Day 5554: Zombie Economics Rising

Wednesday:




In Gideon's Reheated Black-Hole Budget nothing actually adds up. It's almost like he's not got the Lib Dems there to do the maths for him!

Tax on sugar, that was his (sugar-free) Easter Bunny – money he immediately spent again, so does nothing to bridge the gap between taxing and spending, and a balanced budget slips further beyond his reach.

The growth forecasts are down, the borrowing forecasts are up… and then, like an underpants gnome, with one bound* he leaps to surplus by 2020.

But how?

The economy is slowing, the deficit is growing… so let's cut taxes.

• Tax cuts for big corporates – welcome, "Google", to tax haven Britain;
• tax cuts for the oil & gas industry – the effective end of the carbon subsidy, and so much for greenest government ever;
• tax cuts for landlords – paid for by local councils who will have to find the £6 billion quid he'd promised to hand back to them and now just evaporated;
• and tax cuts for those hedge fund dealers and stock market speculators with a return of the Capital Gains Tax rate to the giveaway levels that saw bankers pay less tax than their cleaners under old New Labour.

I do understand that if you are, shall we say, at the DRIER end of the economic paddling pool, tax cuts are the cure for all ills. But if you admit things are going pear-shaped and you want to stimulate the economy, for goodness sake, do as the Coalition did and target them on the people who will SPEND!

So even though Gideon is putting up the personal allowance too, like the good ol' days, UNLIKE the Liberal Democrats' policy he's raising not tightening the threshold of the 40% band, so that the lion's share of the benefit goes to the higher rate taxpayers.

It's unaffordable when there's still a deficit; it's unconscionable when you're snatching £30 a week from the hands of the disabled; and it's unmistakable for anything other than a blatant sweetener ahead of the EU referendum (and subsequent Tory leadership bloodbath). Has a BRIBE ever been so naked?

Seven billion quid on a middle-class give-away. And, as the saying goes, that's not all.

George's idea of "doing something for the young folks": if you're young and rich and can afford to put £4000 into an ISA, he will make you even richer. Who can afford that? He might as well call it the "Trust Fund ISA" and be done with it. Hard luck if you're a struggling young person, though, or disabled, or expecting your Universal Credit. Or have had your maintenance grant turned into a loan.

This is a budget for young people the way the BLACK DEATH was an "opportunity" for serfs in the Middle Ages – one they were UNLIKELY to SURVIVE!

It's almost like Master Gideon is on a mission to undo all of the progressive tax changes under the Coalition that led to a more equal Britain.

Even that sugar tax, so beloved of Jamie Oliver, disproportionately hits the poor.

And the giveaways to chums continued into the capital budget too.

Billions to be spent on infrastructure… so long as it's Crossrail 2. Or is it the Elizabeth II line now? And to places that vote Tory. He even admitted as much: "When the south west votes blue we listen." Has a BRIBE ever been so naked? Again?!

Promises to fix the flood defences for Yorkshire and Cumbria amount to un-cancelling things he previously cancelled. And then re-announcing the un-cancellation as new money.

And as Labour's Andy Burnham tweeted: the Northern Powerhouse turns out to be an extra lane on the M62. Hooray! Something else for Labour to abstain on, then.

It's EIGHT years since the crash and the terrible depression (aka Mr Frown). And that's about as long as economic cycles last. Or to put it another way, that's about as long as the Chancellor's luck can hold. Gideon's warnings of "storm clouds on the horizon" show that he knows it. He's getting his excuses in early. But if as seems likely we go into another downturn in the next couple of years, if it turns out that these WERE the "good years", it's going to be apparent how very NOT FIXED the roof was when the sun was shining. How the long-term economic plan was neither long-term nor economic. Nor a plan.

In the play Timon of Athens, Mr Timon is bountiful with his generosity to all his friends until his cash runs out, and then discovers that none of them will help him. That's you, Gideon, that is.

The albatrosses are coming home to roost. They're like chickens, only bigger and nastier and they bury you in guano.

Though at least it will be sugar free.



*It appears that the surplus in 2020 is down to changes to Corporation Tax that bring forward receipts; in short, he gets two years tax in one. Obviously that's a one-off gain – so a one-off surplus. Another of Gideon's tricks.

PS

Clearly Voodoo Economics is the new black as, over in Americaland, John Kasich seeks to paint himself the new Ronald Reagan. Governor Kasich is of course a fruity wingnut, but STILL not as outright berserk as Senator Cruz or as completely unhinged as Mr Drumpf. Unfortunately, he needs to win 109% of the remaining delegates in order to secure the Replutocrats' nomination. Unless it goes to the first contested convention (outside of the West Wing) in living memory…

Day 3502: Budget Summary – Conservatory Vote to Lift Ban on Shooting Labour's Foxes*

Wednesday:


Master Gideon's it's-not-an-emergency emergency budget will be hailed as a triumph by all the usual suspects; the "living" wage announcement feted as a brilliant coup.

They'll love the Inheritance Tax cut; they'll delight in raising the Personal Allowance that goes to the well-off (and goes against everything the Coalition did); they'll relish the allowance for dividends (favouring unearned income once again); they'll thrill to the grinding oppression of the working classes.

It's a budget for rent seekers, not workers.

It's a budget for the old, not the young.

It's a budget for the dead rich, not the poor living.

In the Treasury, the Chancellor reviews those final Budget figures

The big flashy "rabbit from hat" moment was that introduction of a compulsory £9/hour "living" wage (by 2020), which – along with action on Non-Dom status taxpayers – was pinched straight from Hard Labour's 2015 manifesto. (In fact Mr Milipede was promising only £8/hour by the end of the decade, so that fox was well and truly shot).

Alongside their COMPLETE CAPITULATION on the Benefit Cap (caving in to the Conservatory rhetoric about "benefit street" culture, even though it's total Boss Hog Wash) leaves the Far Too Loyal Opposition floundering.

Even the "spending someone else's money"-ness of saying "Business must pay for a compulsory living wage!' is tres Milipede. But by foreswearing mere 1% pay rises for the public sector, isn't he saying: "Do as I say, not as I do"? (Clue: yes!)

The living wage according to the Living Wage Foundation should be £9.15 in London and £7.85 everywhere else.

So that £9 is does not sound too bad. (We cannot assume that inflation will be nothing forever, but even if it gets back on the 2% target from next year those figures are likely to be around a £9.90 and £8.50. So still okay for those not in the Capital, if a bit more squeaky for That Londoners.)

There's a sort of circularity to it all.

At the moment the (Tory) reasoning goes: the Government collects tax and then pays it back to people as Tax Credits thus subsidising jobs that do not pay a "living" wage – now they take away the tax credits but will force companies to pay more, and raise the personal allowance so that the income tax on that is well who knows more? Less? The same? All of the above?... but George will cut the companies' Corporation Tax rate to the lowest in Europe... so we are still subsidising the same companies to pay those jobs.

(Of course, I would usually point out that "not taxing" is not the same as subsidising… and that's true here too! If the companies lay off the "living" wage workers… they still get to keep the tax cut! Trebles all round!)

It's certainly not that I'm an enormous FAN of the Tax Credits system. Mr Frown invented it as a fix so that he could count it as "negative" taxation (while also Empire-building, so he could control a share of benefits from the Treasury). They ARE somewhat redistributionist, gathering up tax and giving it to lower income earners.

My main objection is that you have to fit into the right categories, you have to be deemed "worthy" by the Chancellor, in order to qualify and that strikes me as dangerous, handing largely unaccountable power to an office in Whitehall (and all the minions of the bureaucracy, with no offence to the Hon. Lady Mark). Mr Frown gained a moderate amount of infamy from the way that each year his budget would change who the "good" people were in a way that ENTIRELY COINCIDENTALLY reflected his own changing life circumstances – new baby = child trust fund; off to school = extended child tax credits and so on. That's moderately quaint. And also obviously massively corrupt.

(On top of that, I don't like that they're too complicated for anyone to understand, resulting in them going wrong all the time and causing hardship when the Government comes round to snatch back the money they've already given you.)

So I don't think there'd be anything terribly wrong in allowing the Tax Credits system to die a natural death by RAISING WAGES so much that Tax Credits became unnecessary.

What I don't think is a good idea is putting the cart as it were before the horse. And then flogging the horse to within an inch of its life.

As I said about Greece: making poor people poorer does not magically make them richer.

And the cuts to tax credits are a bit EYE-WATERING: currently there's a taper set so that you lose 41% of each pound you earn over £6,420; Gideon has upped that taper to 48% and almost halved the starting point down to £3,850. So – for those who jump through the hoops to qualify – that's an effective marginal tax rate of 48% on earnings at the bottom end, and you start paying it on a much lower wage. Compared to 45% on earnings over £150,000.

How all in it together are we?

And don't even THINK about trying to get out of poverty by working or educating yourself. In a calculated DOUBLE-SNUB to younger people, the living wage ISN'T going to apply if you are under 25 AND he's abolishing maintenance grants – adding another twenty-five grand to your student loans.

It would be TERRIBLY easy to say: "those students who wanted to punish the Lib Dems over tuition fees – how's that working out for you?".

But in truth this is just desperately COUNTER-PRODUCTIVE, undoing the GOOD that the Liberal Democrats in the Coalition tried to do for increasing social mobility, and undermining the ENTIRE COUNTRY by reducing the incentive to educate our workforce to higher-paying jobs.

Similarly, freezing all benefits for five years – billed without irony as "to allow salaries to catch up"(!) – goes against every effort that the Liberal Democrats made in Coalition to protect the most vulnerable. And slashing the Employment Support Allowance that enables people with disabilities to participate in the workforce is just going to damage not just their lives but the amount they contribute to the country.

Oh and he's chopped the cap on welfare payments from £26,000 to £20,000. For what can only be described as "reasons", we happen to know that finding an extra £500 a month is, ahem, "quite difficult" even when you're on Daddy Richard's salary. So goodness only knows how you're supposed to manage when you're on a low income and in-work benefits or no income at all.

And of course his TOTAL COWARDICE of making the BBC decide whether or not to cut the benefit of free TV Licences to the over-75s. (They decided to take the hit.) A kicking for Auntie Beeb always proving a real crowd-pleaser with the rabid right on the backbenches – not to mention the dead tree media barons.

"Hello, I'm George. Pwease can I be leader next!"

So them's the LOSERS; who's the WINNERS?

There are substantial tax giveaways… to the favoured middle-classes. The rise in the Higher Rate threshold on top of the rise in Personal Allowance is a complete reversal of the Coalition years' policy that NARROWED the band so that ALL of the benefit of raising the Personal Allowance went to Basic Rate taxpayers. Now, Higher Rate taxpayers will get TWICE the benefit of basic rate payers, plus extra ON TOP. (Combined I think they're worth about £200 a year.)

Master Gideon has also done a thing with dividends – pretty much making up a whole new tax, in fact, "Dividend Income Tax", separating the taxation of dividends from other income and giving it its own Personal Allowance. He toasted himself for saying that it would be possible to receive up to £17,000 in income without paying any tax, but a lot if not all of that would be from UNEARNED income – so it promotes "rent seeking", rather than working to or investing in creating wealth.

(On the good side, this may have slightly restored the tax credit for pension funds that Mr Frown raided back in 1998; that's good for me – or anyone with a pension – as there a better chance of them not going BUST before we retire. And it's good for City pension fund managers. But less so for the economy more widely, as money that is saved in pensions – i.e. sunk into the stock market – isn't circulating in the wider economy generating profits).

And of courses there's a million pounds free of Inheritance Tax.

It's almost as the though the Baronet doesn't WANT people to earn money. Why bother when he can get it for nothing from daddy?

On top of it all, his target for getting the budget into surplus has slipped another year (since March!) which suggests this really wasn't the time to be throwing tax away. Growth predictions are down as well – not a lot he can do about Greece or China, to be fair – but slashing capital spending on his "Northern Poorhouse" and withdrawing cash from the people most likely to spend it and giving it away to people to put in non-productive investments point very much the wrong way for growth and much more towards a repeat of 2011's short sharp STOP.

Does make you wonder where from his hat he plans to pull the EIGHT BILLION QUID he promised for the National Health Service. Again. And – in another multi-billion bung as a sop to those wingnuts on the Conservatory right – the 2% of GDP he's guaranteed to spend on guns and bombs. Maybe the RABBIT ate it?

On the whole I think it was a flashy and "clever-clever" budget, but lacking in any real substance, biased towards people who already have capital (in large supplies) and with the potential seriously to undermine the country's recovery by prolonging austerity and cutting the money being spent.

As an advertising feature called "What Did the Liberal Democrats Ever Do For Us?" I think this is a work of crazed genius. As a programme for recovery… well, I hear Yanis Varofakis is looking for a job…

The proof of the pudding will be in how we all feel in a year's time when we'll know if he's killed growth stone dead. Again.

Or in 48 hours' time if it implodes the way his "Omnishambles" budget did.

PS:

*Yes, they tried to bury an announcement on lifting the hunting ban too.

Day 5288: Only Fools and Tories

Wednesday:

"No Income Tax, No VAT;

"No Deficit, No Guarantee."

Master Gideon would appear to have taken Steve Bell's gimp-suit-wearing cartoon of himself as a role model, judging by his justifiably-mocked announcements that he will be trussing himself up in legislation to stop himself doing things that he shouldn't ought to do anyway.

First, during the election, he promised to pass a law to stop himself raising taxes; then, in his Mansion House speech, he said he'd make another law that he would run budget surpluses in "normal times".

The fact that these two laws pull in opposite directions only adds to the madness.

Fiscal Rectitude, Steve Bell style (c) Grauniad

Swearing off ANY rise in taxes – particularly for a whole five-year term, when you've NO IDEA what's coming even in the next few WEEKS with the Greek bailout/crash out saga – is just silly. In fact dangerously silly.

When the books don't balance, you've got THREE* ways to address yourself to the problem: ONE, cut spending; TWO, raise taxes; THREE, a mix of the two.

Master Gideon's first pledge robs him of TWO of the THREE ways out of this mess.

(Full disclosure of wiggle-room here: he could raise taxes other than the "big three" of Income Tax, VAT or National Insurance. But no other taxes raise anywhere NEAR the kind of money those three do, not even Corporation Tax and he's very keen to keep lowering THAT one as well. So this law will stop any SERIOUS closing of the deficit through tax.)

So he's making it very much harder to run a surplus… at the same time as saying it's the law to run a surplus.

Minister, is this entirely wise?

Running a budget surplus is, in and of itself, not a bad idea. In fact, it's one that good old Keynesian Economics says we SHOULD do when times are GOOD (which they're sort of not quite at the moment, but they might still be the best they are going to get in this cycle).

But the way to run a budget surplus… is to run a budget surplus.

The way to not raise taxes… is to not raise taxes.

Who is going to enforce these laws? What are the penalties if Master Gideon breaks them?

In the last parliament Master Gideon promised to eliminate the deficit. For various reasons – some of them his own fault, but mostly things that are entirely out of his control (or possibly ANYBODY'S control!) like the Eurozone or the cost of energy shooting up and then crashing down when the Saudis forced the price of oil to drop – this he totally failed to do. Well, HALF-failed to do, anyway.

Mr Frown repeatedly broke HIS own "golden" rules too. Nobody came to slap HIM on the wrist either. Unless you count the SPANKING handed out by the global economic meltdown.

It's bad enough the Home Office pumping out SECURITY THEATRE without the Treasury starting to perform ECONOMIC THEATRE!


But, what is worse, they are a DIRECT ATTACK on a hundred years of democratic accountability and constitutional settlement.

Oh yes.

Because they're not really FOR holding Master Gideon to account. These laws are REALLY a BOOBY TRAP for Hard Labour.

If a future government, say a Hard Labour Government, wants to run a budget deficit – which they might have entirely good reasons for doing – they first need to repeal these "financial responsibility" laws.

One of the written bits of our unwritten constitution is the Parliament Act that says the House of Lords will not vote down a Government's Finance Bill, so that if a Party (or Coalition!) in the Commons can pass a Budget, then the Lords won't block it. But these "responsibility" laws are NOT Finance Acts.

(There's also the – unwritten – Salisbury Convention that the Lords will not block things that are in a winning Party's manifesto, but can you see "We Will Repeal the Financial Responsibility Act" making to ANY manifesto of a Party that expects to come out alive?)

So you can expect to see Conservatory Lords shamelessly delaying and derailing a future Government's budget, ignoring the Parliament Act on Finance bills under the pretext that the Government is "breaking the 'responsibility' law"; you can look forward to Conservatory millionaires getting their highly-paid lawyers to demand judicial-review of the repeal to drag things out further.

You can see that these "responsibility" laws are ACTUALLY an excuse to play fast and loose with BANKRUPTING the COUNTRY!

In other words, these are laws for the most appalling Financial IRRESPONSIBILITY!

PS

*OK, there IS actually ANOTHER way of cutting the deficit. But it's the one over which the government has very little control beyond crossing its fingers and WISHING.

If the economy is GROWING, then you will get more tax IN just because the economy is bigger. So long as the increase in tax is more than the increase in costs (i.e. so long as economic growth is more than inflation) then with no other changes next year the deficit will be smaller.

This is where Mr Ball's mantra of "the deficit falling as a share of national income" comes from; it's the "Hope that SOMEONE ELSE fixes the problem" approach from the Party of "Let's Spend Someone Else's Money" solutions.

To illustrate: the Bank of England currently estimates growth this year will be 2.5% and next year will be 2.6%.

Assuming that this translates straight into the tax take, that's worth about an extra £20 billion a year this year and next. ALSO inflation is currently next to nothing. (Good if you're shopping; not so good if you were hoping for a pay rise.) So tax coming in goes up and spending does not. Which means the deficit will be £20 billion LESS without Gideon having to do anything.

The Conservatories ACTUALLY want to cut the deficit about £30 billion each year – so £100bn last year goes down to £70bn this year, then £40bn, then £10bn and then into surpluses by the end of the Parliament. Honest, they really mean it this time! – which is why they need MASSIVE CUTS on top of the rest of the country providing growth.

It's more complicated than that because they are pledged (or even triple locked) into increasing money for pensions and the health service, so the cuts to other areas have to be EVEN bigger.

And it's even more complicated because cutting government spending (at least in some of the things government spends on) can slow down the needed growth, which cancels out your savings.

To an extent this is what happened at the start of the Coalition, when Gideon slapped up VAT and followed Alistair "Captain" Darling's plan and cancelled a load of capital investment.

This made it harder for the least well-off to buy "stuff" and at the same time took away a lot of jobs from people who might buy "stuff", and if "stuff" isn't being bought and sold – i.e. if there is less economic activity – then your GDP and hence tax receipts go down.

Slashing away at people's benefits – which is the Conservatories' preferred method of cutting spending – may well have a similar effect.

Which just makes it even more stupid to swear off raising tax!



(And tomorrow, we can talk a bit more about Mr Balloon and the Magic Money-go-Round!)

Day 5259: Is George Osborne Planning a Sneaky VAT Rise in the Emergency Budget?

Tuesday:


So Mr Balloon has promised that he'd make it the LAW that he won't let Gideon put up Income Tax, National Insurance or VAT. They'll change the law to stop them changing the law.

And then Master Gideon announces an "emergency" budget.

Yes, yes, a lot of people have made the joke that he needs to get in quick to start clearing up the horrible ghastly mess left by the previous government's budget in March. But really, WHAT emergency?

MAYBE he has an EVEN MORE SLY purpose: get in quick BEFORE Mr Balloon's daft law gets on the books.

A one-off increase in VAT from 20% to 22.5% would raise, I estimate, about £14-£15 billion in extra revenue, which immediately covers the whopping great unfunded gaps in the Conservatory manifesto: £8 billion for the NHS; £7 billion for tax cuts.

(Currently, VAT at the 20% rate brings in approximately £111 billion – 22.5 is 12.5% more than 20, and 12.5% of £111 billion is actually about £14 billion more, but close.)

[IFS November 2014, pdf]

Announcing that he's "found the money" for the NHS would make it EXTREMELY difficult for Hard Labour to reply, especially if he caught them on the hop, especially especially in their current state of leaderless disarray, even though of course he is very much robbing the less well-off working Peter to pay for the health service used mainly by the slightly better-off pensioner Paul.

But then I'd expect him to bring forward the increases in personal allowance, (and with a hand wave, also a hike in the higher rate threshold making for a bigger cut for the better-off 40% tax payers). He'd claim to be reducing the taxes on working and shifting the cost to spending. Or even, if he's in his most purple, pompous mode, to "profligacy".

And with prices falling for the first time since 1960, he might go so far as to try to excuse pushing up prices as a "counter-deflationary" measure!

Not that anyone facing a 0% (or less!) pay rise this year will end up thanking the Chancer for bringing back inflation.

(And although we should remember that because food and housing and a lot of travel is not VAT-able, it's a bit complicated as to just how regressive a tax VAT actually is, but raising it to give a tax cut to the better-offs is almost certainly not going to work out "progressive"!)

It would look like a work of genius – the papers would certainly all hail it as such – and the actual consequences of derailing the recovery with another VAT driven inflation spike wouldn't show up until we're already deep in the hole – which is pretty much what he did the last time someone let him try to ride the economy without stabilisers*.

Then it would just remain to pass the buck to Mr Iain Drunken-Swerve to figure out how to slash an impossible £12 billion from welfare, and with his free hand pass the McBuck to Ms Nicola the Insturgent with full fiscal autonomy and the power to deny her fellow Scots the tax cuts Gideon's just lavished on the English.

Gideon sits down to rapturous applause and a big step forward in his potential leadership ambitions, while Bojo sulks on the back benches and recently-stabbed-in-the-back-by-Gideon's-ally-Sajid-Javid Ms Teresa "Nuts in" May looks like she's swallowed another wasp.

Or maybe he'll just offer us some tea.


* Last time, of course, we had Liberal Democrat Danny Alexander able to come in and restart some Keynesian investment spending (which Labour's Captain Darling had cancelled, lest it be forgotten) and bring back some growth; goodness knows who can save us this time!

Day 5190: A Budget of Signposts and Pitfalls

Wednesday Budget Day Election Day Minus Forty-Nine:


So, for the last time in the first fixed term Parliament, Master Gideon did a thing.

Liberal Democrat policies once more featured strongly (and anonymously) in the form of future rises in the personal allowance towards the minimum wage and a promise of an end in sight of austerity.

But most of what he did was mess things about. A little. He cut some taxes a little; cut some spending a little less; made the tax system a little more generous to favoured industries/more complicated with more loopholes. And made several bad jokes. Mostly about the unfortunate Mr Milipede's kitchen arrangements.

When he wasn't cracking our sides with his rib-ticklers, he gave us not so much substance as a full meal, more a sort of taster's trolley to whet our appetites for the shape of Parliamentary things to come.

Most of the actual tax arrangements are, of course, post-dated, setting the sort of traps for a future Labour Chancer– in the decreasingly likely event of there being such a person – just as Mr Allstar Darling did for him, with the "for one month only" 50% tax rate (which did indeed successfully blow up in Gideon's face). The promise of a little less squeezing of the pips on higher rate taxpayers (in the assumption that the Venn diagram of higher rate taxpayers and Tory voters is quite a large overlap) gives a sweetie to his base today that might reward a second time if incoming Hard Labour have to reverse it to make ends meet after the election and post Financial Review. Likewise, the £1000 tax free interest is a giveaway to the "haves" that makes the tax system yet more needlessly complicated (with interest rates at ½% you can "have" up to two-hundred grand in the bank before paying any tax on the interest). And aside from the Chancer's personal delight in being able to string two catchphrases together do we really need yet more money injected into the housing bubble? I'm just surprised he didn't rename the newly in-out-shake-it-all-about ISA his "long term economic savings plan"!

Meanwhile he sketched out a – suspiciously "Coalition flavoured" – direction of travel, adopting that Liberal Democrat pledge to bring an end to austerity and offer a promise of better days to come. His compromise of beginning to increase spending on public services "after four more years" falling mid-way between the Lib Dem position of "after three more years" and the Tory one of "after hell freezes over". Cutting the lifetime allowance for payments into a pension was also a Libby Demmy way of raising a few more tax dollars from the richer end of the spectrum.

This is, as we know, typical Tory strategy: use the Lib Dems as a sort of THINK TANK from Planet Nice to generate socially acceptable policy and use this to detox the brand (while pretending to smile and nod along to the wingnuts, and occasionally unleash a "Go Home Van" to keep them drooling happily).

Just because he's EXACTLY as scary-right-wing as his Romulan haircut suggests, don't ever think Gideon isn't PRACTICAL.

(And, in many ways, another Coalition is actually the best way for GIDEON to keep his own job: if they lose, he'll have to come third to Boris and Theresa in the ensuing leadership bloodbath; if they win on their own, then he might have to think up some policies of his own without Danny to hold his crayons for him!)

And look at how he did bang on about how the Coalition had brought economic success.

Obviously that's a GREAT advert for letting the Tories RUIN it by running the country off the rails on their own!

Being in Coalition has given him GREAT COVER for making it all up as he went along (or in fact letting Nick and Vince and Danny make most of it up for him, and then copying their homework). For all that Gideon the Chancer is a man who's made much political capital out of sticking to "Plan A", it should be apparent that we are by now on something like the "F Plan" (the diet nobody sticks to) or the "G-Plan" (given his wooden delivery). Whatever, he's in danger of running out of letters!

"Plan A" only lasted about a year. That was the "stick to Alistair Darling's disastrous plan to cut all capital spending" Plan. Fortunately the widely underrated Mr Danny managed to persuade Gideon to go on an Obama-esque Keynesian spending spree. That would have been Plan B. Plan C was the disaster of the OMNISHAMBLES budget, quickly walked back to Plan D. The REAL disaster being that budget had contained some attempts to simplify some of the tax system, and there's no way Gideon was going to try THAT again! And even last year we were still on Austerity Eternal of Plan E, but it appears that that didn't test well with the voters.

The only thing "Long Term" about the Conservatories "Long Term Economic Plan" is how long they've been ramming the stupid message down our throats!

Not that Hard Labour have much to crow about.

(It won't stop them. That Mr Allstar Darling was on the radio last weekend crowing about his own last budget – because, as he himself admitted, nobody else would – and saying that the Coalition's plan has arrived us exactly where he predicted the economy would be… slightly overlooking the fact that this must mean his own plan would have missed the target by miles and landed us in much worse straits! And also rather undermining Hard Labour’s case that they’d have done anything at all DIFFERENT!)

But in the absence of having bothered to pay any attention to what Gideon was saying, Mr Milipede delivered the speech he'd memorised anyway. I KNOW it's the hardest job in politics, replying to the budget with no notes or notice, but do you think he could at least TRY to remain on topic?

And if "long term economic plan" is becoming the most BORING big fib in British politics, then surely there's some sort of mutant hybrid of Godwin's Law being spawned on the other side: "the longer a debate goes on the closer to 100% gets the probability of Mr Milipede claiming it will lead to the privatisation/dismantling (the meaning of these terms being indistinguishable to his audience) of the NHS".

So today Mr Milipede invented the Tories "secret plan to fight inflation"…

No, sorry, that's "secret plan to wreck the NHS"; it's just he's so clearly and painfully obviously been watching too many episodes of his "West Wing" box set. It's all that free time he has not doing any work on actual policies.

But PLAGIARISM, Ed? Again?

I mean, bless him, he's only got one trump card, but he does keep playing it… in fact, it looks like he's only got one card AT ALL, at least only one that doesn't say "the same as the Tories but, er, nice" (see also what Rachel the Reever wants to do with welfare and Tristram the, er, Hunt wants to do with Education.) But it's clear that his schoolboy debate club tactics are no good when the country is calling for a STRATEGY.

The worst part of his day was probably the moment where you can see the dawning realisation creep into his sad eyes that the Conservatories are going to win, to beat him, beat him probably quite a lot. It was probably the time when he laughed at the second or third second kitchen joke.

Even until recently I had expected Labour to improve, and the Tories at best to hold their ground in numbers of seats. How could the Conservatories do anything OTHER than go backwards after the PAIN and the AUSTERITY and the BEDROOM TAX? But today, Miliband looked like a loser. No, worse, he looked like HE believed he was a loser, and that sort of thing is INFECTIOUS.

And Gideon looked like HE thought he was a WINNER.

Because Master Gideon's real talent is luck. The sort of luck that lets him get away with it.

Because this recovery isn't really a result of ANY plan – long term or otherwise – by this Government. It's mainly driven by the Saudis response to American fracking, pumping oil like it's going out of fashion (because it is!) driving down energy prices.

What the Coalition has actually done is a series of smart economic tacks across the wind, sheltering most people from the worst of the storm of the recession, while the rest of Europe has been battered by the ongoing Euro crisis, and while the rise of China and India drove a huge spike in energy prices and food prices, all of which delayed any chance of real recovery. We’ve been keeping more people in work – at the price of depressing earnings; keeping down homes repossessed; shifting the burden of taxation a few notches up the income scale. When the Lib Dems were stronger, we also kept benefits rising with inflation.

That doesn't mean that the austerity was WRONG or didn't work. If nothing else, thanks to the Coalition Britain was at least in a position where we COULD take advantage when the wind changed in our favour.

But what we've also done, again largely Lib Dem policies, is laid the groundwork for FUTURE economic strength: the pupil premium, and add to that free school meals, already giving kids a better education; the apprenticeships scheme, not just getting young people into jobs, delivering two million more quality training places, but kicking off a total reappraisal of the worth of vocational verses academic further education; even the hated tuition fees cum sort of graduate tax has delivered more young people from less well-off backgrounds into higher education.

You can, as Cap'n Clegg is fond of saying, still do a lot of GOOD with a bit of goodwill and three-quarters of a trillion pounds!

All of which means THIS is where the fight gets DESPERATE.

Liberal Democrats, we might have thought that we could go quietly into Opposition, sit the next Parliament out, lick our wounds – which will be many – and rebuild our tattered reputation under the cosy leadership of Saint Tim, while enjoying the no-doubt-hilarious spectacle of a minority Labour administration giving new definition to being propped up with a (lack of) confidence and supply (of demands) from the SNP.

WE MAY NOT HAVE THAT OPTION.

The Tories are already planning how to wreck democracy: that infamous "black and white ball" they held, that wasn't to raise funds for the General Election. They've already GOT the funds to fight the General Election. THAT was to raise funds for the SECOND General Election.

Remember, our slogan is "Stronger Economy; Fairer Society; Opportunity for All".

It's NOT because we'd deliver a fairer society than the Tories and a stronger economy than Labour. (Though we would. But that's OBVIOUS.)

It's because we'd deliver a FAIRER society than LABOUR and a STRONGER economy than THE TORIES!

Labour: the Party of I.D.iot cards, 90 day detention, dog whistles on immigration, cutting benefits for young people, introducing ATOS, introduction Work Capability Assessments, introducing tuition fees (yes, that burns), cash for peerages, cash for Bernie Eccleston, Iraq… no WAY are Labour the Party of "fairer society".

But equally, the Tories: the Party of throwing our relationship with our single biggest trading partner into doubt, the Party of toying with GBrexit, the Party of slashing immigration and all the benefits that come with it, the Party of slashing benefits(!), the Party of tax cuts for Dead Millionaires (promised again, this week), the Party of blowing dirty great wads on Trident… no WAY are the Tories the Party of "stronger economy".

People, if you DON'T want the LUNATICS to take over the asylum, if you don't want the drawbridge pulled up and the curtain run down on five centuries of Britain being the greatest trading nation on Earth, we CANNOT let the Tories win! Labour are about to surrender. It's up to the Liberal Democrats.

No pressure, then.

In this post:

Master Gideon = Gideon known as George Osborne, Chancellor of the Exchequer
Mr Allstar Darling = Alistair Darling, his Labour predecessor
Rachel the Reever = Rachel Reeves, Labour Shadow Welfare Minister
Tristram the Hunt = Tristram Hunt, Labour Shadow Education Minister
Mr Milipede, reverting to Mr Miliband = Ed Miliband, probably-doomed leader of the Labour Party
Cap'n Clegg = Nick Clegg, Deputy Prime Minister and Leader of the Liberal Democrats
Mr Danny = Danny Alexander, Liberal Democrat Chief Secretary (i.e. second in charge) at the Treasury
Mr Vince = Dr Vince Cable, Liberal Democrat Secretary of State for Business, Innovation and Skills and widely respected as Lib Dem economic spokesperson and stand-in leader

Day 5085: Master Gideon’s Mission to Mars – Some Thoughts on the Autumn Statement

Wednesday:


Do we really want another stimulus for the housing bubble? Really?

Raising some taxes is good (bankers and Starbucks, though… well, how amazing brave to pick those targets).

But hasn’t Chancellor Osborn sworn he wasn’t going to raise any more taxes? I dectect the hand of Danny Alexander; it’s of a piece with his efforts to tackle tax evasion and reduce opportunities for tax avoidance.

The extra funding for the NHS appears to have come from… underspedning in the NHS. Master Gideon as Baron Munchausen will thus clear the deficit by pulling himself up by his own bootstraps.

And there’s a distinctly Janus-faced feel to some of the Conservative’s pronouncements, crowing over our outpacing of other European economies while simultaneously whining about how this makes us too attractive to those waves and waves of immigrants, coming over here fixing our plumbing and so on.

Equally it seems very off to boast that our GDP is going up but our contributions to the European Union are going down in the same statement where you complain that Amazon’s profits go up but the tax they’re paying go down. Sauce for the Christmas Goose, you would have thought.

Ed Balls has some good questions, but no answers.

Why is it that the tax receipts have fallen short of expectations? Ignore the flashy rabbit-from-hat Stamp Duty give-away; this is the central question of the Autumn Statement. The Chancellor boasted that he’d be reducing the deficit in spite of falling revenue, but that’s not the same as having an explanation. Could it be that Mr Balls is finally right about something, and below inflation wage increases have hammered the Treasury’s income too?

I remain convinced that having more people in work but with lower wages across the board is a fairer way of sharing the pain of economic disaster than the ‘Eighties approach of dumping the bottom three million on the dole; nevertheless, it does point to Balls having a point, and it plays well to crosslink Labour’s “cost of living crisis” narative to the Tories failure on their own terms to cut the deficit.

And while it might be fairer, it might not be good politics to give everyone a resentment against the government instead of just a minority who you can marginalise. Labour have clearly been trying a number of formulae – “squeezed middle”, “one nation Labour” whatever it was Mr Milipede forgot to say this year – to try and saddle this resentment to their political cause.

(It’s ironic that the non-Labour left have largely undermined this by shreiking and carrying on that marginalising a minority is exactly what the government is doing – helped, it must be said, by the Tories’s rhetoric and Iain Drunken Swerve being allowed to continue to exist.)

But low wage inflation isn’t the whole story. The dramatic fall in the oil price – generally welcomed by the Chancellor as a good thing, not least because falling energy prices makes Labour’s energy price freeze policy look rather silly – has a knock-on effect in terms of treasury income as it reduces the fuel duty, VAT, petroleum tax, supplementary charge to corporation tax and even the climate change levy.

(And while we’re at it: building a whole load of new roads is hardly in line with the “greenest government ever” line, and rather more school of Mr Balloon’s “drop the green carp”. And, as Jennie reminded us, probably counter-productive – if you want to improve travelling by road… spend the money on public transport. The number of road users is a function of price and convenience versus the alternative, so you would reduce congestion by making it preferable for people to tavel by train. The government appears to be doing the opposite. I suppose it might drive receipts from petrol taxes back up.)

Plus the UK’s economic growth has not yet translated into a boom in consumer spending, again forestalling a surge in VAT receipts at HMRC. In fact, largely the growth seems to be being directed into the housing bubble, which brings us back to point one.

Even so, granted Mr Balls has some grasp of some of the cause of the government’s income not coming up to scratch, it’s still a bit of a leap from there to “and Labour will fix this by…[insert policy when we think of it]”.

George Osborn has some answers that need questioning

Which leaves us clinging to nurse in fear of something worse. Though what could be worse than nurse being revealed as Master Osborn in a pinafore?

The Chancellor’s promise to clear the deficit by 2018 – although more realistic than Labour’s “sometime” in the next Parliament aspiration – is undermined not so much by his already having failed at this once (seriously, giving the finite nature of British Parliament’s you have to start out with a plan for one term at a time; given the slow reveal of the scale of the problem, the Coalition’s cautious approach balancing cuts with stimulus – again at Danny Alexander’s urging – has trod a fine line that has ended up closer to the Liberal Democrats timescale for cutting the deficit than the Tory’s and seems to be paying off, at least at the moment), but much more by the frankly fantastical idea that almost all the remaining cuts can come from the benefits, largely in-work benefits, paid to working age people.

Employment is already at record high levels. (This is a good thing!) But without some unforeseen huge increases in wages – again, see Mr Balls point – it is difficult to see any substantial ability to cut the support we need to give to keep these jobs viable.

On Sunday, on the Andy Marr show, the Chancellor was challenged on the way that spending cuts have fallen largely on not merely “welfare” but specifically on working age benefits. Pensioners have largely weathered the economic storm protected by the Coalition’s triple lock. The Tory Treasury team have clearly war-gamed this one, as Master Gideon came out with a very convincing-seeming answer: “Oh but I have hit the pensioners – I’ve taken half a trillion out of pensions by raising the retirement age”. Well, that’s quite an impressive hit against your core vote, isn’t it?

But take a moment to think about it: raising the retirement age does not affect existing pensioners; it’s actually another blow to those of us in work saving money by putting off the day when we will be able to claim back some of the fortune we are currently paying in.

And of course these cuts depend largely on the Tories being in power after the next election. Vince Cable – who has been quietly getting on with the business of being business secretary: increasing investment to manufacturing and boosting apprenticeships (notice the National Insurance cut to help more there) – has written to the Office for Budget Responsibility to ask them to point out how the Tories’ “no tax please were the British Tea Party” approach is wildly at odds with the Liberal Democrats’ fairer, balance tax and cut policies.

Overall, this was a typically theatrical financial moment from a Chancellor who has learned all his lessons from Gordon Brown. The splash of largess to catch the headlines; the smoke and mirrors over where the money comes from; some nasty medicine in the details; the hidden hand of the Liberal Chief Secretary trying to steer us a little away from full-throated Thatcherism and a little towards more social justice.

This is the course we are committed to now: from here on it’s full tilt towards the General Election and (subject to Nigel Farage and the Tory suicide-squads on the back benches derailing them onto Europe again) this is the ground that the Chancellor has laid out. It is, as President Clinton used to say, the economy, stupid.

And believe me, George Osborn is the economy… and stupid.

Day 4462: Gideon Adopts Plan P for Placebo

Wednesday:

The mission: cure the patient without spending any money at all. Time to roll out the sugar pills!

Yes it's Budget time again and Master Gideon's set himself the very high bar of not repeating last year's omnishambles.

So it was a very Gordon Brown Budget, I'm afraid.

Lots of hand-waving to "prove" the government's hitting its borrowing targets (by massaging the timing of a few payments and - quite rightly actually - clamping down on the end of year "we've got to spend the budget" splurge); a bit of rearranging the deckchairs; and a rabbit-from-the-hat ending.

It's possible that the Budget might be more interesting in the detail (or even unravel the way last year's did) but so far the story is that it's a non-story. People are more enervated by the fact that it got "leaked" to the Standard. Or rather the Standard broke the embargo - comparisons with the "leak to an evening paper" as the BBC coyly puts it are silly: this came out minutes before the Chancellor stood up rather than 24 hours ahead, and was hardly going to trip the markets or cause a rush on beer!

Unlike Mr Frown, of course, Master Gideon doesn't have the benefit of a universally benevolent economic climate (haha) and so had to take it on the chin a couple of times for yet again reducing the expected growth for 2013 (halved to a mere 0.6%) and yet another year's deferral in the time when the debt mountain hits its peak.

The main measures for growth were:
(a) unifying the Corporation Tax rates at the 20% level. Does very little for home-grown start-ups but is designed to lure bigger corporations to move or stay here;

(b) a bit of Enron-style off-balance-sheet accounting, where the government guarantees the deposits for buyers of new build houses (quite clever that - costs almost no money, apart from a few cases where they default in negative equity, but presses the banks to lend for new construction, rather than merely driving more money into existing houses); and

(c) an extra three billion for capital investment programmes (although that's rather more Brownian smoke and mirrors, because in order to not spoil the progress on the borrowing front - and in order not to give the tedious Bully Balls another stick to beat him with - that money doesn't start until 2016, which is a bit late in the cycle if the economy is supposed to be in full recovery by 2017!).

The additional help for childcare (announced before the Budget) is welcome and might help get parents who want to work back into the economy. And (couple of smaller wins for the Lib Dems) no further cuts in the welfare budget and we will keep to the international aid target.

The magician's rabbit this year came in the form of a £2000 off Employer's National Insurance (paid for in a robbing Peter to pay Paul way by increased National Insurance payments arising from the abolishing of "opting out" of the state second pension that comes with the new flat rate universal pension). In a reverse of the main beneficiary, this time he is giving more to small business, since two grand from a company the size of Starbucks or Amazon or Royal Bank that We Own of Scotland is peanuts off their NI bill, but could be quite significant to someone employing just one or two people.

And he bought some - literally - cheap popularity by taking a penny off a pint. (Actually it costs more like 7p off because he cancelled the +6p escalator.) That's surely a nod of apology for last year's "pasty tax" fiasco. 'Cos Gideon's deffo got the "common touch" back now. Sigh.

Likewise, he cancelled the 3p rise in duty on fuel. (Though bear in mind that increasing fuel prices pay a windfall in VAT so he's most likely getting the extra revenue anyway – after all, why screw the public yourself when you can let the energy companies do it for you.)

The tragedy is that even after all the austerity (or at least the whining about austerity - where "cuts" mostly mean below inflation rises, so "less" really is "more"!) there is still a gap - a deficit - of £108 billion. For an idea of the scale of the problem, that's about as much money as the government raises in VAT. Or in National Insurance. So, a VAT rate of 40% or +10% on the NI should cover it(!)


Mr Milipede responded with just another tiresome rant about economic failure. And a childish five minutes where he stood there saying "hands up if you don't benefit from the millionaire's tax cut" (and "no, it's not about me" when challenged on his own earnings by hecklers). I think I'm right in saying that the Cabinet DON'T benefit from the 50% to 45% tax cut because the first thing the Coalition did on coming to power was to cut ministers' salaries so now none of them earn more than £150 grand plus they're all banned from moonlighting while they're in the Cabinet.

Labour really are gambling on their recession continuing indefinitely now. The time for them to develop any other rational critique or alternative plan is fast running out. If the economy does start to upturn before the election then Labour will have not left themselves time to introduce or explain what their plans in response to the economy getting better would be. Mr Balls had a piece in the Standard last week which he introduced with that old saw about "the definition of insanity is doing the same thing over and over and expecting a different outcome" and then went on without irony to suggest once again the same "plan for jobs and growth" that he's been pushing since 2008 (i.e. "cut VAT, borrow more, go on a spending spree").


Within the bounds of what is possible given the state of the economy and amount of debt and deficit that we inherited, the Coalition actually HAVE been trying to vary the response to the ongoing lack of recovery, trying to shift spending around to invest where we can. It's millions rather than billions, of course, because unlike Labour we don't have the money to splash.

The idea, I'm sure you remember, is to try to find that ELUSIVE SPARK that will relight the economic fire, to hit that MAGIC FORMULA where confidence starts to return, and once confidence returns then we get the growth and recovery.

In that way the house guarantee scheme "Help to Buy" is more than just a clear echo of the "Right to Buy" slogan; it's an attempt to repeat the accidental success of the Eighties policy that started the yuppie revolution. Get more people buying new houses, meaning more people BUILDING new houses, maybe that will get the money circulation pumping again.

Oh, and there was something about achieving a key Liberal Democrat promise a year early.

Next stop: raising the personal allowance so that no one on minimum wage pays any income tax at all.

(Mind you, and I'll just float this out there, I might prefer to start pushing people back into paying tax by RAISING the minimum wage to the level of the LIVING WAGE. There's certainly evidence that the minimum wage is so low that raising it won't hit jobs, and an increase in minimum wage is of more benefit to the very lowest paid than raising a tax allowance that they don't earn enough to reach. Plus sharing the proceeds of that increase 80:20 with the government might improve tax receipts and so help close that deficit a bit too.)

Day 4437: AAA-rrrgh!

Saturday:

The Chancer of the Exchequer – known to you and me as Master Gideon – is in a UNIQUE position in Government: he's the ONLY person who DOESN'T resign when things go disastrously wrong, on the grounds that his resignation would panic the markets and make things go even WRONGER!

So even though Great Britain has, like America and France before, lost our Triple-A credit rating, and although this is obviously a total HUMILIATING FAILURE for Chancer Gideon who has based our entire economic policy on maintaining CREDIBILITY with the markets, he won't be going.

Which is a pity.

The papers of course are full of this story giving pages and pages of coverage to...oh, a sex-scandal instead. OBVIOUSLY the sex sells.


In spite of talk (by ministers trying to make excuses) of the markets having "priced in" the "expected" loss of the triple-A, the immediate consequences of being downgraded were a weakening of sterling. Now that's been somewhat masked by the Euro taking another dive after the Italian elections produced a less than clear outcome.

(PHEW! No one will notice we've fallen flat on our face because they're all watching Europe fall off a cliff!)

There's a fairly simple relationship between the value of the pound and the level of interest rates. If borrowing gets more expensive (which it does if the lender thinks it's more risky to lend to you – which is exactly what downgrading from AAA to AA1 means) then you have to put up interest rates OR your currency goes down in value.

(Look – boring maths bit – suppose your interest rates are 2% and 100 rouble-dollars will buy you a £100 government bond that will return £2. If you get downgraded, and people now want 2½%, either you have to start giving bonds that return £2.50 OR people are only going to be willing to pay you 80 rouble-dollars for your £2 return (2/80 = 1/40 = 5/200 = 2½/100 = 2½%). Okay, non-mathmos can wake up again now!)

So EITHER you have HIGHER INTEREST RATES or you have a WEAKER CURRENCY.

But a weaker pound means more expensive IMPORTS, specifically ENERGY and FOOD, which means HIGHER INFLATION.

In THEORY devaluing the currency should also provide a boost to exports... which is why (among other things) Hard Labour's Alistair Darling crashed the currency following the 2008 banking meltdown.

That of course contributed to the high INFLATION that we had for the first couple of years of this government.

(World events – drought affecting rice and wheat crops, declines in energy production, China taking more resources – all contributed, of course, BUT weakening our currency meant that those world events had an EXAGGERATED effect on the UK. Just as Labour's over-borrowing and reliance on the financial sector to grow the economy meant the financial meltdown had an EXAGGERATED effect on us too.)

However, it appears that our industrial base is so worn away by the Thatcher and New Labour years that devaluing did NOT have the boost to growth effect that was hoped for.

So all round this is BAD, and that is WHY Chancer Gideon was trying to avoid it happening, and why now it has happened it's going to be harder still to meet our targets of getting down the deficit.

(That is, remember, just slowing down how fast we spiral into yet more debt.)

So where was the GROWTH supposed to come FROM? There are THREE theories:

The CLASSICAL theory that says that you grow the economy by increasing the number of workers. (e.g. you increase immigration in order to farm more fields)

The INDUSTRIAL theory that says you grow the economy by increasing the CAPITAL available (e.g. you borrow more capital in order to buy machinery that allows your workers to produce twice as much)

And Mr Frown's favourite, the POST NEO-CLASSICAL ENDOGENOUS (i.e. from within) theory that says you grow the economy by training your workers and trading up to more productive jobs. (e.g. you teach your widget factory workers how to design computer chips and gain a more lucrative export.)

As a footnote, Hard Labour did not really DO the endogenous thing. Education, education, education turned out to mean requiring people to get degrees for the jobs that already existed rather than creating new and better jobs. Most of the "growth" of the Hard Labour years was in fact fuelled by BORROWED money – like the Victorian INDUSTRIALISTS – except we didn't use the money to buy machinery to power up our economy but instead frittered it away on consumables.

On the other fluffy foot, the Coalition appears to have set its face against ALL THREE methods of growth:

The Conservatories' irrational xenophobia means that we cannot import cheap labour for growth.

The nature of the bubble and crash mean that the public and government are both massively averse to borrowing, and indeed the stated aim of the Coalition is to reduce and ultimately reverse the deficit and thus slow the growth of and eventually start to reduce the national debt.

And, although the Liberal Democrats have fought for and won a Pupil Premium and more Apprenticeships, the Conservatories have forced upon us the Tuition Fee debacle and the slashing of Educational Maintenance Allowance, while Mr Michael the Borogrove's "reforms" seem keener to return the education system to the Victorian classroom than to adapting it to the needs of fast changing modern industry.

(The advantage of apprenticeships here is that they do an end run about this sort of silliness and, to borrow from "Yes Minister" (back when it was GOOD) give young people a comprehensive education to make up for their Comprehensive Education.)

Okay, but the Government's policy is not ENTIRELY as DUMB as it looks when spelled out like that.

The Government THOUGHT that growth could come from the PRIVATE SECTOR.

Remember: the prevailing belief of ALL governments for the last thirty years (yes, since Queen Maggie's "revolution") is that governments are NOT good at running industries. This is based on a LOT of experience during the Seventies which pretty much tested the opposite theory to destruction.

Therefore, whether you're a Keynesian devotee or a member of the Church of Thatchianity, the idea is that the government should leave PRIVATE industry to do the borrowing, investing and growing. The more LEFTY (i.e. pro-State spending) view has been that the State should spend MORE on SERVICES (health, transport, schools) to SUPPORT the private sector; the view from the more RIGHTY has been... much the same but for a percentage point or two LESS of GDP.

So the Hard Labour's government's borrowing was NOT generally going on "investments" that would return greater growth; MOST of what they were borrowing was spent to fund these SERVICES that (by definition, since we were borrowing) were MORE EXPENSIVE than we were willing to pay for even BEFORE we lost twenty-percent of the economy.

But even where they WERE spending on building useful things – new roads, schools, houses, power stations etc – it was infrastructure for SUPPORT rather than direct investment in growth.

(Of course, Prof Keynes would say that those sort of generally useful support things are exactly what you borrow money to spend on during a downturn in order to keep the workforce working and to have useful stuff to help when the recovery comes. And the Coalition HAVE pretty much admitted that they should not have cut those investments when they cut everything else!)

So, the Government THOUGHT that growth could come from the PRIVATE SECTOR, and that they could ENCOURAGE this by:

a) reducing corporate tax and regulation, enticing foreign companies to move their investment to Great Britain and home grown ones to expand. (At least until people stated getting into a flap about Corporate Tax avoidance.)

b) introducing schemes and wheezes and government guarantees to make it as easy as possible for companies to borrow from the banks. (If it were not for the fact that the public demand for tighter regulation of the banks has made those banks very, very much more reluctant to lend!)

You can see that, to a certain extent, the Government's plans FAILED because their main tools to encourage traditional capitalist growth were thwarted at least in part by external factors, while their own – and let's face it mainly Conservatory ideologies – blocked either the very old or the very modern routes to growth through anti-immigration and anti-education/anti-green development policies.

So how do we get growth? We're going to need a BETTER ANSWER.

We have to start by UNBLOCKING those ideological barriers.

We need a more sensible approach to the problems of immigration than standing at Dover with a "No Entry" sign! The REAL problems, and we've said this lots of times before, are pressure on housing and services and the downward pressure on wages caused by a large free labour pool.

We need to tackle those problems at SOURCE and the good news is that that means building lots of houses and schools and roads which means JOBS. We also need to protect low end wages from being driven down further. The Tories may not like it, but all the evidence points to the Minimum Wage being set well below the level where it would start to put companies off employing people, so progressive steps should be taken to increase the minimum wage ahead of inflation towards the LIVING WAGE.

(NB: this WILL make it harder to raise the personal allowance to the level of the minimum wage. More people will go back into paying income tax as their minimum wage rises, but they will still be better off for the rise, and the government will have more money too and/or more leeway to raise the allowance above inflation too.)

But we ALSO need a COMPREHENSIVE review of our education, and the needs of business, and the needs of universities, and of course the needs of schools themselves. We cannot continue to rely on "ideas wot Michael the Borogrove thought up"; simply IMPOSING another set of changes is just going to cause yet more strife. We need, if you like, a CONSTITUTIONAL CONVENTION for SCHOOLS, to bring together industry and universities with teachers, parents and pupils to try to deliver a wholly new and world-beating education.

But although these plans might sow the seeds of future sustained growth, the key to growth NOW is CONFIDENCE, that elusive SPARK that comes when something – I don't know what it will be – comes along and convinces people that there's money to be made and so they start going out to make it. That thing that, at the moment, continues to be absent from the British economy.

And sadly, the BIGGEST source of ANTI-confidence at the moment is the Chancer himself: Master Gideon is Mister Austerity the piggy-faced face of the recession. His "We fight on we fight to win" response to the downgrade shows that he's succumbed to the same BUNKER MENTALITY that claimed his predecessor-but-one, Mr Frown. Even Queen Maggie needed to exchange Exchequers before we moved from bust back to boom in the Eighties.

And that, even more than the total humiliating ruination of his plans, is why we 'd be (probably quite literally) better off if Gideon did the one thing he won't do, which is go.

Day 4299: FREEDOM FROM POVERTY - A Real Alternative to Welfare

Monday:


Chancellor George Osborne has announced that he wants to cut TEN BILLION POUNDS from the welfare budget.

I will pause while you throw up.

Right, back with me? OK, here's a reminder of the BACKGROUND. The Government's total spending is, very roughly, SEVEN HUNDRED BILLION pounds every year.

The total amount spent on what we call "benefits" in the United Kingdom is in the region of TWO HUNDRED BILLION pounds per year.

It's the BIGGEST "BIG TICKET" item in the Budget. So you can see why it's such a TEMPTING TARGET for a rapacious fiscal shark like Master Gideon.

(See table D4 of the OBR's report on the 2012 budget [pfd])

Remember, the NEXT biggest item, at about ONE HUNDRED BILLION pounds, is the NHS which is currently granted SACRED COW status, so he cannot find his cuts there.

After that comes Education (FIFTY billions) under the personal protection of the Deputy Prime Monster and Defence (THIRTY billions) under the protection of a battalion of right-wing Tory Tanks. Nor can he afford to cut the TWENTY-FIVE billion allocated to Scotland with Mr Slippery Salmon's independence referendum coming up.

But it's not THAT easy to cut the welfare bill either.

The Conservatories and their allies in the press have contrived an atmosphere where the word "benefits" is practically synonymous with the word "undeserving", cultivating the idea that there are SWATHES of the country where people sit at home in their PJs rolling about in money while the poor mugs go out to toil.

But that's REALLY not where the welfare money goes. (See IFS analysis [pdf])

About 40% of the welfare bill is PENSIONS. The Government is ALWAYS going on about how pensioners DESERVE their money, and the TRIPLE LOCK means that that 40% is SACROSANCT!

Then about 20% is IN WORK benefits for people on low pay. Remember we are supposed to be all about REWARDING – grit your teeth for this phrase – "hardworking families". So you cannot really gouge that either. About HALF of that (i.e. 10% of the total) is Housing Benefit, which is one of the most important benefits and can make the difference between families being about to afford to work or not. The downside is that it mainly goes to LANDLORDS, rather than the families in need; this is the price we pay for having ridiculously inflated House prices.

The OTHER half is the price we pay for having the minimum wage set below the level where people can survive on it, subsidising low paid jobs for the benefit of employers. There's a serious question that cutting those in work benefits would destabilise the jobs market massively increasing unemployment. But there's got to be SOMETHING wrong with a system (set up by a LABOUR Government, no less) where the Government subsidises employers to pay less than the living wage, essentially allowing companies to increase their profits at the taxpayers' expense.

Another 20% of benefits are for having children (child benefit and child tax credit). For all the fulminating in the Daily Hate Mail end of the press about FECKLESS SINGLE MOTHERS TM, we've already seen what happens if you try tinkering with Child Benefit and the Chancellor might as well write his political suicide note on the same headed paper as try THAT again!

So that's a good 80% of benefits going to people who for various reasons the Government won't or can't upset. That money, like in BULLSEYE, is safe. To half of them you've promised perpetual increases; and the other half you are relying on to keep the economy afloat!

So it comes down to the 15% which goes to the sick and disabled. Nothing quite so "sick" as cutting benefits to the disabled, you might very well think, and frankly with people already DYING this is where we need Captain Clegg to stick to his promise that up with this we will not put.

And only about a measly 3% goes to yer actual UNEMPLOYED people. Gideon could abolish Job Seekers Allowance entirely, and still fall well short of his target.

(That, incidentally, leaves 2% change, most of which is Winter Fuel Allowance and free TV licences, also for the elderly.)

If, like Master Gideon, you are scheming to carve out another TEN BILLION (i.e. a whole 5% of the amount we spend), then it begins to look very VERY hard to FIND that kind of money.

The message of this is that we really need to think VERY MUCH MORE RADICALLY.

The idea that I'd like us to THINK about is the CITIZENS' INCOME.

It's important to understand that while this idea has a LOT of GOOD points going for it, there are some pretty serious drawbacks too and that's why it needs careful THOUGHT.

In its simplest form, the Citizens' Income is a fixed payment to every adult in the country and a flat tax rate on all income.

The ADVANTAGES are simplicity and universality. Instead of a complex mix of means-tested and universal benefits, everyone receives the same Citizens' Income. Because it is universal, it improves take-up so that the benefit is more likely to reach those most in need. Because it is simple, people are not put off by forms. Because there is no withdrawal or taper of the benefit, everyone who is able to work and chooses to do so is better off for doing so. Because it favours neither couples nor individuals, couples are not worse off for staying together but nor are they penalised for splitting up. Because everyone gets the same amount, there is less grumbling about "undeserving". Because we all share in the national income, we are all, to coin a phrase, in it together.

As a smaller advantage, the bureaucracy to organise this exists already largely with HM Revenue and Customs and/or the Treasury's tax credits department. You would, in theory, be able to abolish the whole Government Department, Mr Iain Drunken-Swerve's DWP (Department of Worship and Prayer). Having said that, cutbacks have left HM Revenue and Customs very understaffed, and so we might be better served by retaining DWP staff as part of the new unified tax authority.

The DISADVANTAGES are: firstly, that the unified tax rate has to be set quite high to make the figures balance and this looks like a tax rise (particularly since it would combine the 20% income tax and 12% national insurance bands) – actually most people on lower incomes are better off, but it LOOKS like a tax rise; secondly, although MOST benefit recipients would receive more, there is a disproportionate LOSS of income for certain sections of the community, for example those large families who receive Housing Benefit; thirdly, the flat tax rate, unless set very high, will be an effective tax CUT for those on the highest incomes (although you could retain a 45% top rate to avoid this problem at the expense of slightly less simplicity).

I'm going to work through a bit of MATHS here which you might want to skip over, but it's important to "show my workings" and show how close it all comes to adding up.

The office of National Statistics says that there are 29.56 million people IN WORK in the United Kingdom. With an average salary of about £26,000, that makes a TOTAL EARNED INCOME of more than SEVEN HUNDRED and SEVENTY-FOUR billion pounds.

A single flat rate of tax of 40% (replacing income tax and national insurance for all employees) would therefore raise THREE HUNDRED and NINE point SIX billion pounds.

At the moment, Income Tax and National Insurance together raise roughly TWO HUNDRED AND FIFTY BILLION pounds (See table D3 of the OBR's report on the 2012 budget [pfd]) and, as above, benefits cost around TWO HUNDRED BILLION. This means that the taxes on income raise an excess of FIFTY BILLIONS which is spent on all the other things that Government spends money on. In order to keep up government spending, we should retain this excess. Therefore we have TWO HUNDRED and FIFTY-NINE point SIX billion pounds to distribute.

Given that the population of the UK is 62.6 million (and excluding approximately 10.8 million who are under 18) that would be roughly equal to FIVE THOUSAND POUNDS for EVERY ADULT IN THE COUNTRY.

Currently, the Liberal Democrats are pursuing fairer taxes by raising the personal allowance to £10,000. Under this Citizens' Income scheme, EVERYONE earning less than about £30,000 would be better off. In particular, and as opposed to raising the personal allowance, EVERYONE NOT EARNING ENOUGH TO PAY TAX would be better off.

Here's the BIGGEST PROBLEM then: five thousand pounds per year is LESS than the current basic State Pension and so almost certainly a NON-STARTER. However, it MIGHT be possible to have a higher Citizens' Income IF we were to retain the EMPLOYER'S element of national insurance.

So, the main things to think about before we were to consider a Citizens' Income would be:
• what would be considered a fair rate for the unified tax rate, and should we retain the top rate of tax so as not to be giving the biggest tax cut to the people with the highest incomes?
• what is a reasonable level for the Citizens' Income, if the minimum we could set it at is the current state pension rate – or the targeted £140 per week pension – should we be aiming at more than that?
• what would an impact assessment of the withdrawal of housing benefit say, and would be possible or desirable to retain some element of housing benefit?
• should we retain Employer's National Insurance (which Conservatories describe as the "Jobs Tax")? Might we have to to make the books balance?

A Liberal economic plan should also be looking at how to make sure that employers pay a FAIR wage, through proper enforcement of minimum wage and working time directive legislation, so that people do not NEED State subsidies.

If we COULD make this work, I think this would be an EXCITING and RADICAL departure from Labour's idea of welfare being a Government that graciously gives to those they deem the deserving poor towards a COMMON WEALTH where rather than grudgingly giving to the needy we all share in the nation's prosperity, combining the great Liberal traditions of EQUAL HELP for all and Government TRUSTING PEOPLE and empowering them get on with their own lives.

Day 4147: From Rose Garden to Glorious Make Tractor Factory – How the Coalition Failed

Wednesday:


When the Coalition was formed, in the sunshine of Mr Balloon and Cap'n Clegg's Downing St bromance, hopes of genuine renewal were high.

In spite of the economic calamity, we would disassemble Hard Labour's authoritarian apparatus of big government. I.D.iot cards, databases, targets and Whitehall micro-management would go, freeing up funds for frontline services. More freedom, more delivery.

But this week, Mrs the Queen's speech, while not quite as bad as COLD SICK, has gone down like TEPID TEA.

Where did it all go wrong?

I point the fluffy foot of BLAME straight at the Prime Monster and Chancellor.


Of course it's EASY to see how Master Gideon has fluffed this up, with his playing political tactics instead of having a strategic vision.

It started with the AV referendum, when – for entirely selfish, stupid, short-term reasons – the Conservatories decided to put the full weight of all their money into giving the Lib Dems a bloody nose. Selfish because they believe that they can only win an outright majority without a Coalition under the First Pass the Port voting system. But actually STUPID because they are actually TRAPPED in a "coalition" with their right wing NUTTERS. In the long term this makes it HARDER for them to be re-elected, as all the studies show a consistent DECLINE in "two-party" voting making coalitions MORE likely in future. And they will have FEWER options in the Coalition dance if they are chained to the Frothy-Phobics.

A more proportional system would, obviously, see a SMALLER centre-right Conservatory Party and a more substantial showing for a far right UKPnuts. Which looks BAD for the Conservatories in the SHORT TERM. But Hard Labour would probably break up too and we'd see more Greens and proper socialists. (Not to mention a FAIR share of Liberals – 16% of 600 is 96 seats, whereas with 23% we got, er, 57 seats.) In the LONGER TERM, though, this could allow the MODERATE Conservatories to evolve towards the sort of position that Ms Angular Meercat enjoys in Germany, able to form governments through coalitions with a choice of Liberals, UKPnutters or the more Blairite Social Democrats from the former Labour. We've even seen Blue-Green alliances on the Continent.

By averting this possibility, and by mightily fluffing off the Liberal progressive vote, Master Gideon has actually made it more likely that the Conservatories will be FROZEN OUT of power for the Twenty-First Century, by a succession of Labour and Liberal-Labour Coalition governments.

So, good strategy there.

Furthermore, the Conservatories turning their fire on US, and in particular the vicious campaign against Cap'n Clegg personally, meant that the Liberal Democrats had pretty much NO CHOICE but to move to DIFFERENTIATION.

It's unclear how successful this has been for us, but it's obviously undone half a decade of trying to DETOXIFY the Conservatory Brand because now the only policies solely associated with the Conservatories are the NASTY PARTY POLICIES.

This came to a head in the so-called "omnishambles Budget".

For TACTICAL reasons, Master Gideon HAD to cut the 50p rate in this budget if he was going to do it at all. He couldn't possibly do it in the emergency budget when the Coalition came to power; it would have flatly contradicted the whole fiscal consolidation message. Nor could he do it last year, too soon after the Strategic Spending Review. But leaving it until any closer to the election in 2015 would mean that it would still be a live political issue for the election campaign. No, this was the ONLY year he could do it and hope that the fuss would die away before the electorate could punish him for it at a General Election.

That was, obviously, why the Conservatories were GAGGING for this ONE policy in all of their Budget negotiations, and how the Liberal Democrats were able to leverage such a HUGE tax cut for the lower and middle-income earners PLUS the "tycoon tax" tightening of loopholes (which has been so traduced by self-interested millionaires saying how they just can't afford to give to charity without receiving a massive tax bung for the privilege).

For the TACTIC of getting started on cutting taxes for the super-rich, Master Gideon SACRIFICED the STRATEGY of tax fairness.

And wheels came flying off in all directions.

This sort of "government in crisis" narrative has a momentum of its own, as we have seen in the past when Mr Major Minor's government was self-destructing or when Mr Frown's administration was tearing itself apart. Even Mr Miliband's big humiliation in Bradford was not enough to deflect the press from their FEEDING FRENZY for long. Hence we see headlines about hundred-million pound U-Turns and an air of panting anticipation around the latest Leveson revelations in the hope of more red meat to feed the Fleet Street spin machine.

Even potentially good news stories ("New Jobs Created by Deputy Prime Monster's Job Creation Scheme" – actual story) manage to come out painted bad ("Employment scheme may cost up to £200,000 per job" – actual headline). Yes, they MAY cost up to £200,000 a job. OR as LITTLE as £4000 a job. Actually, average costs of the scheme, about the same as Hard Labour schemes cost, with room for some improvement. But who is being "shocked" by these costs? Why it's Hard Labour's Margret Hedgehog. Cynical politics by the Queen Mother of Barking, there, (plus ça bleedin' change) but who left the goal open for Hard Labour opportunism? We did!

Under the circumstances, "relaunches" only FUEL the notion that the Government is falling to bits.

What is called for is a profound period of CALM and COMPETENCE, something that the Westminster bubble is ILL-DESIGNED to provide.

(And bringing forward all the "who's in and who's out" hysteria of a reshuffle not only smacks of PANIC but increases the chances of COCK-UP by dropping someone inexperienced into a new job AND giving Sir Humphrey another chance to shovel some dirt past them as they learn the ropes.)


So much for Master Gideon's fluffy foot in this; the REAL culprit is of course the Prime Monster Mr Balloon himself.

I once said that the Coalition had the chance to be the making of Mr Balloon. It's a chance he's tossed away with both hands.

If you don't want to look WEAK, you shouldn't go crawling to your backbenchers begging to kiss fluffy bottom! If you don't want to look OUT OF TOUCH then you can't waste your time caring more about what some CRAZY WOMAN thinks of you than the whole of rest of the country. And if you don't want to look like you're NOT UP TO THE JOB then you don't go whinging to the Daily Hate Mail that you can't get the policies you want!

A STRONG Prime Monster would have used the Liberal Democrats as a BULWARK against the ever-more petulant demands of his right wing. A STRONG Prime Monster could have PUT THEM IN THEIR PLACE.

By BLENDING the policies of Liberals and Conservatories, as we did in the Coalition and the Rose Garden, you can achieve a SYNTHESIS that is greater than the sum of its parts and demonstrates a government VISION that give confidence that we know what we're doing and WHY we're doing it. And better still, the Prime Monster gets to claim credit for EVERYTHING.

INSTEAD, the GAME PLAYING by his Chancer cum Political Grand Vizier, Master Gideon, and Mr Balloon's own COWARDICE has left Government policy looking like it's DIVIDED between wins for the Liberal Democrats and wins for the Tory Right, leaving NO WINS AT ALL for the Prime Monster in the middle.

A CLASSIC example is the "Daft Draft Communications Bill". An opportunity to unite Liberal and Conservatory values by rolling back intrusive RIPA powers, end spy-on-the-citizen local government intrusion and bring back some traditional British justice was SQUANDERED in a rushed attempt to win some Daily-Hate-Mail-friendly headlines by letting the security-fetishists in the Home Office have their head over blocking internet rudery and cracking down on communications between those "potential terrorists and paedos" as the Home Office calls them or, you know, ordinary innocent citizens to you and me.

The Prime Monster needed to be a BRIDGE between Liberal Democrats and Conservatories. Instead we're now seeing "I could be a proper Evil Tory if it we're for those Pesky Lib Dems" type headlines.

Burning your bridges is FOOLISH at the best of times. It's DOUBLE FOOLISH with NOBS ON when you're STANDING ON THE BRIDGE at the time!


You can't say that the Liberal Democrats didn't TRY to make this work. Cap'n Clegg in particular has worked tirelessly to present a common front on most Coalition policies, and taken endless flack for it.

(Because obviously it's TEH FUNNY to call the man a "stooge" for holding to his principles of working together for the best of the country, and "spineless" for sticking to his belief that maybe we all ought to try getting along. At least no one's suggested nailing him to a tree, yet! Why Mr Milipede what are you doing, washing your hands?)

The BEST of this Coalition – a tax cut for millions, the pupil premium, the green investment bank – has all come from the Liberal Democrats. But it's a FAILURE of this Coalition that I can say that. The BEST of the Coalition OUGHT to have come from BOTH Parties together.


So, unless the economy comes good, that's going to make things AWKWARD for the next three years.

Meanwhile, here is Mr Danny Alexander with a musical message for Europe Day (hat tip, Mr Whyte.)


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Day 4133: Driving into a Hole

Wednesday:



Top story on the BBC: an unnamed driver – known only as "Master Gideon" – has crashed his car into the Paris Metro. Apparently he misread the signs.



OK, look it's NO GOOD pretending this is good news. We're in a recession again.

The difference between the expected +0.1% growth and the surprise -0.2% contraction is pretty tiny. But that's just saying that the economy would have been pretty dire even if we HAD avoided a second recession on a technicality.

This is NOT the outcome we wanted. We should admit that and ask what we could do better.



The Chancer of the Exchequer, Master Gideon Oboe – henceforth to be known as the Double-Dipsh— no, I can't say that! – has already had a BAD MONTH because of the Budget, because actually it DID slap more taxes on the rich and the very, very rich and they've been finding all sorts of ways to whinge about it.

It's funny how we're told to cut less and tax a little more right up to the point where we DO that and then it's pasty-tax this and conservatory-tax that and cathedral-tax the other.

(And it's REALLY helpful when you can get CHARITIES to front up your demands for tax loopholes. Of course, some people might say that if you need a tax break in order to give money to charity, you don't deserve to call yourself a philanthropist. Even if the charity in question is the Birmingham Opera Company, who I am sure bring great joy to the least well-off through their Pas des Deux-es.

(Look, with charity donations, like PENSION CONTRIBUTIONS, there's a case for saying that they come out of your BEFORE-TAX income, fair enough. So if I've been persuaded by the Party that the amount you put in your pension should have a cap, then it seems only CONSISTENT that they should say the same for the charity giving.)

In part the badness of the news is PSYCHOLOGICAL: just the WORD "recession" is enough to dent confidence and slow our chances of growth and recovery.

OF COURSE it hurts POLITICALLY. It lets Hard Labour weep their crocodile tears and crow about "wrong choices".

But we should not let that put us off taking a SERIOUS look at our choices and reassessing whether they ARE bad or not.

And you KNOW how much I HATE it when Ms Nadine "Mad Nad" Dories might have a POINT.

But "remorse, contrition and compassion" are EXACTLY the qualities that we should be showing. They are what I had HOPED would make the difference between this administration and the governments of Queen Maggie and Mr Major-Minor.

Why isn't it working?

The predictions of growth that have repeatedly proved so over-optimistic are based on the way that the economy – nationally and globally – has bounced back from previous recent recessions (1972, 1980, 1991, 2001). But in some ways, the REASON for those bounce-backs was CAUSE of this recession: we were pouring on more of the old problem, racking up ever-more DEBT.

The Bank of England relaxed lending laws at the start of the Seventies, triggering a house price boom that helped us over the Oil Shock; our own North Sea Oil, i.e. the flogging off a previously-undiscovered asset, reducing the Nation's net savings, rescued us from the early-Eighties recession; leaving the EMU and the subsequent devaluation and inflation lifted us out of the Nineties property crash, again at the expense of a lot of National wealth, and of course a huge burst of cheap borrowing forestalled the dot.com collapse in the early Two-Thousands.

This time around, it's that very borrowing that has finally caught up with us and CAUSED the crash. We can't at the same time take the action to stop it happening again AND let it happen again to get us out of the hole.

Essentially, we've been storing this cataclysm up for four decades, and the models really aren't ready for it.



Another big drag on growth is the renewed (or never-went-away) CREDIT CRUNCH.

I've said before, many times, how if you lend more money it has a magical multiplying effect that boosts economic growth; and that if you reduce lending then it reverses the process, sucking growth right back out again.

The banks are having to build up much bigger reserves against losses to meet the new regulations that the Coalition have put on them. In simple terms, this means they need more money IN and not as much OUT.

It's why, for example, the Halifax-that-we-own have raised their mortgage interest rate even though the base rate remains frozen at an all-time low. They're gouging an extra margin from borrowers to build their own balance sheet. But at the same time cutting people's spending power, taking money AWAY from activity that could help growth.

It's the same problem that we had with the VAT rise last year – money is burnt up in interest (or tax) instead of being spent on making things.



Thirdly, there is the simple factor of TIME. Almost ALL of the levers that Gideon the Chancer can pull take a VERY long time to affect the economy. There's a BIG rise in the personal allowance coming in – it's been announced for ages but it's only going to go into your pay packet this month. Too late for the first quarter growth figures. The EVEN BIGGER tax cut announced in this year's budget won't get to you until NEXT year.

That VAT rise last year had a big impact, pumping up inflation, and it's only a year later that the inflation figure is starting to come down (subject to the ongoing energy crisis and soaring food prices). Once you've done something like that it's TOO LATE to change your mind. Sure, you can chop and change the VAT rate all the time, as Labour propose, but that causes no end of problems and costs for businesses who have to reprint all their price lists and reprogram all their accounting software.

In a way, it ought to be impossible to blame the Coalition… YET. Because the cuts have barely started. We hardly cut at all in 2010, and 2011 was merely the beginning. Except for the VAT rise, really, the impact has not yet arrived.

The most terrifying aspect of this though is that most of the cuts are STILL TO COME. The plan is, as it always was, to keep spending the SAME in cash, and allow inflation to do all the dirty work. Then any real growth above inflation would give the Coalition more room to manoeuver, slackening off on the spending controls, reducing the bite of the extra taxes. But the growth hasn't arrived. So the screws continue to tighten.

Could Hard Labour have been RIGHT?

Well, there IS always that possibility. But I still don't think so.

Hard Labour's solution was – and still is – more stimulus, paid for by more borrowing, to try and kick-start the economy. They'll point to Americaland where President Barry O DID do more stimulus (spending coupled with a package of tax cuts) and the outcome appears to be an economy that might just come good in time for his November re-election.

(Of course that is SIMPLISTIC – the US economy has a different economic mix, with more manufacturing and much less finance and they are much less closely tied to Europe, but on the other fluffy foot have much, much worse borrowing to start with – but it's a crude enough comparison to be worth considering.)

The American example shows that more stimulus COULD have worked.

What it doesn't show is that it WOULD have worked.

If a patient has a massive heart attack, you can get them back on their feet with a massive injection of adrenaline.

They'll bounce up and run around for a bit at first, but of course IT WILL KILL THEM.

And in a lot of ways this is exactly what Mr Alistair Dalek DID do with his VAT cut and Quantum of Easing. He injected the economy with a massive dose of cheap money and the so-called growth was bought, almost literally pound for pound, by borrowing it from the future.

Hard Labour's MASSIVE ECONOMIC GAMBLE was – or would have been – to KEEP pumping borrowed growth into the economy in the hope that a genuine recovery would come along in time to save them.

Essentially, keep the patient running around and keep your fingers crossed that their heart starts again on its own before they DIE.

The PROBLEM with this approach – and it's a FUNDAMENTAL problem – is that all you've done (so far) is create a massive PONZI scheme: you are generating growth at the front door but only by pumping in borrowed money at the back door.

What is ABSOLUTELY ESSENTIAL is that once you HAVE got an economy that looks like it's growing is THEN you do the HARD WORK to fix the broken bits of your system: cut your spending; run a huge budget surplus to repay your borrowing; rebalance your economy in favour of wealth-generating and away from government spending.

And based on their history there is NO EVIDENCE that Hard Labour would be willing to DO that work. They would just repeat the DISASTER of their last government and fund a spending binge on the never-never.

(There's also a secondary problem with Labour's methods – to be effective, you need to give your stimulus of borrowed money to the PRIVATE SECTOR, to manufacturing, construction, mining or farming – including wind farming. Basically, things that GENERATE more cash than you put in. It's called INVESTMENT. The evidence shows that what Hard Labour's SPIN MACHINE calls "investment" actually means spending the money on more public sector workers instead. That may result in a better society in the long run, but it doesn't solve the immediate problem and arguably makes it worse in the short term by adding more costs to other already-hard-pressed workers.)

Whether the gamble succeeds or fails depends on how long people can be persuaded to keep lending you the money.

If you're lucky then you get away with it. Enough growth in genuine economic activity – not just recirculating government money – and you can pay for the extra borrowing to cover you through the "actually fixing the economy" phase.

But if you're unlucky, if the manufacturing and service sectors don't come up with the goods before it becomes too expensive for you to carry on borrowing, then never mind GREECE... the next stop for the economy is YEMEN.



On coming into power, in the climate of turmoil on the money markets, on seeing the Treasury's books, on receiving the infamous "there's no money left" note from Liam Byrne, with the spectre of a potential Greek collapse hanging over us... all of these factors persuaded the incoming Coalition that the time before the borrowing dried up was LESS rather than MORE, and that the chances of the GAMBLE paying off were not worth the risk.

Does that mean that we missed the chance of a short cut out of the pain of a trashed economy?

Yes, it does.

But we ALSO avoided the downside risk of a toxic combination of spiralling national debt, escalating interest rates, out-of-control inflation and STILL no growth – the kind of mix that's destroying the Eurozone at the moment.

This is BAD but it's a LONG, LONG way from as bad as it could be.

The government managed to hit its annual borrowing target – in part thanks to that VAT rise.

Yes we "only" added a hundred and twenty six billion squids to the national debt last year. But that's eleven billion squids fewer than in the year before, despite rising inflation. The gap is closing.

And the pound continues to STRENGTHEN against the DOLLAR and the EURO, showing that the markets believe our economy is SAFER and STRONGER than either the Americaland or the Euroland economies, in spite of growth over there while we're still bouncing along the fluffy bottom. People want to invest their money HERE, and that's a good thing.

What should we DO about it?

Well step one is DON'T PANIC!

Own up to the fact we've NOT solved the problems of the economy yet. They were pretty massive but we thought we could do it. We SAID we could do it. But (at least so far) we HAVEN'T.

But that's NOT a reason to flail about wildly adopting "Plan B", "Plan C" or "Plan 9 from Outer Spads" at random.

We should look at what we ARE doing. Does it look RIGHT? If not, can we fix that? Who is being hit hardest? Is that fair? Can they take the cost? Can we give more help to those in need?



In this immediate set of figures, it appears that the driver of this contraction is the construction industry. And this is ANNOYING because it's one place where the government COULD reasonably borrow to invest: buying new home building and road and rail infrastructure NOW helps keep builders in employment AND prepares the way for when the recovery comes. And the assets that they build can return an "economic rent" – if they're houses a literal rent – that covers the cost of borrowing so it DOESN'T damage the economy.

And to be fair the Coalition ARE doing SOME of this. But clearly not enough and/or not quickly enough.

Planning laws and general NIMBY-ism are a real brake on bringing forward these projects. Obviously High Speed 2 is going to take a geological aeon before it breaks ground, but just think of all the objections to new windmills or new housing estates, too. Having said that, I bet you most MPs could name one or two "off the shelf" projects in their constituency just waiting for funding – that's a place we should be looking to nudge a bit harder.



Less construction isn't the whole of the story. There's just not any growth in any other areas to make up for it either. Remember Mr Dr Vince's leaked letter – we need to sharpen our strategy for growth, boost investment and back Britain.

Unclenching the credit crunch is going to be necessary if not vital. Captain Clegg made a speech about access to finance today.



But we also need a revival of OPTIMISM.

It's not all bad news. The rise in commodity prices means that some things that were not economically viable before now look profitable. That's what happened with North Sea Oil in the Seventies. This provides new OPPORTUNITIES. Some of them are GOOD (like mining space asteroids); some of them are, er, NOT SO GOOD (like Fracking Blackpool).

But what is KEY is that people are now starting to CONSIDER these opportunities.

People are willing to make PLANS – however outrageous or barmy they may seem.

THAT is what's needed for recovery, the start of the upswing, a sign of hope.
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