. The only rebalancing going on in the economy is the transfer of debt from the public sector into the private. Personal debt is predicted to rise by £566bn over the life of the parliament as the public deficit falls. This transfer will simply squeeze household spending and cause the economy to grind to a halt. Growth is flatlining, making it much harder to bring down the deficit, youth employment is running at 20% (again adding millions to government spending) and inflation is taking chunks out of the monthly income of workers whose pay is frozen. All this why executive pay rose 45% last year. Whatever the coalition may claim, we are clearly not “all in this together”.

Labour must address this. First, the reduction of the deficit must not come at the expense of jobs and personal debt. Growing our way out of the deficit is preferable to attempting to cut our way out of it. It’s a tested, logical and positive way to tackle our budget situation. To this end, Labour should support major infrastructure projects which will help bring us up to the levels of Europe and the US in terms of rail, road and broadband. It should also champion a huge housebuilding drive (more of which in a later post). In addition, the government should be investing in the development and implementation of green energy technologies. This spending, shared with private sector investors (not on a PFI basis), will help create jobs, apprenticeships and skills. These skills will then reside within the economy and can be exported – a genuine rebalancing can begin to take place. Without government support, the only shift towards manufacturing will be dependent on a weak pound and will be not driven by world-class skills and technology we need. The coalition plans for growth are feeble – expecting a corporation tax cut to filter down to more jobs and investment and hoping that low interest rates will encourage lending and investment, while in reality, none of this is happening.

In return for this government investment, industry must accept some fundamental changes to the way it supports its workers. A living wage should be introduced. Instead of providing tax cuts to large corporations, as the government is now doing, these will only be offered to organisations which accept the living wage strategy. The policy will then be rolled out on a mandatory basis. This allows Labour to support the enterprise culture the country needs while protecting workers from an increasingly insecure “flexible labour market”. The living wage will have additional benefits in reducing the need for tax credits, housing benefit and other “top-ups” to subsidise the poor salary levels offered by many employers, thus reducing the benefit bill and helping lower government spending. It is time that businesses took more responsibility for their workforce and relied less on government to keep them properly remunerated.

To better reflect workers contributions to businesses, every public company will be required to have worker representation on its remuneration committee and to adopt pay structures which ensure that if the CEO receives huge pay rises and bonuses, these are mirrored in the pay and bonuses of everyone throughout the business, at the appropriate level, of course. So board executives will only be able to grant themselves huge rises if they also allocate a similar proportion of profits to the people actually bringing in the revenue.

On tax, the burden needs to be shifted away from the poorest, but this means across the board, not simply through income tax. VAT is a regressive tax which hits the poor hardest. The balance of the coalition’s tax plans does not spread the burden equitably – despite its plans on raising income tax thresholds, the overall impact of tax credit and benefit cuts, plus VAT, leaves most families at the lower end worse off. The 50% rate should remain and serious investigation into the best way of implementing a wealth tax should be undertaken. It should be Labour’s stated aim to tax wealth while increasing the incentives for those at the bottom and the middle of society to improve their financial position. It is here that tax cuts should be targeted, instead of at the top 1% of earners. Rather than cutting HMRC staff, Labour should propose significant investment in tackling tax evasion (theft) and implement a thorough review into tax avoidance. These two areas cost the country a huge amount each year, vastly in excess of benefit fraud and should be prioritised as such.

Labour’s message should be clear – Keep the economy moving, keep people in jobs, ensure people are fairly rewarded for the work they do, make the fundamental changes to business practice we need and invest to transform our economy. It is a hopeful message which will restore shattered consumer confidence, motivate businesses to invest, create jobs and bring down the deficit. It will also demonstrate that while Labour supports enterprise and hard work (in fact more emphatically than the coalition), it also recognises that we cannot continue to exacerbate the dividing lines between workers and executives, which drives social disharmony and creates huge resentment.

I will deal more specifically with public sector spending cuts and reform in an upcoming post, as well as housing and education which I touch on here. In the meantime, your comments on this are very welcome.


Filed under Coalition, Economy, Labour Party

Uncomfortable Truths for Osborne’s Ideology Brigade

I make no apology for lifting this straight from the pages of the Guardian today (2 March) because I simply couldn’t rewrite these figures to make the point any clearer. There has been a complete lack of context in the debate over deficit reduction and without a solid factual base, it is impossible to make rational decisions over the action that must be taken. Therefore it is with huge gratitude to Barry Kushner that I replicate his letter here:

“George Osborne dissimulates. He knows that Ed Balls is at odds with Labour party policy on cuts, knowing that we have 12 to 13 years to pay off debt and deficit. But he also knows that our level of debt (less than 60% of GDP net of bank assets) is within Maastricht Treaty limits (60%) and lower than almost all OECD countries; that this debt is low by historical standards (we sustained debt at more than 100% of GDP for 20 years up until the early 1970s); that debt repayments (less than 3% of GDP) are lower than they were under Thatcher (5.15%) and Major (3.8%); that our deficit is partly created by a low overall tax-take (around 36% compared with the EU average of 40%). He knows this because these are official statistics (available on Google – mostly Office for National Statistics but also
He knows, therefore, that whereas our economy, dominated by manufacturing up to the early 1990s, delivered GDP growth of 2.5%, the financial sector since then has delivered growth rates of less than 1.5% – another element of structural deficit. He knows that, whereas public sector costs have risen year on year over the past 30 years, so has outsourcing to the private sector – currently at around 20% of total public sector resource. Though he may privately be content with Labour’s failure to stem the concentration of wealth (the index of inequality rose under Labour – the Gini Coefficient up almost 5 points), Osbourne will be more circumspect that Labour borrowed less and repaid more debt than previous Conservative administrations (borrowing was roughly 50% less under Blair/Brown than it was under Major – more than twice Thatcher’s debt repayments were made).
And his biggest dissimulation – under the continuing influence of the previous Labour administration, 2010 saw £20bn more than forecast wiped off the deficit as a result not of spending cuts but of “New Deal”-style growth stimulation. It is unremarkable that Osbourne can point to the OECD and IMF supporting cuts – they are the global advocates of public austerity. He does not mention the three Nobel prize-winning economists (Pissaredes, Stiglitz, Krugman) and Martin Wolf of the Financial Times, all of whom condemn this austerity policy as a serious historical error. Why not? Clearly because he wants no balanced public contestation over the sustainability of a public sector. The real question is why opposition parties and dissident Lib Dems allow this level of narrative control by the coalition government – “crisis”, “unavoidable cuts”, “Labour’s fault”. It’s neither “middle” nor “muddle” nor an economic crisis – it’s a crisis of democratic debate.”


Filed under Coalition, Economy

The Long-Term Threat from “Govern Now, Think Later” Politics

For a party that’s had thirteen years to plan its next government (or nearer eighty, in the case of the Lib Dems), this Tory-led administration is incredibly short-sighted. It has rushed headlong into a mass of reorganisations and restructurings which look very badly planned and certainly lacking in democratic mandate. Take the School Sports Partnership, a way of allowing schools to co-operate in providing competitive and social sporting activities for their pupils. Scrap it, said Michael Gove, let Heads decide how to run sports. A stream of Tories lined up to praise this new approach – “free the schools!”, they cried in unison. However, people who actually understand school sports made it clear that without properly funded local organisation, school sport was under threat as Heads were forced to prioritise their spending at a time of limited resources. Which to scrap – the sports and games, of those extra computers or even a new teacher? It’s fairly obvious where the axe would fall.

So Gove relents and performs a u-turn which is indicative of this government’s short-sightedness. Hours of discussion about a new approach to school sports and then a hurried about-face. What a waste of time, effort and resources. A little more thought, a bit more planning and this could have been avoided. It’s vital that Labour portray this u-turn for what it is – poor government, hasty management and wasteful ineptitude.

If it was only school sports which suffered from this “govern first, think later” approach, we perhaps could excuse the coalition. They’re new, after all. However, across the board, the Tory government is rushing through decisions without proper consultation and often against the wishes of those impacted most.

In the NHS, a hugely costly reorganisation has the support of only a minority of GPs, who are now being handed £80bn of commissioning budget. The change will cost around £3bn at a time of falling revenue for the Health Service (ignore the “ring-fenced budget” claims – experts say the NHS needs 3% increases p.a. to simply stand still. It’s getting 0.1%). So why do it? The only groups clamouring for an overall like this are the private health companies who are lining up to provide the commissioning services GPs won’t be able to. Report after report has warned of the risks of the dramatic overhaul in the NHS, particularly when money is tight. But Cameron and Andrew Lansley don’t care. They’ve made a decision and evidence be damned. The difference between this and School Sports Partnerships is that while some kids might get fat with the one change, people might die under the other.

Of course the government don’t want people to die, but the stampede to be the most radical minister in an unelected government is leading to rash decisions which will unquestionably have serious effects on people’s lives. There is a lack of evidence that this is at the forefront of any minister’s mind as he or she lines up the next dramatic shake-up of public services.

Finally we come to the big one. The economy. It’s stalling as the effects of Labour’s stimulus packages wear off. Unemployment is rising and the private sector is failing miserably to fill the gap left by public sector lay-offs, precisely as most serious commentators expected. The only jobs being created are part-time, which provide no security to people and often mean families rely on benefits to achieve a living income. Everything is focused on the deficit. The price of Osborne and Cameron’s blinkered obsession with cutting the public sector to somehow restore economic balance is record-breaking youth and women’s unemployment and, perversely, negligible economic growth.

The short-termism is frightening. Even if the Tories manage to eliminate the deficit in an entirely arbitrary four-year period, what will the consequences of their approach be? We will have a generation of young people trapped in unemployment. A lack of stable communities as people are forced to move around hunting for work. Increasing resentment from those who lose out towards those who seem impervious to the deficit-cutting measures. In short, a much worse country to live in.

For anyone searching for an alternative, look to the post-war period. Despite a deficit and debt which puts the current one in the shade, various post-war administrations managed to invest in huge housing and infrastructure projects and of course, the NHS. Boldness brought great rewards. It’s time for further boldness now. Government should be looking to the horizon and to our future, rather than the present. Of course we must increase efficiency wherever possible and provide the absolute best value for money in our public services, but relentless cuts will hollow out the foundations on which they rely. Once lost, local services will never be recovered.

We should be investing in a genuine green investment bank, with the power to raise funds and independently invest in new technology. Instead we have a fund of £1bn, considered entirely useless by all serious commentators. This country has a proud tradition of pioneering innovation, but short-sightedness from the Treasury is standing in the way of a potentially lucrative new industrial sector. If we don’t seize the initiative, others countries will. We need an active and engaged industrial policy which supports industry, encourages businesses to build links with communities through specialist skills and secure employment and sooner rather than later, the Treasury coffers will feel the benefit.

As for our young people, much better to invest in genuine work placements (such as offered by the now-scrapped Future Jobs Fund) than simply hand out benefits then kick people for not finding jobs which don’t exist. When recovery final does come, how does the country benefit from underskilled and unemployed people, out of touch with work? Pay for jobs and training now and reap the benefits in the future.

The thinking required is joined up. Connect each stage of people’s lives to the next. Attacking Sure Start and removing the element of universality will remove the community cohesion these centres currently provide. I have seen first hand how bringing families from across the community together improves the local area as people recognise they have more in common than they imagined. Turn our schools into a market place of special interest groups and the “sharp-elbowed middle class” and watch as these divisions widen further. I would scrap charitable status for private schools, ease the administrative burden on Heads and work towards a truly comprehensive system where every student has a fair chance, not just those in a position to exploit their time and influence.

Support the Educational Maintenance Allowance which keeps pupils in education and allows them the best chance to achieve. Fund universities properly – we will never be the factory of the world, but we could be its R&D department – in culture, academia and humanities as well as engineering and science. Offer proper alternatives to university too. We should support apprenticeships and training schemes which provide paid employment to young people embarking on a career.

And finally, recognise the importance of a life outside work. Community stability, confidence in the next pay packet, a feeling that work and community are not always separate can rebuild society where too often, poorly paid and part-time jobs for multinational companies leave people feeling undervalued. We shouldn’t be demonising those unable to work, but creating an environment where work is available, properly paid and secure. Then we can tackle the tiny minority who are over reliant on the state.

This comes from a recognition that a divided society is an unhappy society. As bankers waltz on, bonuses in hand, ordinary workers are suffering. A paltry, watered-down bank levy does nothing to ease the sense of unfairness that the economic crisis created. The country cannot tolerate further division between the haves and have-nots. We can’t return to the way things were before. Labour gambled on an asset boom and a drip-down from the financial sector. While the revenue this created rescued our public services, the wider picture was ignored. But what this means is more government spending, not less. But this time, we need to spend to invest in the long-term. Only then will we see a rebalanced economy with stable, fulfilling jobs for everyone. This will bring the deficit down as genuine, secure growth returns to our country. It creates a future full of hope for our children, rather than debt and despair and it shows that while innovation is to be rewarded, greed never should be.

This government shows no signs of looking to the future, only a panicky rush to make changes before public will make it impossible. They may be building for their own futures, but for the rest of us, the outlook is bleak.

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Filed under Coalition, Economy, General, Labour Party, Uncategorized

The Myth of Entrepreneurialism

It perhaps will surprise some of my more belligerent critics, but I am an entrepreneur. In 2008 I left a well-paid job as a lawyer in the City of London to set up my own business, This Fair Earth, tapping into the increasing demand for high quality, ethically-made goods. I used my own money to fund the start-up costs. I put together an extraordinarily detailed business plan which I think took the bank back somewhat when it was presented to them. I worked long hours to get the business off the ground and I am extraordinarily proud of what I have achieved.

However, the business is struggling now. It’s unquestionably a better run, more efficient and better targetted business than it was 2 1/2 years ago, but demand is falling. This despite the fact that November and December have historically been the strongest months, by a long way. I am hopeful there will be a rally this month and next, but I am markedly less confident than I was last year, in the teeth of the recession.

This is why I am skeptical, bordering on contemptuous, of the government’s ambitions for an increase in private sector employment. All the tax incentives in the world won’t help new businesses when consumer demand (from individuals or businesses) is rock bottom. We are allegedly in recovery, but there is very little optimism. Small business provides the employment for the majority of workers in this country, and yet the only jobs created in the past three quarters have been part-time. The number of full-time jobs has fallen during the “recovery”.

So, if you have a great idea and can afford to lose the money, by all means set up a business when you are kicked out of your job next year. You might succeed. However, even in the best of times, most start-ups fail within a year. With the government sucking money out of the regions and an unprecedented cut in the amount of spending coming from the centre, this percentage is likely to rise. This coalition has fanciful notions of an energised private sector leaping into the fray as the public sector is ravaged. It isn’t going to happen.

I have said it throughout the recession – the economy needs government support when demand is weak. It is exceptionally weak now. VAT rises and job losses in 2011 will make things worse. No-one has successfully cut their way out of recession and Ireland is once again showing us what not to do. This government steams ahead regardless.

So I offer two pieces of advice: First, don’t bet your mortgage on a start-up. If you have the money, the idea and the determination to establish a business, by all means try it, but don’t leave yourself exposed. And second, when you are working 20 hour days to make your vision become a reality, and you feel the confidence and demand seeping out of your market, make your voice heard. Fight back against the myths of entrepreneurship peddled by our new rulers, who can barely boast a day’s work in the private sector between them. Demand their support, because although they will never listen to the poor, unemployed and homeless, they might listen to you.


Filed under Coalition, Economy

Nick’s Fag Packets & Their Role in Your Future

There’s a reason why Nick Clegg has admitted to his smoking habit. It’s because littered throughout Whitehall are packets of Lambert & Butler with the government’s policies scratched on the back and someone was getting suspicious. Admittedly, they are piling up in the Department for Work and Pensions in particular, but turn a corner and you are just as likely to find them scattered in the Justice Department, the Home Office, the Defence Department and all around Michael Gove’s desk in education.

Let’s take a few examples found recently:

Discovered at the Tory Party Conference: “Cut Child Benefit for rich – ANNOUNCE FAST!!!”

Dropped outside IDS’s front door: “Housing Benefit – Check D. Mail for facts about claimants”

And standing to attention at the Defence Department – “NO PLANES!! Speak to Sarko (nb strikes!!)”

I estimate Nick must be on at least 40 a day, the rate the badly thought-through policies are emerging from this government.

The cut in Child Benefit for richer parents sounds like a sensible idea in a time of austerity. Why should better of people receive money they don’t need? Well, I support the principle of universality because it offers everyone a stake in our welfare state and if it’s eroded, then people begin to question why they should contribute at all. However, aside from this, it’s cheap and easy to administer. If you have kids, you get the support.

The coalition’s first run at changing this wouldn’t even have required a pack of 20 to sketch out, so flimsy and rushed was the announcement. The plan was to cut CB for families where there was single higher rate tax payer in the household. The press leapt on the fact that two earners with salaries below the higher rate threshold, but with a combined income far in excess of a single earner family, would retain the benefit, whereas the other family would lose out. “It’s too complicated to do it any other way”, we were told.

Now in transpires that not only is the new system unfair and frankly, a touch ridiculous, but it’s almost certainly unenforceable. Why? Because usually the woman claims the CB, and this new approach would require her to declare if her partner was a higher rate tax payer. The benefit is not linked to the salary of the higher earner and so HMRC doesn’t know who should get it and who shouldn’t.

Never fear, Nick chained another pack and Danny Alexander (fast becoming the poster boy for promotion above one’s abilities) sketched an idea to write to everyone to ask them if the partner earns higher rate. Poor Danny, more at home among the spruces of the Cairngorms, forgot that a) people lie, b) it’s virtually impossible to force people to ask their partners to disclose information and c) people’s incomes change over time.

The only effective way to administer this is through a wholesale change in the way income tax is calculated for couples, which would undoubtedly cost much more than the cut will save. It also rather begs the question why, if you are effectively means testing the benefit anyway, you don’t take the opportunity to iron out the mad inconsistencies in the policy as it was originally devised.

So, by all means debate universality and what we can and can’t afford, but perhaps Nick can do us all a favour and take up smoking Havanas, which would at least give his bumbling colleagues a little more space to plan their announcements before they are made.


Filed under Coalition, Economy

The Grim Reality of Osborne’s Sense of “Fairness”

I will post in more detail on the CSR in due course, when I’ve waded through the political double-speak and read between the lines, but for now, let’s look at the “fairness” assessment provided by the Treasury itself. There is a graph in the back of the CSR document which shows where the burden of the report’s measures fall hardest. Osborne, Alexander and co have been claiming the CSR is fair. Nick Clegg suggested it had “Liberal Democrat principles running through it like a stick of rock”.

Looking at the figures in Chart 5b on p.99 of the full CSR report, the analysis is this:

The bottom 10% of earners will suffer a hit of 1.6% of their net income, whereas the top 10% will lose out by 2.2%.

Ah! Fairness, you see! The rich proportionately lose more.

But consider this. The second hardest hit group is that poorest 10%. These are the group who rely on Housing Benefit (cut), disability benefits (cut) and the other £18bn which is being removed from the welfare budget. To illustrate, let me paint you a (simplified) picture.

A man needs to find some money to pay a debt, so he approaches two people. One man is very rich, a millionaire. “Can I have £100,000 please?”, asks the debtor. “Why?” says the rich man. “Because I need money and we are all in this together.” The rich man reluctantly agrees, after all he still has £900,000 and some money tucked away in the Cayman Islands, which the debtor doesn’t really care about.

The debtor then approaches a poor man. One of the poorest in the country with only £10,000 to his name. “Can I have £900 please?” “Why?”, says the poor man. “Because we are all in this together and besides, the rich man gave me £100,000, which is 10% of his money. I am only asking you for 9%.”

The poor man hesitates. ” But I really need all my money. For food, for clothes for my kids, for my house. When you take all that away, I don’t have £900 to spare.”

“Sadly”, says the debtor with a smile, “because we’re all in this together, you don’t have any choice” and he grabs the £900 and heads off to meet the millionaire for a drink. Well, they used to go to school together, you see.

I don’t think we should put up with living in a country where this becomes the definition of “fairness”.


Filed under Coalition, Economy

A Brief Comment on the “Bonfire of the Quangos”

Quangos have a bad reputation, something which I think is due, to a large extent, on the name, which sounds woolly and bureaucratic before anyone actually considers what they do. I don’t want to launch into a full-scale defence of quangos – I don’t know enough about them individually to comment. This is the inherent problem here. One quango runs British Waterways, the network of canals across the country, while another monitors the use of legal aid. To bundle them together is utterly meaningless.

My concern about the report today which abolishes a large number of quangos is that the government has failed to properly make the distinction either. The argument used by Francis Maude for the scrapping of 192 quangos is that they are not properly accountable.

The problem with this “accountability” line is that it is essentially nonsense. If a quango’s functions are rolled into a ministerial department, how does that make it more accountable to individuals? Are the people who live in that minister’s constituency going to say “Well, the work done by the Renewable Fuels Agency, under his department, hasn’t been up to much, I think I’ll vote Green”. We certainly can’t get a situation where the heads of these bodies are directly elected, since most functions of quangos are essentially non-political.

I am actually all in favour of expert bodies, outside government, being responsible for specific areas of activity where appropriate. As long as the work is important, I’d much rather it was done by people who know what they are doing than being notionally “accountable”.

Scrap useless bodies of course, but bringing things under ministerial control and basing this review on “accountability” is ridiculous. Michael Gove can’t get a list of schools right, why on earth would we want additional important responsibilities falling to him?

I think the accountability approach is most likely a cover for more ideological cuts to services which people already think are wasteful, despite not really understanding what they are. It’s an easy target and like most easy targets, there are usually much more difficult consequences not far behind.


Filed under Coalition, Economy

Coalition of the Incompetent Will Regret its Haste

Imagine the scene. Labour has just about managed to form a government with the Lib Dems, after missing the widest electoral open goal in the history of modern politics. Despite the lack of a clear mandate, the party is paranoid about missing its chance and embarks on a series of upheavals, routinely labelled “the biggest shake-up since 1945”. Building enormous, wide-ranging policy blocks on a flimsy pillar of “it’s all the last lot’s fault”, the new government launches into the following initiatives in its first five months:

1) Cancels Building Schools for the Future, a vital source of income and employment for the private construction sector. In the process of this hurried cancellation, list after list of the schools affected is issued and reissued and within weeks, protesters are marching on Westminister, led by the government’s own MPs.

2) Uses parliamentary protocols usually reserved for emergency terror legislation to rush through a dramatic centralisation of power in education. New “Free Schools” can be established with no local authority control, no requirement to co-operate with existing schools and the ability to implicitly select pupils (through religion or catchment area). So popular are these new schools, accountable only to the Education Secretary, despite being paid for by the tax payer, that the grand total of 16 are approved.

3) Embarks upon the biggest ever top-down reorganisation of the NHS, despite explicitly stating that the new government would not embark on any top-down reorganisations of the NHS. The new policy, which opens the way to a private healthcare system, was not in any manifesto, will cost over £2bn to implement, is attacked by healthcare professionals, industry experts and patients groups as risky, expensive and badly thought-out.

4) Cites Ireland as a shining example of how to tackle a deficit, with savage spending cuts praised as “brave and necessary” by the IMF. This shining light is quickly extinguished, however, when the government notices that because of the excessive austerity measures, Ireland has fallen into a double-dip recession, its deficit remains high, thousands of people are suffering and those gods of the markets, the ratings agencies (“triple A” for a junk US mortgage CDO, anyone?) have downgraded Ireland’s government bonds because of the cuts and the complete lack of growth in the economy.

5) Announces at its annual conference that in order to tackle the deficit, Child Benefit for high earners is to be scrapped. In the haste to launch this policy, no-one considers the blindingly obvious problem of the considerable unfairness of hitting higher paid single earner families with a stay at home parent, versus two working parents on a much higher combined salary.

6) Following uproar amongst its own supporters, the government desperately tries to cover its tracks on Child Benefit by announcing a tax break for married couples, thus completely destroying the argument that the benefit cut was made in order to address the deficit. People search the conference hall for the fag packet on which the policy was devised and senior ministers admit they had no idea the policy was due to be announced.

7) The new PM apologises for not including the Child Benefit cut in its manifesto, but goes ahead and does it anyway. He cites something about new politics and parades his new baby in front of the cameras in a bid to ease the pressure on him and his government.

All this comes before the new government has got round to announcing the biggest cuts in public spending in living memory, while the economy remains desperately fragile and there are five people applying for every job. They have been repeatedly leaking rumours of cuts to the press though – £4bn of cuts to welfare here, a devastation of the armed forces there.

Now imagine, if you will, the press reaction to the Labour government’s actions. The newspapers are frothing at the mouth in anger. “We didn’t vote for this coalition of the incompetent!”, they cry. “Is this the worst start to a government in history?” questions The Times editorial. Sky News is running a clock estimating how long it will be before the government is forced to go back to the country. The Lib Dems are annihilated as a party, support slipping to a historic low.

Have you spotted those headlines (apart from the last one, that one’s true)? No? Funny that, isn’t it.


Filed under Coalition, Economy, General

Against All of My Instincts, I’m Leaning Towards Ed Balls

When the leadership campaign began, I knew one thing – I definitely wouldn’t be voting for Ed Balls. Now, having read his speech at Bloomberg this week and analysed the reaction (in particular from the Financial Times), I am starting to think he offers the most coherent response to the most important issue of this parliament – the spending cuts.

Ed laid out a Keynesian vision for growth, which as I’ve argued again and again, is the only genuine way to reduce the deficit without causing serious and lasting structural damage to the economy which could last a generation.Some commentators have suggested that Balls is taking a risky approach by nailing colours to a mast which may prove to be unfounded. I don’t accept this.

I don’t think the thrust of Ed Balls’ argument is “take my approach or face calamity”. He has laid out a viable and impressive alternative economic vision which has the weight of history behind it and allows for a more socially responsible approach to the deficit. What Labour does with Balls’ analysis is what’s important. It is not necessary to use the politics (or economics) of fear which has driven the coalition’s public approach to the deficit. With a reasoned and supported economic argument behind him, Balls has opened the door to new way of challenging the cuts agenda.

The media has bought wholesale the need for cuts to reduce the deficit and the question now is where the pain should fall. Balls is tackling the premise behind this. Labour can never win public support if they simply challenge where the cuts should happen – they will appear sniping and incoherent. An alternative (quasi-Keynesian) vision for economic recovery based on investment, fair tax rises and, yes, some spending cuts gives Labour a platform to challenge the underlying assumption which currently gives the coalition the opportunity to ideologically cut at will.

In the end, it doesn’t matter whether the worst downside of the austerity drive comes to pass, with Balls’ vision, there exists an alternative idea to hold up to people and say “Even though we avoided a violent double-dip, we could have tackled the deficit in a much fairer way.” There is nothing at all wrong in basing Labour’s approach on Balls’ view, because it has intellectual weight regardless of the outcome of the coalition’s actions. Put simply, the recovery is not black and white and even if the coalition don’t fail utterly, a viable alternative can retain credibility. I think the risk to Labour is in failing to have an economic vision which underpins Labour’s opposition, rather than worrying about being notionally “wrong”.

For this reason, with my ballot still uncast, I find my pen hovering above Ed Balls’ name for the first time. It’s not something I thought would happen, but if nothing else, it’s proved the value of the context in drawing out what’s important in our new leader.


Filed under Economy, Labour Party, Leadership Election