Tuesday, 26 April 2011
AV scam
Quick update on AV; thanks to Guido I saw this article about the serious conflict between the yes campaign, the referendum and the profits people hope to make out of a change to the system.
Wednesday, 20 April 2011
AV or not AV?
I haven't posted on the referendum for two reasons: first because my focus has been on posting about life as a golf club captain and second because I hadn't fully made up my mind.
AV has a whiff of fairness about it, but it also brings with it complexity, a change to something that doesn't really need fixing and an increase in the power of parties over individuals.
The more I've thought about it - and have looked at the respective campaigns - neither of which have been impressive - the more I think the flaws of AV outweigh the benefits and will vote no.
There are problems with most forms of democratic voting systems (where the area is bigger than an area where people know each other well); problems of not identifying with the MP, not having equal representation (Labour need many fewer votes per MP than Tories or Lib Dems), under-representation of extremists (many would see that as a good point), MPs not being selected by more than 50% of the votes, MPs being selected by small groups of people because they are good party people (eg MEPs); and so on. Volumes of words have been written on the subject. AV solves none of them - not even being selected by more than 50% of voters, because you don't have to cast more than one vote.
Which is why, until the yes campaign kicked off, most of its current suppporters did not support it.
There's another reason some of the current supporters changed their minds having previously been negative: money. The cost of running an AV election will be substantial (£250m+). A main financial promotor of the AV campaign is an organisation (the electoral reform society) that will profit from the change.
Many supporters say that although AV is not perfect, it is at least a change from the current system. These tend to be LibDems - although there has been research into the effect AV would have had on past elections, it's hard to work it out accurately. The effect seems to be that when there's a significant swing in mood (eg to Thatcher or Blair) AV would emphasise that swing and when there isn't it would emphasise the middle. But the party that would do best out of it in general seems to be the LibDems. The result is therefore likely to be less effective opposition or coalitions based on party negotiations.
I don't really accept the "no" campaign's argument that the system is too complicated to explain - and yet: remember the significant number of spoiled ballots in Scotland in the 2007 election? Complexity really did have a negative impact.
AV has a whiff of fairness about it, but it also brings with it complexity, a change to something that doesn't really need fixing and an increase in the power of parties over individuals.
The more I've thought about it - and have looked at the respective campaigns - neither of which have been impressive - the more I think the flaws of AV outweigh the benefits and will vote no.
There are problems with most forms of democratic voting systems (where the area is bigger than an area where people know each other well); problems of not identifying with the MP, not having equal representation (Labour need many fewer votes per MP than Tories or Lib Dems), under-representation of extremists (many would see that as a good point), MPs not being selected by more than 50% of the votes, MPs being selected by small groups of people because they are good party people (eg MEPs); and so on. Volumes of words have been written on the subject. AV solves none of them - not even being selected by more than 50% of voters, because you don't have to cast more than one vote.
Which is why, until the yes campaign kicked off, most of its current suppporters did not support it.
There's another reason some of the current supporters changed their minds having previously been negative: money. The cost of running an AV election will be substantial (£250m+). A main financial promotor of the AV campaign is an organisation (the electoral reform society) that will profit from the change.
Many supporters say that although AV is not perfect, it is at least a change from the current system. These tend to be LibDems - although there has been research into the effect AV would have had on past elections, it's hard to work it out accurately. The effect seems to be that when there's a significant swing in mood (eg to Thatcher or Blair) AV would emphasise that swing and when there isn't it would emphasise the middle. But the party that would do best out of it in general seems to be the LibDems. The result is therefore likely to be less effective opposition or coalitions based on party negotiations.
I don't really accept the "no" campaign's argument that the system is too complicated to explain - and yet: remember the significant number of spoiled ballots in Scotland in the 2007 election? Complexity really did have a negative impact.
Our current system is one of the better alternatives. There has to be a clear reason to change. AV doesn't solve most electoral problems, it will cost a lot and is likely to lead to more power for political parties rather than less. (I will always remember the photo of Nick Clegg's coalition negotiating notes showing he was mostly concerned with the Lib Dems status rather than policy).
I have another problem with the vote: I think important changes should be carefully considered. I don't like the idea of referendums deciding something unless there are some safeguards: a certain % of people should vote; the majority should be more than 50% to take account of the fact that some people won't vote; ideally there should be two referendums for major changes, say 5 years apart, so the result isn't swayed by short term issues. The thing about change is you can't put it back. But you can always change in the future.
So in the absence of clear reasons to change - and because there are some good reasons not to - I'm voting no.
Wednesday, 9 February 2011
2011
Predictions are best made after the event so (even with the advantage of being 8% of the way through the year) I will instead highlight what I think will be the important issues of 2011.
In the UK:
The AV Vote
Although most people have given this topic little thought, the vote in May will be very relevant to the future of the coalition. And future Parliaments.
If there is a no vote, then proportional representation will be unlikely for many years. This would be a hard blow for the LibDems and would make many wonder what they have got out of the coalition (apart of course from helping to salvage the economy). Given that the coalition will be at its most unpopular the temptation for some to bail out will be high. Even if they don’t, many will be sullen and uncooperative. The opposite would be the case if there’s a yes vote: a lot of Conservatives will be fed up and see yet another (as they see it) LibDem victory. So whatever the result, the tensions on the back benches will increase. I think it’s most likely that the coalition will continue but there’ll be more discontent which will make it harder to achieve its aims.
As far as the future is concerned, it seems to be hard to predict the impact of AV – especially as there’ll be fewer and hopefully more consistent constituencies. Some think it’ll have little impact, but it’s more likely to increase the chance of coalitions. This one has worked surprisingly well so far. But it’s not obvious we need lots more.
The slight reduction in the growth of public expenditure (aka The Cuts):
The impact on the economy
The key is confidence.
Acting quickly to get the deficit under control was good. It gave investors – the people who fund our deficit – confidence in the country. It has allowed us to keep funding the deficit without paying high interest rates, the costs of which would add to the deficit. It allowed business to feel that the Government was getting a grip and that they in turn could invest to re-balance the economy to one of wealth creation rather than public waste.
Although the scale of the cuts is small, changing the trend from massive growth in public spending to a standstill or slight reduction is like turning an ocean liner. There will be unemployment, projects will stop (although infrastructure investment is continuing) and people will be nervous. As the global economy has picked up, so has inflation especially in raw materials, exaggerated in the UK by a weaker pound which complicates the reaction of the Bank of England’s monetary policy committee. Nervousness – a lack of confidence - could constrain spending and investment and therefore damage growth.
As the cuts start to come into effect this year, the interplay of these two impacts on confidence will be critical to whether we see growth returning in the UK in 2011/12.
The impact on social cohesion
Many people will be using the cuts to ferment trouble: ultimately the cuts threaten an end to all those who live off the culture of dependency, especially Labour. But the degree of change requires a broad public sympathy – not necessarily a majority agreement, but some respect that the right things is being done. Initially, that sympathy is there. Will it stay as the cuts bite?
The first sets of demonstrations, about changes to the funding of university students, were if anything beneficial to the Government. The sight of privileged youths creating a mess on the whole increased support for the proposals. And the public sector unions run major risk if they inconvenience the public too much by what are perceived to be political demonstrations.
But: if the cuts impact too much on front line staff then public sympathy could shift. There’s a growing feeling that there is total lack of joined-up thinking to the cuts, with every arm of government looking to its own interests, in particular with councils cutting charity and voluntary funding much more sharply than their own, because it preserves their empires and saves them redundancy costs. Coupled with silly things like the sale of woodland and rushed changes to the NHS, all this could change attitudes and make it impossible to implement the cuts effectively.
2011 will tell.
The Royal Wedding
This is a good news event; it’ll give a feel-good factor. The sales of commemorative tea-towels and mugs will all help boost the economy as will the influx of tourists. It’ll also be good for our national image increasing tourism on a longer term basis.
I think in fact it’ll be much more useful than the Olympics in the following year, which will probably be an expensive damp squib. The happy couple have chosen a good time to increase our national morale and – hopefully – confidence.
Bankers
London is one of the two major financial centres in the world – probably the major international one. The financial services business generates substantial employment from those who support it ranging from lawyers and accountants to restaurants and builders. It is the driving force of the UK economy, one of the few businesses where we are world leaders. It is also much wider than just “banks”.
Yet popular opinion seems to despise bankers, far more than in any other country – even the US, where the devastation from the house price collapse was worse than the UK. As regular readers know, I think the banks made major mistakes in the last few years and that as a country we did not exact enough reward for bailing some of them out. However, the banks were neither wholly or primarily to blame for the “credit crisis”, and it is likely that we will make a profit on the bail outs we did make. The US investigation into the causes blames a number of factors, primarily lax Government policy; the best explanation I have seen came from Michael Geoghegan, ex-CEO of HSBC (with JP Morgan one of only two Western banks that truly did not need help; he can therefore be dispassionate):
"The financial crisis was a heady cocktail of western governments voted in on consumer agendas, and financed by banks in the western world that didn’t have domestic savers’ deposits to fund the growth in consumer lending and then relied on foreign wholesale deposits which were quickly withdrawn when doubts about the western financial system arose”.
So why do we hate bankers so much more in the UK than elsewhere? I think there are three reasons:
- Our Government was more to blame than most for the crisis in the UK (because of its uncontrolled public sector expenditure, the lax regulatory system it set up and the inadequate responsibilities of the monetary policy committee). It therefore made much more effort to blame the banks than other Governments, and in the heat of the crisis the opposition had to follow suit;
- The UK has a limited number of big banks, which most people bank with. And often have bad consumer experiences with. These banks are involved in wholesale international markets as well. In the US, the banks involved in international markets tend not to be those most people bank with and so the issues are more distant.
- The disadvantage of a vibrant press in the UK is that they rarely let facts get in the way of a good story.
But even with these reasons I don’t understand the depth of dislike. It has two bad consequences for the UK:
- If you don’t understand what went wrong, the remedies will also be wrong; we won’t put in place the right structures to minimise the risks in future. This is particularly worrying because the world has not by any means finished working its way through the debt problem.
- Over time, the negative feelings will cause international financial services to drift away. Most other countries are putting in place favourable tax and regulatory regimes to take the business away just as we are doing the opposite. Good riddance, people cry. But in ten years or so time, when our tax and employment base is much less, and the centre of international commercialism has shifted so our influence and involvement in the world economy is less, we will suffer. Not the ex-bankers by the way – they’ll be fine. The general public.
Will 2011 be a year when banker bashing becomes less emotional? I doubt it. But for the long term future of the UK I hope so.
Briefly, elsewhere:
Freedom of information
Wikileaks' publication of a mass of stolen emails from the US Government caused split views: a bold campaigner for truth and freedom of expression? Or a careless exploiter of stolen information?
The thing that worried me about Wikileaks’ supporters was their conflation between freedom of expression – and important right that people should be able to say what they think – and freedom of information, defined as the right to have all information even if it is private. Or, to repeat the point, stolen. The right to take and use what isn’t yours isn’t a good thing and labelling it as freedom of expressions does not make it so.
We live in a world where people are more and more inclined to make information about themselves public, even if they later come to regret it. This attitude will permeate society and generally this is a good thing. Transparency especially over Government activity is a good thing. But not to an unlimited extent. People have to have private discussions and thoughts before they make decisions. As we put more of our information into databases we don’t control we will lose control of our information. I don’t know the end game, but I am sure that the trend will continue in 2011 and I am nervous about the consequences. I think we’ll be more manipulated than free. And the distinction between private and public remarks will diminsh to the loss of all of us.
The Euro
Will it survive? There were many doubters last year as investors in various countries’ government debt lost confidence in their ability to repay, demanding higher interest rates and eventually causing bail-outs. Each country had different reasons for the problem, from Greece’s original unsuitability to be a member of the Euro-zone to Ireland’s decision to fully guarantee its banks. All highlighted the problems of the original Euro project: to have a common currency amongst countries with insufficient economic convergence, with no proper assessment of the extent of the convergence and no common governance process to monitor each other’s economies and to transfer money from one country to another. If things were left alone, almost certainly countries would have to leave the Euro-zone and the project would be damaged (although had the Euro originally just been a core group of about four or five countries aligned with the German economy it probably would have not come under strain).
However, it is unlikely that they will be left alone: there is a tremendous political pressure in Germany and France to keep the Euro going and the effectiveness of that pressure should never be doubted. It does seem that the two countries will force through governance changes which will solve some of the original problems, with mechanisms for transfer payments in return for tighter central controls over countries’ economies. And there may be a partial default or two. The long term result should be good for Europe’s economies.
I don’t think we should be part of this process, I think as a result we will shift to an outer tier of European harmonisation but I think that will be very healthy. We needn’t integrate as closely as others would like, but we needn’t be a drag on those who want to. We will always be a large player and therefore with influence.
Afpak”
Just as last year, this region is at the heart of the problem of terrorism driven by Islamic fundamentalism. Pakistan has a massive population, problems of poverty, a poor education system, corruption and a military whose paranoia over India and Kashmir has caused it (mostly indirectly) to be a prime sponsor of terrorism. It also has nuclear weapons. I don’t think anyone knows what to do: I think the only hope is that Pakistan’s educated middle class can act as a calming influence to bring aspects of the country together over time, and in the meantime there are no regional outbursts that that add to the tension.
Historic links with Saudi Arabia, which has funded most of the extremist schools, bring the problem closer to the Middle East where Israel continues to have a short term view of the situation: its oppression of the Palestinians continues to breed longer term problems.
I write this as the situation in Egypt remains uncertain; and what happens there will affect other Arab dictatorships. As well as Israel. 2011 doesn’t seem like a calm year in the Middle East.
China
Economically, only one country counts: China. Its economic growth, the size of its savings which are largely funding the US and the increase in average wealth of the population are the main things that will determine the world’s economy in 2011. That’s not to diminish the importance of other emerging economies, or the likely recovery in America, but China will dominate the out-turn.
It faces three broad questions: how it controls the economy without an excessive boom leading to bust (many think this is inevitable); how it balances a growing middle class and personal wealth with state control and a lack of political freedom; and how it chooses to use its influence in world politics – whether it continues to be largely impartial to world events or whether it seeks to use its influence – and if the latter, how. We will all be impacted by those questions.
To close: a quote from Warren Buffet: forecasts are a better guide to the forecaster than the future.
In the UK:
The AV Vote
Although most people have given this topic little thought, the vote in May will be very relevant to the future of the coalition. And future Parliaments.
If there is a no vote, then proportional representation will be unlikely for many years. This would be a hard blow for the LibDems and would make many wonder what they have got out of the coalition (apart of course from helping to salvage the economy). Given that the coalition will be at its most unpopular the temptation for some to bail out will be high. Even if they don’t, many will be sullen and uncooperative. The opposite would be the case if there’s a yes vote: a lot of Conservatives will be fed up and see yet another (as they see it) LibDem victory. So whatever the result, the tensions on the back benches will increase. I think it’s most likely that the coalition will continue but there’ll be more discontent which will make it harder to achieve its aims.
As far as the future is concerned, it seems to be hard to predict the impact of AV – especially as there’ll be fewer and hopefully more consistent constituencies. Some think it’ll have little impact, but it’s more likely to increase the chance of coalitions. This one has worked surprisingly well so far. But it’s not obvious we need lots more.
The slight reduction in the growth of public expenditure (aka The Cuts):
The impact on the economy
The key is confidence.
Acting quickly to get the deficit under control was good. It gave investors – the people who fund our deficit – confidence in the country. It has allowed us to keep funding the deficit without paying high interest rates, the costs of which would add to the deficit. It allowed business to feel that the Government was getting a grip and that they in turn could invest to re-balance the economy to one of wealth creation rather than public waste.
Although the scale of the cuts is small, changing the trend from massive growth in public spending to a standstill or slight reduction is like turning an ocean liner. There will be unemployment, projects will stop (although infrastructure investment is continuing) and people will be nervous. As the global economy has picked up, so has inflation especially in raw materials, exaggerated in the UK by a weaker pound which complicates the reaction of the Bank of England’s monetary policy committee. Nervousness – a lack of confidence - could constrain spending and investment and therefore damage growth.
As the cuts start to come into effect this year, the interplay of these two impacts on confidence will be critical to whether we see growth returning in the UK in 2011/12.
The impact on social cohesion
Many people will be using the cuts to ferment trouble: ultimately the cuts threaten an end to all those who live off the culture of dependency, especially Labour. But the degree of change requires a broad public sympathy – not necessarily a majority agreement, but some respect that the right things is being done. Initially, that sympathy is there. Will it stay as the cuts bite?
The first sets of demonstrations, about changes to the funding of university students, were if anything beneficial to the Government. The sight of privileged youths creating a mess on the whole increased support for the proposals. And the public sector unions run major risk if they inconvenience the public too much by what are perceived to be political demonstrations.
But: if the cuts impact too much on front line staff then public sympathy could shift. There’s a growing feeling that there is total lack of joined-up thinking to the cuts, with every arm of government looking to its own interests, in particular with councils cutting charity and voluntary funding much more sharply than their own, because it preserves their empires and saves them redundancy costs. Coupled with silly things like the sale of woodland and rushed changes to the NHS, all this could change attitudes and make it impossible to implement the cuts effectively.
2011 will tell.
The Royal Wedding
This is a good news event; it’ll give a feel-good factor. The sales of commemorative tea-towels and mugs will all help boost the economy as will the influx of tourists. It’ll also be good for our national image increasing tourism on a longer term basis.
I think in fact it’ll be much more useful than the Olympics in the following year, which will probably be an expensive damp squib. The happy couple have chosen a good time to increase our national morale and – hopefully – confidence.
Bankers
London is one of the two major financial centres in the world – probably the major international one. The financial services business generates substantial employment from those who support it ranging from lawyers and accountants to restaurants and builders. It is the driving force of the UK economy, one of the few businesses where we are world leaders. It is also much wider than just “banks”.
Yet popular opinion seems to despise bankers, far more than in any other country – even the US, where the devastation from the house price collapse was worse than the UK. As regular readers know, I think the banks made major mistakes in the last few years and that as a country we did not exact enough reward for bailing some of them out. However, the banks were neither wholly or primarily to blame for the “credit crisis”, and it is likely that we will make a profit on the bail outs we did make. The US investigation into the causes blames a number of factors, primarily lax Government policy; the best explanation I have seen came from Michael Geoghegan, ex-CEO of HSBC (with JP Morgan one of only two Western banks that truly did not need help; he can therefore be dispassionate):
"The financial crisis was a heady cocktail of western governments voted in on consumer agendas, and financed by banks in the western world that didn’t have domestic savers’ deposits to fund the growth in consumer lending and then relied on foreign wholesale deposits which were quickly withdrawn when doubts about the western financial system arose”.
So why do we hate bankers so much more in the UK than elsewhere? I think there are three reasons:
- Our Government was more to blame than most for the crisis in the UK (because of its uncontrolled public sector expenditure, the lax regulatory system it set up and the inadequate responsibilities of the monetary policy committee). It therefore made much more effort to blame the banks than other Governments, and in the heat of the crisis the opposition had to follow suit;
- The UK has a limited number of big banks, which most people bank with. And often have bad consumer experiences with. These banks are involved in wholesale international markets as well. In the US, the banks involved in international markets tend not to be those most people bank with and so the issues are more distant.
- The disadvantage of a vibrant press in the UK is that they rarely let facts get in the way of a good story.
But even with these reasons I don’t understand the depth of dislike. It has two bad consequences for the UK:
- If you don’t understand what went wrong, the remedies will also be wrong; we won’t put in place the right structures to minimise the risks in future. This is particularly worrying because the world has not by any means finished working its way through the debt problem.
- Over time, the negative feelings will cause international financial services to drift away. Most other countries are putting in place favourable tax and regulatory regimes to take the business away just as we are doing the opposite. Good riddance, people cry. But in ten years or so time, when our tax and employment base is much less, and the centre of international commercialism has shifted so our influence and involvement in the world economy is less, we will suffer. Not the ex-bankers by the way – they’ll be fine. The general public.
Will 2011 be a year when banker bashing becomes less emotional? I doubt it. But for the long term future of the UK I hope so.
Briefly, elsewhere:
Freedom of information
Wikileaks' publication of a mass of stolen emails from the US Government caused split views: a bold campaigner for truth and freedom of expression? Or a careless exploiter of stolen information?
The thing that worried me about Wikileaks’ supporters was their conflation between freedom of expression – and important right that people should be able to say what they think – and freedom of information, defined as the right to have all information even if it is private. Or, to repeat the point, stolen. The right to take and use what isn’t yours isn’t a good thing and labelling it as freedom of expressions does not make it so.
We live in a world where people are more and more inclined to make information about themselves public, even if they later come to regret it. This attitude will permeate society and generally this is a good thing. Transparency especially over Government activity is a good thing. But not to an unlimited extent. People have to have private discussions and thoughts before they make decisions. As we put more of our information into databases we don’t control we will lose control of our information. I don’t know the end game, but I am sure that the trend will continue in 2011 and I am nervous about the consequences. I think we’ll be more manipulated than free. And the distinction between private and public remarks will diminsh to the loss of all of us.
The Euro
Will it survive? There were many doubters last year as investors in various countries’ government debt lost confidence in their ability to repay, demanding higher interest rates and eventually causing bail-outs. Each country had different reasons for the problem, from Greece’s original unsuitability to be a member of the Euro-zone to Ireland’s decision to fully guarantee its banks. All highlighted the problems of the original Euro project: to have a common currency amongst countries with insufficient economic convergence, with no proper assessment of the extent of the convergence and no common governance process to monitor each other’s economies and to transfer money from one country to another. If things were left alone, almost certainly countries would have to leave the Euro-zone and the project would be damaged (although had the Euro originally just been a core group of about four or five countries aligned with the German economy it probably would have not come under strain).
However, it is unlikely that they will be left alone: there is a tremendous political pressure in Germany and France to keep the Euro going and the effectiveness of that pressure should never be doubted. It does seem that the two countries will force through governance changes which will solve some of the original problems, with mechanisms for transfer payments in return for tighter central controls over countries’ economies. And there may be a partial default or two. The long term result should be good for Europe’s economies.
I don’t think we should be part of this process, I think as a result we will shift to an outer tier of European harmonisation but I think that will be very healthy. We needn’t integrate as closely as others would like, but we needn’t be a drag on those who want to. We will always be a large player and therefore with influence.
Afpak”
Just as last year, this region is at the heart of the problem of terrorism driven by Islamic fundamentalism. Pakistan has a massive population, problems of poverty, a poor education system, corruption and a military whose paranoia over India and Kashmir has caused it (mostly indirectly) to be a prime sponsor of terrorism. It also has nuclear weapons. I don’t think anyone knows what to do: I think the only hope is that Pakistan’s educated middle class can act as a calming influence to bring aspects of the country together over time, and in the meantime there are no regional outbursts that that add to the tension.
Historic links with Saudi Arabia, which has funded most of the extremist schools, bring the problem closer to the Middle East where Israel continues to have a short term view of the situation: its oppression of the Palestinians continues to breed longer term problems.
I write this as the situation in Egypt remains uncertain; and what happens there will affect other Arab dictatorships. As well as Israel. 2011 doesn’t seem like a calm year in the Middle East.
China
Economically, only one country counts: China. Its economic growth, the size of its savings which are largely funding the US and the increase in average wealth of the population are the main things that will determine the world’s economy in 2011. That’s not to diminish the importance of other emerging economies, or the likely recovery in America, but China will dominate the out-turn.
It faces three broad questions: how it controls the economy without an excessive boom leading to bust (many think this is inevitable); how it balances a growing middle class and personal wealth with state control and a lack of political freedom; and how it chooses to use its influence in world politics – whether it continues to be largely impartial to world events or whether it seeks to use its influence – and if the latter, how. We will all be impacted by those questions.
To close: a quote from Warren Buffet: forecasts are a better guide to the forecaster than the future.
Sunday, 30 January 2011
One quarter doesn't make a recession
But it's half of one.
The fall in GDP in Q4 2010, coupled with more aggressive PR from Labour because of Ed Balls' appointment as Shadow Chancellor and Tom Baldwin's appointment as director of strategy (aka press manager) has changed the mood music around the coalition's attempt to get public finances in order. There's a bit more questioning of the approach: previously there was sympathy for the view that the priority was reducing the deficit, now there seems a bit more concern about growth. Mood music matters for two reasons:
- confidence is an important driver of growth. It's not enough on it's own, but it's necessary. The more nervous people (including companies) are about the future the less they will invest, spend, consume.
- although the "cuts" aren't big in themselves. they do change the direction of public expenditure. Big changes need some form of public acceptance to work. The coalition did get more votes than the opposition and has a mandate but it is fragile. It doesn't need to top the opinion polls to implement its policies but it does need at the least a grudging respect and acceptance. So far, it has this. But if we were to move into recession and there was much more questioning this respect and acceptance could disappear.
There are two problems for the coalition:
- One quarter of negative growth was always possible - but no-one expected it to be this one, the quarter before VAT increased, when people should have been out spending. The weather does seem to have made the difference, but the reason isn't relevant. The trouble is that if this quarter (Q1 2011), when there is a VAT increase as well as bad weather, also has negative growth then we are into two quarters of negative growth and a recession.
- They have not sold their approach recently, in fact for the last few months. They need to get on the front foot. I don't think it's enough to simply say, we must see the cuts through, we will not change course, The headlines need to explain why the approach is good for the economy. Even the Guardian (or at least one of their columnists) agrees that the state cannot do much to improve things. It's the private sector that will.
There are some positive points for the coalition:
- We won't know the final Q4 2010 figure until Spring, and it may improve;
- Subject to coalition breaking up, they won't face re-election till 2015. This is plenty of time for their policy to work. And if the world economy has recovered by then, the coalition will get the credit in Britain.
- Their approach is funadmentally right. They are at risk from external events - but fundamentally the interest burden (which I covered previously here) on our borrowings means the deficit has to be got under control, and the quicker that happens the quicker the recovery will come.
The fall in GDP in Q4 2010, coupled with more aggressive PR from Labour because of Ed Balls' appointment as Shadow Chancellor and Tom Baldwin's appointment as director of strategy (aka press manager) has changed the mood music around the coalition's attempt to get public finances in order. There's a bit more questioning of the approach: previously there was sympathy for the view that the priority was reducing the deficit, now there seems a bit more concern about growth. Mood music matters for two reasons:
- confidence is an important driver of growth. It's not enough on it's own, but it's necessary. The more nervous people (including companies) are about the future the less they will invest, spend, consume.
- although the "cuts" aren't big in themselves. they do change the direction of public expenditure. Big changes need some form of public acceptance to work. The coalition did get more votes than the opposition and has a mandate but it is fragile. It doesn't need to top the opinion polls to implement its policies but it does need at the least a grudging respect and acceptance. So far, it has this. But if we were to move into recession and there was much more questioning this respect and acceptance could disappear.
There are two problems for the coalition:
- One quarter of negative growth was always possible - but no-one expected it to be this one, the quarter before VAT increased, when people should have been out spending. The weather does seem to have made the difference, but the reason isn't relevant. The trouble is that if this quarter (Q1 2011), when there is a VAT increase as well as bad weather, also has negative growth then we are into two quarters of negative growth and a recession.
- They have not sold their approach recently, in fact for the last few months. They need to get on the front foot. I don't think it's enough to simply say, we must see the cuts through, we will not change course, The headlines need to explain why the approach is good for the economy. Even the Guardian (or at least one of their columnists) agrees that the state cannot do much to improve things. It's the private sector that will.
There are some positive points for the coalition:
- We won't know the final Q4 2010 figure until Spring, and it may improve;
- Subject to coalition breaking up, they won't face re-election till 2015. This is plenty of time for their policy to work. And if the world economy has recovered by then, the coalition will get the credit in Britain.
- Their approach is funadmentally right. They are at risk from external events - but fundamentally the interest burden (which I covered previously here) on our borrowings means the deficit has to be got under control, and the quicker that happens the quicker the recovery will come.
State of Play
I've just finished rewatching State of Play - the original TV series not the disappointing film. I thought it was (apart obviously from 24 series 5) the best thing I've seen on TV. A brilliant twisting tale about how the journalist heroes uncover details of political deceit and corporate corruption, even murder.
It made me ponder the phone-hacking scandal. The press is very powerful. I'd hate to be on the wrong side of it, especially if I didn't have the resource to protect me or the opportunity to benefit from any resulting publicity. It also doesn't always decide to follow things up and it can focus on irrelevancies. But there's no doubt that a free cynical and aggressive media keeps the body politic honest.
And is hacking into voice messages really different from rooting through dustbins? Or pretending to be someone else to get an interview? Or misrepresenting information to get hold of incriminating documents? (Things I admired in State of Play). No; this is a case of the end justifying the means. If a story is good enough then we should accept journalists have to overstep the mark to get the results.
There is a question about whether the News of the World's hacking (and I am sure most other papers do this as well) is focused on good stories; it's hard to imagine Kelly Hoppen, Sienna Miller, John Prescott or Gordon Brown having interesting messages, and the saga supposedly began with as tory about Prince Willaim's knee. But I suspect the underlying theme of such celebrity stories would be hypocrisy; they all benefit from publicity but they all complain when it's not good.
Hypocrisy underlies the News of the World story. The Guardian has made the most running; had it not been for the ex-editor being Cameron's press adviser, would they have bothered? They are after all the paper that linked with Wikileaks, relying on stolen information broadcast without care, to sell papers. Phone hacking is minor misbehaviour compared to theirs.
It made me ponder the phone-hacking scandal. The press is very powerful. I'd hate to be on the wrong side of it, especially if I didn't have the resource to protect me or the opportunity to benefit from any resulting publicity. It also doesn't always decide to follow things up and it can focus on irrelevancies. But there's no doubt that a free cynical and aggressive media keeps the body politic honest.
And is hacking into voice messages really different from rooting through dustbins? Or pretending to be someone else to get an interview? Or misrepresenting information to get hold of incriminating documents? (Things I admired in State of Play). No; this is a case of the end justifying the means. If a story is good enough then we should accept journalists have to overstep the mark to get the results.
There is a question about whether the News of the World's hacking (and I am sure most other papers do this as well) is focused on good stories; it's hard to imagine Kelly Hoppen, Sienna Miller, John Prescott or Gordon Brown having interesting messages, and the saga supposedly began with as tory about Prince Willaim's knee. But I suspect the underlying theme of such celebrity stories would be hypocrisy; they all benefit from publicity but they all complain when it's not good.
Hypocrisy underlies the News of the World story. The Guardian has made the most running; had it not been for the ex-editor being Cameron's press adviser, would they have bothered? They are after all the paper that linked with Wikileaks, relying on stolen information broadcast without care, to sell papers. Phone hacking is minor misbehaviour compared to theirs.
Monday, 3 January 2011
2010 reprise
Last year I avoided making predictions but set out a few issues I thought would be important, and promised to review them at the end of the year.
Should you cut Government deficits in a recession?
I thought that the contrast between Eire - which had take action to sort out it's deficit but was constrained by being in the Euro - and the UK - which could devalue its currency but had out of control public spending - would be interesting. In the event the situation reversed: the UK got a new Government which took firm action that increased its credibility allowing it to continue borrowing and at lower interest rates. Eire got in a mess because its banks were in a much worse state than people thought and the Government provided a guarantee for all their debts. This has seriously damaged their credit rating - initially, things were looking reasonable but as the full horror of their banks unfolded they needed help. I suspect they would have been better allowing the banks to default (although protecting depositors) rather than hurting taxpayers, but that would have badly hurt banks in other European countries - especially Germany. And that would not have been popular.
So the question is unresolved: I remain convinced that sometimes you should cut deficits, and both the UK and Eire were right to do so, and will benefit compared with other indebted European countries. 2011 should show the result.
Does the public sector serve us - or is it the other way round?
I suggested that the public sector - and I really mean the management of the public sector - had forgotten why it existed, which is to provide efficient public service. (See last year's post for links to examples). I hoped that 2010 would be a year when the public started to take back control., accepting that the culture of low productivity and indifference to the public had taken years to create and would take years to disappear. I'm not sure there has been much progress on this; the flurry of press interest in this topic has largely disappeared and there will be a major media push by public sector unions about the unfairness of expenditure cuts, which will probably become the new story.
However, there is hope: Eric Pickles, the "Communities Secretary", has pushed for much more openness about Local Authority spending and the coalition has reduced the number of quangos if not had a bonfire of them. The philosophy of most of the coalition is to support localism, the Big Society, community involvement. Little things like giving local areas the power to determine housing needs rather than having them set by distant regional development agencies all help the trend towards reducing the power of the public sector. And a lack of money helps. So although there's been little progress the change of Government has kept the pressure on.
Is global cooling the new global warming?
Thoughts for 2011 will follow shortly.
Should you cut Government deficits in a recession?
I thought that the contrast between Eire - which had take action to sort out it's deficit but was constrained by being in the Euro - and the UK - which could devalue its currency but had out of control public spending - would be interesting. In the event the situation reversed: the UK got a new Government which took firm action that increased its credibility allowing it to continue borrowing and at lower interest rates. Eire got in a mess because its banks were in a much worse state than people thought and the Government provided a guarantee for all their debts. This has seriously damaged their credit rating - initially, things were looking reasonable but as the full horror of their banks unfolded they needed help. I suspect they would have been better allowing the banks to default (although protecting depositors) rather than hurting taxpayers, but that would have badly hurt banks in other European countries - especially Germany. And that would not have been popular.
So the question is unresolved: I remain convinced that sometimes you should cut deficits, and both the UK and Eire were right to do so, and will benefit compared with other indebted European countries. 2011 should show the result.
Does the public sector serve us - or is it the other way round?
I suggested that the public sector - and I really mean the management of the public sector - had forgotten why it existed, which is to provide efficient public service. (See last year's post for links to examples). I hoped that 2010 would be a year when the public started to take back control., accepting that the culture of low productivity and indifference to the public had taken years to create and would take years to disappear. I'm not sure there has been much progress on this; the flurry of press interest in this topic has largely disappeared and there will be a major media push by public sector unions about the unfairness of expenditure cuts, which will probably become the new story.
However, there is hope: Eric Pickles, the "Communities Secretary", has pushed for much more openness about Local Authority spending and the coalition has reduced the number of quangos if not had a bonfire of them. The philosophy of most of the coalition is to support localism, the Big Society, community involvement. Little things like giving local areas the power to determine housing needs rather than having them set by distant regional development agencies all help the trend towards reducing the power of the public sector. And a lack of money helps. So although there's been little progress the change of Government has kept the pressure on.
Is global cooling the new global warming?
I wondered if 2010 would become a year when it became respectable to be a climate change denier. I think it did: there has been an increasing realisation that the statistics and climate readings have been over-exaggerated by those with an interest in promoting expenditure on yet more research or in developing businesses on the back of fear of temperature increases. (Micheal Crichton wrote an interesting book "State of Fear" which suggest that Governments also wanted to promote the concept because by making people worried it allowed them to increase their control over the public. He also cautions about the politicisation of science - a timely caution many scientists ignored). As other topics which allow them to increase public worry - the economy, terrorism - come to the fore, Governments are less interested in climate change.)
I still think it sensible to invest in energy efficiency, and in the reduction of the use of coal, oil and gas, but for economic, environmental and energy security reasons. The hijacking of the debate by climate scientists has devalued these worthy objectives.
Labour or Tory?
I did make a prediction here: I thought there'd be a hung Parliament (because the swing to the Tories would have been to much to realistically expect) but I also thoiught the LibDems would support Labour. In fact, thanks to a focus on the importance of sorting out the UK economy by senior Tory and LibDem leaders, the coalition agreement was put in place and has lasted well so far. Selfish MPs on both the Tory and LibDem side like to rock the boat from time to time but absent a really serious disagreement on an unexpected item, the agreement looks likely to stick. Probably because the electorate would punish those who caused any break-up.
It's a relief to see a Government that cares about the economy in charge. Cameron has settled into the job - and where is Gordon Brown? It's interesting how quickly important people fade away if their bubble is burst (in all fields not just politics).
Internationally, I noted the importance of:
US Mid-Terms
I wondered whether Obama would have made progress in dealing with the mess Bush's team left behind, and whether that progress would be accepted by the US electorate. I think he did, but the electorate certainly didn't accept he had. However, I suspect he will do well over the next two years because the Republicans will either have to co-operate or be shown to be bankrupt of ideas. In either case, as the global economy picks up Obama will get the credit (probably unfairly, but that's fair as he's being unfairly blamed for things going wrong now).I also said: "It usually takes two or three years for a change of Government to have any impact – so the problems in the first two or three years of a Government are usually those of the last one." Still true.
Iran
I wondered if a new regime to emerge. It nearly did. But the old one relied on the armed forces and brute force to keep it in place. I still hope that this basically civilised country can re-emerge as a force for good in the region: rebellion remains in the air and needs to be softly encouraged by the West.
"AfPak"
My closing thought for 2010 was that it is hard to see a good outcome here. And that remains my thought: Pakistan continues to have deep divisions, an unsuitable Government, an intelligence service that faces two ways and an unnatural distrust of India fermenting its desire to see a destablised Afghanistan. Which in turn has a dodgy Government that doesn't control most of the country. The West has wasted billions here, has made itslef deeply unpopular and has no real plan for a constructive escape.
Thoughts for 2011 will follow shortly.
Tuesday, 26 October 2010
The Comprehensive Spending Review
An awful lot has been written about the comprehensive spending review, so much so that it’s quite hard to think of anything new to say. However, I did actually listen to George Osborne’s speech and because it was supposedly the start of the roll back of the state it was important enough to be worth a comment.
And I did feel real anger about the review: not at the cuts, but at the reaction from various Labour politicians and commentators complaining about the increase in unemployment that will follow. They are the ones who wrecked the economy, leaving the UK with a massive debt burden. They are the ones who recklessly signed contracts they knew could not be afforded, leaving defence in particular in a mess. They are the ones who have left a blighted underclass without access to education and social skills to let them escape. They are the ones who left more people unemployed than when they came into office – as indeed every Labour Government has. Let’s repeat that: the people criticising the coalition for putting jobs at risk are the people who every single time they come to power make more people unemployed.
The comment I enjoyed most came from Giles Coren in the Times (I can’t link to it because of the Times firewall, presumably designed to devalue the worth of its authors by limiting their exposure). The heading was Let the Posh Boys Sort it Out; in summary it was saying that there is some relief, having watched a supposedly meritocratic group make a complete mess of things, in seeing some people born to rule getting a grip. I’m not sure if he was being ironic or not but he has a point.
One of Alan Johnson’s criticisms of the speech was the reaction of the Tory backbenchers appearing to relish the “cuts”; I’d certainly agree that Osborne was unnecessarily partisan in what should have been a sober assessment of the situation. Some of us do delight in seeing the state become less important, and in the sound of interest groups bleating about the problems that will arise from them having less money to waste. But that is a Tory, a partisan, perspective: there is also a wider national interest at stake which is much more important. I’ve written many times before about the need to get a grip on spending because of the size of the interest burden which flows out of the country and because of the requirement to keep finding other people to fund our borrowings. Proving that we can sort ourselves out is crucial to that and it is why something on the scale of the CSR was essential.
Other brief thoughts:
- There’s a lot to criticise - aircraft carriers with no planes, reducing spending on Scotland by less than the rest of the country – but it is a great achievement to have got agreement within a coalition to do as much as they have;
- The LibDems may be unpopular now, but as the “cuts” start to work they will get some of the credit and will be back as a credible third party by the time of the next election;
- As again many have written, these are not “cuts”, they are reductions in the growth of spending. Cuts would have been desirable had the economy been in a better state. Because confidence is poor the reductions are probably as much as is possible.
- It would have been easy – as Labour did a couple of times – to reduce capital spending keeping running costs unchanged. But the review has kept a number of infrastructure projects in place, as well as investment in longer term intellectual capital. This reinforces the coalition’s desire to support private sector growth.
- The long term success of this Government will be driven by its ability to reform the welfare system by simplifying it and creating an incentive to work. The CSR provided some first steps in this direction – a sign of intent – but much remains to be done.
- There is a debate about whether the "cuts" are fair. “Fair” can mean many things. It’s as Lewis Carroll said. The coalition will hope that most voters share their meaning of the word: early indications are that they do, but it's subject to change. In the end this will depend on the performance of the economy.
Overall a pretty good start.
And I did feel real anger about the review: not at the cuts, but at the reaction from various Labour politicians and commentators complaining about the increase in unemployment that will follow. They are the ones who wrecked the economy, leaving the UK with a massive debt burden. They are the ones who recklessly signed contracts they knew could not be afforded, leaving defence in particular in a mess. They are the ones who have left a blighted underclass without access to education and social skills to let them escape. They are the ones who left more people unemployed than when they came into office – as indeed every Labour Government has. Let’s repeat that: the people criticising the coalition for putting jobs at risk are the people who every single time they come to power make more people unemployed.
The comment I enjoyed most came from Giles Coren in the Times (I can’t link to it because of the Times firewall, presumably designed to devalue the worth of its authors by limiting their exposure). The heading was Let the Posh Boys Sort it Out; in summary it was saying that there is some relief, having watched a supposedly meritocratic group make a complete mess of things, in seeing some people born to rule getting a grip. I’m not sure if he was being ironic or not but he has a point.
One of Alan Johnson’s criticisms of the speech was the reaction of the Tory backbenchers appearing to relish the “cuts”; I’d certainly agree that Osborne was unnecessarily partisan in what should have been a sober assessment of the situation. Some of us do delight in seeing the state become less important, and in the sound of interest groups bleating about the problems that will arise from them having less money to waste. But that is a Tory, a partisan, perspective: there is also a wider national interest at stake which is much more important. I’ve written many times before about the need to get a grip on spending because of the size of the interest burden which flows out of the country and because of the requirement to keep finding other people to fund our borrowings. Proving that we can sort ourselves out is crucial to that and it is why something on the scale of the CSR was essential.
Other brief thoughts:
- There’s a lot to criticise - aircraft carriers with no planes, reducing spending on Scotland by less than the rest of the country – but it is a great achievement to have got agreement within a coalition to do as much as they have;
- The LibDems may be unpopular now, but as the “cuts” start to work they will get some of the credit and will be back as a credible third party by the time of the next election;
- As again many have written, these are not “cuts”, they are reductions in the growth of spending. Cuts would have been desirable had the economy been in a better state. Because confidence is poor the reductions are probably as much as is possible.
- It would have been easy – as Labour did a couple of times – to reduce capital spending keeping running costs unchanged. But the review has kept a number of infrastructure projects in place, as well as investment in longer term intellectual capital. This reinforces the coalition’s desire to support private sector growth.
- The long term success of this Government will be driven by its ability to reform the welfare system by simplifying it and creating an incentive to work. The CSR provided some first steps in this direction – a sign of intent – but much remains to be done.
- There is a debate about whether the "cuts" are fair. “Fair” can mean many things. It’s as Lewis Carroll said. The coalition will hope that most voters share their meaning of the word: early indications are that they do, but it's subject to change. In the end this will depend on the performance of the economy.
Overall a pretty good start.
Thursday, 30 September 2010
Circumspice
There seems to be a strong consensus that the economic problems are due to bankers. A recent poll showed this, Vince Cable showed his economic competence by conflating bankers spivs and gamblers crippling the British economy, Finance Ministers across the world are trying to restrict bonuses to financiers (actually, apart from in the UK they aren’t, but they are talking about it).
This worries me; not because the bankers will be upset – they will cope particularly as they will continue to earn lots of money, but because misunderstanding the cause of the problems makes it more likely we will do the wrong things to so solve them.
The real problem was that we all borrowed too much – individuals, banks and especially governments. We spent money we didn’t have causing house prices in particular – but all assets as well – to artificially rise. This was enabled because governments encouraged banks to gear up, to lend more, to need less capital to support their business. Governments did this because the resulting short term boom made them look good. I say Governments: not all did this; many Asian ones didn’t, not all Europeans did. Iceland was the poster boy for carelessness, but the US, the UK and Eire were not far behind.
I know the banks did some very stupid things – not all of them; for example JP Morgan and HSBC had a “good crisis”- but many lent foolishly, created products their managers didn’t understand and effectively went bankrupt; their shareholders have generally suffered as a result. But the rest of us did stupid things as well, and so did our Governments who not only encouraged the excess but also increased their own borrowings. They also did not get a decent reward for the guarantees they provided the banking system. And who voted for those Governments? Supported their public spending? We did.
If we want to know the cause of the problem: look around.
The UK's public sector deficit is because public spending got out of control. The banks were bailed out but mostly by guarantees which have lapsed; some taxpayer money was invested directly, but a small amount compared with the deficit and it is likley to be recovered at a profit. The bankers therefore played a small part in the problem and in fact there are three ways the banks and bankers are helping us get out of our economic problems:
- As they become profitable, the money we put into them becomes worth more. The state will profit from their investment;
- Banks employ a lot of people and finance and associated services remain one of our few world leading businesses which generate a lot of earnings from overseas;
- Banks and bankers pay a lot of tax.
We would miss them if they went. It’s easy to say we wouldn’t: but who would then pay the bills?
The problem we have to solve is one of excessive consumption – by ourselves but mainly by our Government. That is the problem that needs fixing. Punishing bankers for our mistakes may make us feel better but will stop them from supporting the economy.
This worries me; not because the bankers will be upset – they will cope particularly as they will continue to earn lots of money, but because misunderstanding the cause of the problems makes it more likely we will do the wrong things to so solve them.
The real problem was that we all borrowed too much – individuals, banks and especially governments. We spent money we didn’t have causing house prices in particular – but all assets as well – to artificially rise. This was enabled because governments encouraged banks to gear up, to lend more, to need less capital to support their business. Governments did this because the resulting short term boom made them look good. I say Governments: not all did this; many Asian ones didn’t, not all Europeans did. Iceland was the poster boy for carelessness, but the US, the UK and Eire were not far behind.
I know the banks did some very stupid things – not all of them; for example JP Morgan and HSBC had a “good crisis”- but many lent foolishly, created products their managers didn’t understand and effectively went bankrupt; their shareholders have generally suffered as a result. But the rest of us did stupid things as well, and so did our Governments who not only encouraged the excess but also increased their own borrowings. They also did not get a decent reward for the guarantees they provided the banking system. And who voted for those Governments? Supported their public spending? We did.
If we want to know the cause of the problem: look around.
The UK's public sector deficit is because public spending got out of control. The banks were bailed out but mostly by guarantees which have lapsed; some taxpayer money was invested directly, but a small amount compared with the deficit and it is likley to be recovered at a profit. The bankers therefore played a small part in the problem and in fact there are three ways the banks and bankers are helping us get out of our economic problems:
- As they become profitable, the money we put into them becomes worth more. The state will profit from their investment;
- Banks employ a lot of people and finance and associated services remain one of our few world leading businesses which generate a lot of earnings from overseas;
- Banks and bankers pay a lot of tax.
We would miss them if they went. It’s easy to say we wouldn’t: but who would then pay the bills?
The problem we have to solve is one of excessive consumption – by ourselves but mainly by our Government. That is the problem that needs fixing. Punishing bankers for our mistakes may make us feel better but will stop them from supporting the economy.
Wednesday, 29 September 2010
Ed or Dead?
It's too soon to say whether Ed Miliband's election as Labour leader is good for Labour or not.
In the short term it is good for the Tories because Labour have elected someone who was the second choice of most MPs and activists and someone who is clearly in the pockets of the trade unions. He is also inexperienced and lacks charisma. And lastly, he gives the impression of not liking people like me - middle class, slightly successful, workers (I'm not a swing voter but many people like me are). As a member of the establishment intelligensia he looks down on us: we are only fit for whatever cash he can extract from us. I talked about him with a Labour supporting friend, who thought he was sincere: but was that because she agreed with what he was saying? He strikes me as deeply insincere.
BUT... deeply insincere is another way of saying ruthless. He is clearly ruthless. And that ruthlessness may cause him to dump the unions, he may learn to look as though he likes me (and people like me), he will get experience and he may absorb character. And therefore become a successful leader. His brother has done him a big favour by moving to the back benches - it is possible he could become a really useful informal consigliere unless there is now a major family rift. So
The key to his success, however, has nothing to do with him: it is whether the economy recovers during 2013 and 2014. If it does, then the coalition will get a lot of credit and Labour's opposition to getting public finances under control will be seen as silly. If it doesn't, then Labour will have a chance to rebound by saying that the coalition damaged the recovery by cutting public expenditure growth too strongly before the private sector had started to recover.
But at least his appointment will give the coalition some breathing space as things get difficult.
In the short term it is good for the Tories because Labour have elected someone who was the second choice of most MPs and activists and someone who is clearly in the pockets of the trade unions. He is also inexperienced and lacks charisma. And lastly, he gives the impression of not liking people like me - middle class, slightly successful, workers (I'm not a swing voter but many people like me are). As a member of the establishment intelligensia he looks down on us: we are only fit for whatever cash he can extract from us. I talked about him with a Labour supporting friend, who thought he was sincere: but was that because she agreed with what he was saying? He strikes me as deeply insincere.
BUT... deeply insincere is another way of saying ruthless. He is clearly ruthless. And that ruthlessness may cause him to dump the unions, he may learn to look as though he likes me (and people like me), he will get experience and he may absorb character. And therefore become a successful leader. His brother has done him a big favour by moving to the back benches - it is possible he could become a really useful informal consigliere unless there is now a major family rift. So
The key to his success, however, has nothing to do with him: it is whether the economy recovers during 2013 and 2014. If it does, then the coalition will get a lot of credit and Labour's opposition to getting public finances under control will be seen as silly. If it doesn't, then Labour will have a chance to rebound by saying that the coalition damaged the recovery by cutting public expenditure growth too strongly before the private sector had started to recover.
But at least his appointment will give the coalition some breathing space as things get difficult.
Wednesday, 18 August 2010
100 Days
What is the significance of 100 days? It is 2,400 hours. Or 3 months and 8 days. It's a meaningless period of time which has yet become, through history, a period to judge a new situation.
JFK said in his inauguration speech: "All this will not be finished in the first 100 days. Nor will it be finished in the first 1,000 days; nor in the life of this administration. Nor even perhaps in our lifetime on this planet. But let us begin.” Perhaps the most sensible thing he ever said; policies - especially changes in policies - take much longer to implement than they do to describe.
So how has the Government done in its first 100 days? Pretty well, I think.
- the coalition has worked so far, proving doubters like myself wrong. I'm sure this is part personal chemistry and part developing firm "rules of engagement" between the parties right at the start. Both parties benefit from being in Government; the Tories benefit in two additional ways: they can be harsher with the budget than if they were on their own because they have cover from the LibDems, and their lunatic fringe cannot hold them to ransom as easily. The LibDems are suffering in the polls at the moment but I suspect they will benefit later as the economy improves.
- they have started to get to grip with the budget deficit. Amidst a lot of noise about "cuts" a limited number of commentators (John Redwood most concisely) have noted that Governmengt spending is not being cut at all, rather the rate of growth is being slowed a bit. But what they are doing is better than nothing, and better than the alternative, and as I noted in my previous post the country is benefitting from lower interest rates and from being given the time to manage things ourselves. Even if there is a double dip recession (not very likely), it's unlikely that reducing the scale of Government expenditure in the UK will be a major cause.
- they have started to get a grip on the absurdities of the last few years of Labour - dumping inefficient school funding programme, getting rid of public bodies paying external people to lobby other public bodies and so on. Everyone has a view on what the Big Society means: to me it means removing the attitude of public sector management that they have an entitlement to direct the public, rather than a duty to serve them. This is a massive cultural change and it wuill take time to implement. But you can sense the tide is about to turn.
- they made a great move in putting Ian Duncan Smith in charge of welfare reform, and (for reasons of getting support in implementation) complementing this with various Labour advisers. But this is one area where the jury is out: it is critical to take a long term view of welfare reform if the cycle of dependency in many parts of Britain is to be reversed. Improving education will not be enough. But welfare reform will costs money, which is why the issue has been blocked for many years. Cameron must ensure IDS can take a long term view.
- the approach to international affairs seems suitably pragmatic for a medium sized power: we should not expect or demand too much, but our history and culture - and armed forces - mean we have a lot to offer if we have the confidence to do so. They have so far not been waylaid by silly Euro-sceptic issues - the LibDems probably help here.
- I do worry about the NHS reforms that have been announced. I am sure the principle - of localisation and removing the Primary Care trusts - is very sensible, but surely the last thing the NHS needs is a lot of expensive further reform. This smacks of a bored minister looking to make a name for himself.
- given that the Government has started to do a lot, it is very refreshing that it is also fairly quiet. We do not have daily headlines about how wonderful they are. To me, that smacks of quiet competence, a focus on delivery not presentation and on letting people get on with their lives. Perhaps that is naively optimistic, but it is a good change.
The best thing for me, though, is to read the daily whinges of the quangocracy - people like the association of chief police officers, the UK Film Council and so on -who have drained so much energy and money from the country. They are suddenly realising they have to justify what they do. And most of the can't. These daily headlines are a joy to read.
So overall - a good start.
But to channel JFK: 100 days isn't very long. There's a long way to go.
JFK said in his inauguration speech: "All this will not be finished in the first 100 days. Nor will it be finished in the first 1,000 days; nor in the life of this administration. Nor even perhaps in our lifetime on this planet. But let us begin.” Perhaps the most sensible thing he ever said; policies - especially changes in policies - take much longer to implement than they do to describe.
So how has the Government done in its first 100 days? Pretty well, I think.
- the coalition has worked so far, proving doubters like myself wrong. I'm sure this is part personal chemistry and part developing firm "rules of engagement" between the parties right at the start. Both parties benefit from being in Government; the Tories benefit in two additional ways: they can be harsher with the budget than if they were on their own because they have cover from the LibDems, and their lunatic fringe cannot hold them to ransom as easily. The LibDems are suffering in the polls at the moment but I suspect they will benefit later as the economy improves.
- they have started to get to grip with the budget deficit. Amidst a lot of noise about "cuts" a limited number of commentators (John Redwood most concisely) have noted that Governmengt spending is not being cut at all, rather the rate of growth is being slowed a bit. But what they are doing is better than nothing, and better than the alternative, and as I noted in my previous post the country is benefitting from lower interest rates and from being given the time to manage things ourselves. Even if there is a double dip recession (not very likely), it's unlikely that reducing the scale of Government expenditure in the UK will be a major cause.
- they have started to get a grip on the absurdities of the last few years of Labour - dumping inefficient school funding programme, getting rid of public bodies paying external people to lobby other public bodies and so on. Everyone has a view on what the Big Society means: to me it means removing the attitude of public sector management that they have an entitlement to direct the public, rather than a duty to serve them. This is a massive cultural change and it wuill take time to implement. But you can sense the tide is about to turn.
- they made a great move in putting Ian Duncan Smith in charge of welfare reform, and (for reasons of getting support in implementation) complementing this with various Labour advisers. But this is one area where the jury is out: it is critical to take a long term view of welfare reform if the cycle of dependency in many parts of Britain is to be reversed. Improving education will not be enough. But welfare reform will costs money, which is why the issue has been blocked for many years. Cameron must ensure IDS can take a long term view.
- the approach to international affairs seems suitably pragmatic for a medium sized power: we should not expect or demand too much, but our history and culture - and armed forces - mean we have a lot to offer if we have the confidence to do so. They have so far not been waylaid by silly Euro-sceptic issues - the LibDems probably help here.
- I do worry about the NHS reforms that have been announced. I am sure the principle - of localisation and removing the Primary Care trusts - is very sensible, but surely the last thing the NHS needs is a lot of expensive further reform. This smacks of a bored minister looking to make a name for himself.
- given that the Government has started to do a lot, it is very refreshing that it is also fairly quiet. We do not have daily headlines about how wonderful they are. To me, that smacks of quiet competence, a focus on delivery not presentation and on letting people get on with their lives. Perhaps that is naively optimistic, but it is a good change.
The best thing for me, though, is to read the daily whinges of the quangocracy - people like the association of chief police officers, the UK Film Council and so on -who have drained so much energy and money from the country. They are suddenly realising they have to justify what they do. And most of the can't. These daily headlines are a joy to read.
So overall - a good start.
But to channel JFK: 100 days isn't very long. There's a long way to go.
Wednesday, 23 June 2010
The first coalition budget
In the bad old days of Brown’s budgets, and to a lesser extent Darling’s, it was a mistake to comment too soon because the problems were always hidden in the small print released afterwards. George Osborne has admirably been straight with his presentation so it is easy to see the impact quickly.
The headline comments have been about the increase in VAT to 20%; the headline criticisms that this and the cutbacks will damage the economic recovery and impact poorer people more.
I think there are more points of underlying importance than this:
- The budget has started to get to grips with our budget deficit. As I said earlier, it is so big that interest costs are a major outflow from the economy – and a growing part of the deficit. Early action matters, and the quick next day assessment of the budget by the gilt market was good; the UK’s funding costs have reduced slightly.
- Some of the apparently softer cuts will have a big impact on the deficit: a two year restriction on public sector pay increases –with none for employees earning over £21,000 – and increasing benefits by the CPI rather than RPI will save a lot of money quickly.
- The budget sets a positive direction for businesses in terms of tax reduction and simplification. The most important way we will get out of the current mess is for the private sector to grow. Lower and simpler taxes help confidence. This is the first budget for years to have an approach of freeing the private sector rather than tinkering with it.
I think the criticisms are overstated. The VAT rate will not increase until January 2011, which gives time for the confidence boosting measures to work; it is also likely to bring forward spending to benefit the economy in 2010. Less wealthy people tend to spend a greater proportion of their income on non-vatable goods, and so it is less regressive than you might think. In addition, there are specific measures (tax thresholds; housing benefits) targeted at the poor.
I think the main criticism is that the details of the tax cuts are still to come, in the Autumn expenditure review. This delay is inevitable but still permits uncertainty till then.
Overall, it is refreshing to have a budget that is transparent, focused on sorting out the problems and giving an optimistic direction for private sector growth.
The headline comments have been about the increase in VAT to 20%; the headline criticisms that this and the cutbacks will damage the economic recovery and impact poorer people more.
I think there are more points of underlying importance than this:
- The budget has started to get to grips with our budget deficit. As I said earlier, it is so big that interest costs are a major outflow from the economy – and a growing part of the deficit. Early action matters, and the quick next day assessment of the budget by the gilt market was good; the UK’s funding costs have reduced slightly.
- Some of the apparently softer cuts will have a big impact on the deficit: a two year restriction on public sector pay increases –with none for employees earning over £21,000 – and increasing benefits by the CPI rather than RPI will save a lot of money quickly.
- The budget sets a positive direction for businesses in terms of tax reduction and simplification. The most important way we will get out of the current mess is for the private sector to grow. Lower and simpler taxes help confidence. This is the first budget for years to have an approach of freeing the private sector rather than tinkering with it.
I think the criticisms are overstated. The VAT rate will not increase until January 2011, which gives time for the confidence boosting measures to work; it is also likely to bring forward spending to benefit the economy in 2010. Less wealthy people tend to spend a greater proportion of their income on non-vatable goods, and so it is less regressive than you might think. In addition, there are specific measures (tax thresholds; housing benefits) targeted at the poor.
I think the main criticism is that the details of the tax cuts are still to come, in the Autumn expenditure review. This delay is inevitable but still permits uncertainty till then.
Overall, it is refreshing to have a budget that is transparent, focused on sorting out the problems and giving an optimistic direction for private sector growth.
Tuesday, 1 June 2010
Capital: A Tax on Gains
I don't understand the fuss being made about an increase in capital gains tax - or rather I do, I piut it down to mischevious Tories trying to spoil the coalition. I would exempt people like John Redwood making constructive comments about to improve the situation.
The fact that capital gains are taxed at a very different rate from income is very new - it was brought in in 2008, mainly to help some of Gordon Brown's main funders. Nigel Lawson, as part of his tax simplification process, had equalised the rates. This remained the case for over 20 years. There were allowances for the time the asset was held, and some exemptions for entrepreneurial assets.
Those protesting against the increase mainly focus on two issues:
Some research suggests that lower rates bring in more money. However, this is not conclusive as small changes probably don't effect behaviour and wider economic trends have at least as much impact.
The special pleading about middle class second home owners and shareholders is too self serving. Firstly, more tax on gains on such assets is no hardship. Second, if they were bought pre-2008 they were bought under a regime where income and capital tax rates were the same. So the proposed change is no change. If they were bought after 2008 then (in most cases) there will have been minimal gains if not losses so people can readjust their savings now without any serious penalty.
The different rates have caused a big tax avoidance industry to try to turn income into capital. This is both unfair and unproductive. We should want the tax system to be simpler, and harmonising rates is the way to go. I do think it is fair to differentiate some business assets and to encourage saving by having reliefs according to how long assets are held. But these are the points that Tories should focus on (as Redwood has), and we should be grateful the Lib Dems have suggested rate harmonisation. This fits our principles.
Again, I see this as jealous Tories stirring for the sake of it.
The fact that capital gains are taxed at a very different rate from income is very new - it was brought in in 2008, mainly to help some of Gordon Brown's main funders. Nigel Lawson, as part of his tax simplification process, had equalised the rates. This remained the case for over 20 years. There were allowances for the time the asset was held, and some exemptions for entrepreneurial assets.
Those protesting against the increase mainly focus on two issues:
Some research suggests that lower rates bring in more money. However, this is not conclusive as small changes probably don't effect behaviour and wider economic trends have at least as much impact.
The special pleading about middle class second home owners and shareholders is too self serving. Firstly, more tax on gains on such assets is no hardship. Second, if they were bought pre-2008 they were bought under a regime where income and capital tax rates were the same. So the proposed change is no change. If they were bought after 2008 then (in most cases) there will have been minimal gains if not losses so people can readjust their savings now without any serious penalty.
The different rates have caused a big tax avoidance industry to try to turn income into capital. This is both unfair and unproductive. We should want the tax system to be simpler, and harmonising rates is the way to go. I do think it is fair to differentiate some business assets and to encourage saving by having reliefs according to how long assets are held. But these are the points that Tories should focus on (as Redwood has), and we should be grateful the Lib Dems have suggested rate harmonisation. This fits our principles.
Again, I see this as jealous Tories stirring for the sake of it.
Sunday, 30 May 2010
David Laws
There's been a lot of comment about David Laws. His resignation is a blow not so much to the coalition and Conservative/Lib Dem co-operation but to the resolution of our financial problems. He had more intelligence and credibility than most to identify and sell necessary cuts in public sector expenditure.
So if you believe the financial situation is by far the most important problem facing this country, is it right that a brief media campaign can force out someone very well (if not best) qualified to help sort it out? Especially as the amount he actually claimed was much less than he could have claimed. My first thought was that as he had been reasonable there was no story and he should have stayed. But at the end of the day, he does appear to have claimed the wrong amounts and he did not take advantage of the quasi amnesty last year when all the fuss was going on to clean up his disclosures. This suggests a lack of judgement. He also would not have had the credibility to do his job properly. And lastly: it is important for the new Government that they are seen as clean. So he had to go.
As far as the economic situation is concerned, I know nothing about the new Chief Secretary, but he will have loads of help and lots of market pressure forcing him to cut expenditure. So as always, no-one is indispensible.
The intriguing thing for me, though, is why did the story come out now? Was it the Telegraph just being good jounalists and checking out the stars of the new cabinet? Or was it because Laws' "whiter than white" attitude annoyed people? Or did Liam Byrne (his predecessor) or Vince Cable (shown up as economically inept) resent him? Or was it disaffected Tories or jealous Lib Dems who tipped the Telegraph off? This is the part of the story we'll probably never learn, and the part that will be the best indicator of the strength of the coalition. Guido has more on the conspiracy theories here.
Sunday, 16 May 2010
Free thinkers
Independently minded MPs who don't just follow the party line are popular. But there's a fine line between principled opposition and being a self indulgent pain - and you can usually spot the line. The coalition will give an opportunity for both Lib Dem and Conservative awkward squads to posture, not least because they have lost influence and therefore power. (Their Labour equivalents will be occupied for a few months with their leadership election).
The first signs of the self indulgent pains are emerging as backbenchers line up against the proposed fixed term arrangements.
My problem is that I can't see what the problem is. Given the real problems facing the country, who cares whether we have fixed term parliaments or not? There are good arguments for them - and against. On balance, it's probably a good thing because it puts more power in the hands of backbenchers rather then minsiters. But it's hardly a big deal.
And if we do have fixed term parliaments then surely they should be just that - fixed term. So you must have an arrangment to stop the term ending too easily, especially if there's a hung parliament. So a 55% requirement for dissolution seems fair enough. In practice, if over half of MPs have no confidence in a Government then it will fail.
So why the fuss? I can see Labour simply want to stir, but I don't understand why the Conservatives would complain. Except as a token gesture of dislike for the coalition. It'll be interesting to see if this protest is just a one off self indulgent release of tension or if the taste for dissent will be catching. I hope not; and I hope that voters identify those MPs who are self indulgent rather then principled. And punish them. Even if it takes 5 years to do so.
The first signs of the self indulgent pains are emerging as backbenchers line up against the proposed fixed term arrangements.
My problem is that I can't see what the problem is. Given the real problems facing the country, who cares whether we have fixed term parliaments or not? There are good arguments for them - and against. On balance, it's probably a good thing because it puts more power in the hands of backbenchers rather then minsiters. But it's hardly a big deal.
And if we do have fixed term parliaments then surely they should be just that - fixed term. So you must have an arrangment to stop the term ending too easily, especially if there's a hung parliament. So a 55% requirement for dissolution seems fair enough. In practice, if over half of MPs have no confidence in a Government then it will fail.
So why the fuss? I can see Labour simply want to stir, but I don't understand why the Conservatives would complain. Except as a token gesture of dislike for the coalition. It'll be interesting to see if this protest is just a one off self indulgent release of tension or if the taste for dissent will be catching. I hope not; and I hope that voters identify those MPs who are self indulgent rather then principled. And punish them. Even if it takes 5 years to do so.
Thursday, 13 May 2010
A new phase
Now the election is over, I'll take down the manifestos etc. After all, they won't be of much use to anyone now. I will link to the coalition agreement as that could be a useful reference document in the future.
The Cabinet and ministerial appointments are mostly good, but there's a couple of real disappointments. Particularly good appointments (I think) are Iain Duncan Smith at Work and pensions, who has done hard work in identifying the causes of poverty rather than just seeking to create a dependent society, and those like Hague, Gove and Fox who have taken on the department they were shadowing. I think I heard Cameron say on the radio that "stability" and a long term outlook must apply to ministerial appointments as well as cost cuts, and I hope that he means it and ministers will be allowed to stay long enough to learn and manage rather than just create headlines. The exception to that stability is Osborne: although Clarke will be a good figure for political reform, I would have preferred to see him as Chancellor simply because he is more credible and has a track record of previously dealing with economic problems. Especially with Cable as Business secretary. Lastly it's hard to see Theresa may being tough enough to be home secretary, a job better suited to Chris Huhne.
As far as policies go, again, they seem pretty reasonable; in fact I think the combined tax policies are better. My worries are the retention of FSA, although macro supervision will move to the Bank of England, and energy security (ie will nuclear power stations get built?).
The Cabinet and ministerial appointments are mostly good, but there's a couple of real disappointments. Particularly good appointments (I think) are Iain Duncan Smith at Work and pensions, who has done hard work in identifying the causes of poverty rather than just seeking to create a dependent society, and those like Hague, Gove and Fox who have taken on the department they were shadowing. I think I heard Cameron say on the radio that "stability" and a long term outlook must apply to ministerial appointments as well as cost cuts, and I hope that he means it and ministers will be allowed to stay long enough to learn and manage rather than just create headlines. The exception to that stability is Osborne: although Clarke will be a good figure for political reform, I would have preferred to see him as Chancellor simply because he is more credible and has a track record of previously dealing with economic problems. Especially with Cable as Business secretary. Lastly it's hard to see Theresa may being tough enough to be home secretary, a job better suited to Chris Huhne.
As far as policies go, again, they seem pretty reasonable; in fact I think the combined tax policies are better. My worries are the retention of FSA, although macro supervision will move to the Bank of England, and energy security (ie will nuclear power stations get built?).
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