Category Archives: Politics

ConDemNation: Under Hypnosis

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12th July, 2010




Sir Alan Budd recently announced his intention to step down as interim boss of the Office for Budget Responsibility.  Labour howled its derision – suggesting Budd’s resignation reflects internal tension; the Treasury did not allow him the independence that was hailed from the Coalition rooftops.


But we’re assured that that’s not the problem.  There is no problem.  He was only ever a temporary chief, and he came magnanimously out of retirement to set the office up; now he’s going back into retirement, as planned.


So we’re told, and the BBC’s Stephanie Flanders believes it, so who am I to question it?   It is certainly true that this was only ever a three-month contract.  But I will say this, two months ago Sir Alan Budd declared the new appointment was “the most exciting challenge of [his] professional life.”


Never mind the leader, there are some questions we can legitimately ask of the OBR itself.  If it is genuinely independent – and that was the point of creating it – why is it housed inside the Treasury?   Why are its members appointed by the Chancellor?  Why do they report directly to the Chancellor? 


The Treasury is trying to tell us the OBR is independent, but that it needs to be privy to ‘budget secrets’, and therefore it must have ‘a close working relationship’ with the Treasury.


It’s independence, then, but not as we know it.


Presumably it’s the same independence that prompted the OBR to rush out revised employment figures minutes before Prime Minister’s Questions so that Cameron had some ammunition in his back pocket with which to defend Harriet Harman’s attacks on the job losses.  Poor Harman was left flapping in the wind, armed only with the figures produced by the OBR the day before; she might have been forgiven for thinking an independent OBR would have tipped her off in the same way as it tipped off Cameron, but no.  And we all might have been forgiven for thinking that an independent OBR might have produced comparative figures on a like-for-like basis, but (as it now turns out) no.


A friend of mine in finance says that’s just politics.   Labour hid the numbers from the Opposition when it was in power; I should only expect the same of the ConDems.  But the economy is now the issue of our times, and the independence of the OBR is a key element of the Coalition’s justification for its choices. 


They repeatedly say their cuts are “unavoidable” and that the independent OBR backs them up.  On 7 June, David Cameron said  the OBR would “show the scale of the problem we are in today”.  (It didn’t really, as I have commented, but that didn’t stop Cameron claiming that it did.)  The narrative is all.  There’s an almighty mess, the narrative goes, and if it’s anyone’s fault, it’s not ours – it’s Labour’s.


For instance, the Education Secretary, Michael Gove, has cancelled 700 school building programmes.   He may be sorry about having issued erroneous lists of the damned, but for the the decision itself, he is unapologetic.

“You’re right, there are some buildings which are in a shocking state, and I wish that we could invest in improving them, but the reason that we can’t is because the Labour government… Ed, Alistair Darling and Gordon Brown left us in this dreadful position….  This is Labour’s legacy….We are the people clearing up the mess…”  (BBC Newsnight)


The mystery is that we are buying the narrative.  We aren’t complaining.  We aren’t rioting in the street.  The British people and our political pundits are in a weird post-General Election funk; licking our World Cup wounds, still hungover from the will he, won’t he? of Wimbledon.   We’re in a coma.   We’re in Ashes to Ashes except that the 1980s and the 2010s are starting to look horribly similar.   While in this state, dear friends, do not drink, drive, or operate machinery.


The plain truth about the cuts is that they are too hard, too fast.  They are going to cause serious short-term pain.  And if the breadwinner in your house loses his or her job, or your school is one of those that’s falling down around your ears, that’s real short-term pain – with long-term consequences.  Lost skills can be lost to the economy forever; broken dreams can throw an individual off-course for a lifetime.  Real lives are not political footballs.  The Class of 2010 is buggered before it even brings its books home from university, because the Class of 2009 is still looking for work.  There are now 70 applicants for every graduate vacancy.


But even if you think some short-term ruining of lives might be worth it, the long-term gain is not going to happen.  The economy will contract, and the OBR’s forecast growth will not materialise.  Why?  Because the government has bailed out of the UK, shouting “the ship has sunk and it’s Labour’s fault”.  Yet it hopes private enterprise will jump on board, attracted by – what?  Lower rates of corporation tax?  Would you hope to make a profit selling in this market?    Lower tax on profits – which is what CT is – doesn’t help you if there are no profits in the first place.  Private enterprise looks to government for stability and security before it invests.  I don’t think I’ve heard, in my lifetime, a government so negative about its own economy.  (My finance friend assures me this is just the management of political expectation; trouble is, the private sector will be listening too.)


When the economy contracts, tax receipts will automatically fall.  Outgoings on dole and benefits will automatically rise, no matter how mean-spirited the regime, as hundreds of thousands lose their jobs.  Less income for the government, and more expenditure.   That means a bigger deficit.   The “unavoidable” choices of this government are just going to make everything worse.


Who says the cuts are too hard and too fast?  Well, obviously Labour, but then they would, wouldn’t they? 


But then what about the world’s largest bond house, Pimco?  (Don’t forget it was supposed to be the markets who were going to destroy us if we didn’t make these “unavoidable” cuts.)

“There are parts of Europe where austerity wasn’t called for immediately,” Scott Mather, Pimco’s head of global portfolio management, said, using the UK and Germany as examples.

He said a double-dip recession in Europe was a “growing risk” and maintained that Pimco’s “underweight position” on both the pound and the euro was justified.  (Telegraph, 2 July 2010)

 

What about the CBI?  (Don’t forget, the CBI is the donkey that hee-haws dutifully every time the Tories flick their whip.)

The CBI said of the recent additional emergency cuts the move was “disappointing” and called on George Osborne to give capital spending a higher profile in the second half of the parliament.

“Capital investment is crucial to driving the economy forward and the government needs to make sure we get back to the long-run average of 2.25% of national income as soon as possible.”  (Guardian, 4 July 2010)


What about the nation’s Finance Directors, 40% of whom are now fearing a double-dip recession?

  

What about the CIPD predicting 3m unemployed by the end of the year?

  

What about the Chartered Institute of Purchasing & Supply?  Their latest services survey shows that business expectations dropped to a 15-month low in the single biggest month-on-month fall ever recorded.

 

Does any of this sound to you like a world you’d want to invest in?  Would you buy shares in UK plc with these guys on the board?

 

I thought not.  So, back to the OBR: I’m confused by its forecasts.

 

The OBR is still predicting overall employment growth despite the dramatic reductions in the public sector.  This means the private sector will have to grow not just well, but like it has never grown before.  For the OBR to be right, the private sector will have to generate two million jobs in the next five years – an unprecedented number.

 

Go figure.  Or, like Sir Alan Budd, go retire.

 

The OBR’s credibility is in pieces, and with it the credibilty of the ConDems’ economic position.  The economic innocence the ConDems tout round town is disingenuous.  But it doesn’t seem to matter.   This is a government running a sweet line in “not me, guv” and, so far, getting away with it.  

 

Nor does it matter who runs the OBR next, because the thing is a misnomer.  It exists not to create responsibility, but to enable the Coalition – by appealing to ‘independent’ figures – to shirk it.   It is the Office for Blame Reduction, an instrument of hypnotic induction.   Under the guise of innocent cleaners, sweeping up an inherited mess, the ConDems are dismantling the welfare state, conducting a rapacious assault on the nation, all for the sake of some ideological small-state credo.

 

If – or rather, when – it doesn’t work, that’ll be some Other Bugger’s Responsibility.

 

 


Shock report reveals truth on economy

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16 June, 2010

 

I’m pleased to say that, pretty much, my prediction was wrong, and the press and broadcast media did not embarrass themselves by misrepresenting the OBR report.  No shock horror headlines.


The front pages were varied, covering the imminent Bloody Sunday report and the BP debacle, alongside Nick Clegg’s ugly assault on public sector pensions.


The Daily Mail succumbed to a front page diatribe, screaming about the OBR’s “devastating analysis” but by and large, nobody was fooled by the spin.  Indeed, some commentators were saying that the OBR’s figures were “too rosy”, which I think means they didn’t discredit Labour in the way that some had hoped.


None of which stopped George Osborne shaking his fists and saying, “never again will a government be allowed to fiddle the figures.”


Comments like that, in the teeth of the evidence, are going to seriously undermine Osborne’s credibility.  They’re also old, old, old politics.  There is still room for Labour to answer the public’s call for more decency in the way Westminster goes about its business.


Which is why we need a new Labour leader now, not in September.


Speaking of which, there was much complaint online about Newsnight’s poor production values, and Paxman’s chairmanship of the Labour leaders’ debate.  Ed Balls was surprisingly winning.  Andy Burnham was cruelly described online as looking like a Thunderbird puppet (Troy!).  Diane is Diane, and if you like her, you’ll still like her after that performance – but if you don’t, you’ll be feeling unmoved.  Ed M looked like somebody’s younger brother, and I know how that feels.  David Miliband is the next leader, that is very clear.  At one point he spoke, quite effortlessly, on behalf of the whole panel.  He’s just got it.


The prospect of months of further hustings fills me with dread; there is no need for prolonged introspection.  Look how fast the Coalition moved to get itself into No 10.  With a new leader, Labour can move fast too.  In these crucial months, while Labour wonders who said what to whom in Cabinet, and the candidates mess about on swings, the Coalition is getting away with murder.


The OBR report didn’t do it, but there IS a new report out which damns the Government.  But it damns the new Government, not the old one.  The Chartered Institute of Personnel and Development (CIPD) was forecasting unemployment of 2.65m this year.  In the light of the Coalition’s emphasis on public sector cuts, they have revised their figure upwards to 2.95m.


Between friends, let’s call it 3m.  Unemployed.  This year.


It begins.

The cuts bandwagon

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14 June, 2010


The excellent Larry Elliott – Economics Editor of The Guardian – warns that the ‘Deficit Hawks’ need their talons clipped.


It is clear to him, as it is to me, that the current clamour for cuts at all costs is either economically naive, or politically wilful.  Is “the real agenda to finish the demolition job on the welfare state that began in the 1980s”?


Mr Elliott asks why the economic literates in government aren’t piping up to stop the madness.  Where is Vince Cable?  Where is Chris Huhne?


Good questions.  We are sleep-walking with Europe and the rest of G20 into another recession, but this time it will be entirely self-inflicted.


Today, the newly-created Office for Budget Responsibility (sounds Pythonesque) produced some really quite boring figures.  See for instance the summary by the BBC’s Stephanie Flanders.


I even bothered to look at the report itself.  Interestingly, it is based on the old Goverment’s policies, not the Coalition’s.  That makes it, already, hideously out of date.   I wonder how much it cost to produce a document based on a reality which already did not pertain even when it was commissioned?


Given the report’s built-in obsolence, if I were George Osborne, I’d be hoping for some really juicy ammunition to come out of it.  But sadly for him, it is lacking in tidbits.


Growth predictions are down a tiny bit from Alastair Darling’s numbers.  Eg, he predicted 3.5% for 2011, and based his maths on a conservative 3%.  OBR is now forecasting 2.5% growth.  But many other figures are now predicted to turn out better than predicted under Darling.  The net effect of these revised predictions is pretty much nil over the five years: OBR predicts a rise in the structural deficit by 2015 of only 0.3% of GDP – less than £5bn.


Stephanie Flanders reports that Sir Alan Budd and the authors have conceded, on questioning, that:

“that 2015 figure means that the OBR does think that Labour’s policies would have eliminated a large part of the structural deficit by the end of the next Parliament. The OBR expects it to go from 8.8% of GDP in 2009-10 to 2.8% in 2014-15.”


So, basically, no news in these figures at all.


Let’s see how tonight’s news reports the figures, then.  Let’s see how tomorrow’s papers headline them.


Call me cynical, but I’m guessing: doom and portent.


Mr Osborne, predictably, claims: “It’s damning evidence that the mess the previous government left behind is even bigger than we thought”.


But elsewhere, I’m already seeing:


“The OBR report strengthens the case for cuts.”


“Britain’s debt levels rising faster than expected.”


“UK has bigger fiscal hole to fill.”

  

Some of that is of course to be expected.  What worries me is it’s everywhere.  Even The Guardian, in which Mr Elliott complains about the deficit hawks going unopposed, is on the band-wagon.  Mr Elliott’s on page 27.  Here, meanwhile, is the front page:



So whatever the press says tonight and tomorrow, don’t be fooled.  The markets weren’t. 


Following the report’s release today, the pound rose against the dollar.


 


Thatcher’s Children

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9 June, 2010



 



When I helped Labour with this Eddie Izzard video for the election, I worried a little about the baldness of the ‘same old Tories/Thatcher’s Children’ line.  I felt the Tories were probably a bit more reconstructed, a bit more compassionate, than they were being given credit for.  I confess I was sold, just a teeny bit, on the notion of the ‘modern Conservative Party,’ as David Cameron kept calling it.  I wondered how right it was to hark back to the folk-memory of the 1980s.  Was the retro attack necessary?


It’s good to talk


On Monday, Mr Cameron stood up to warn us just how bad things were going to get, cuts-wise.  I liked one aspect of it.  I liked the fact that he wants to have a dialogue with the nation about economics.   That has to be a good thing.  Mind you – without checking the media forensically – it seems to me that there isn’t much debate going on about overall economic strategy.  There is, however, quite a bit of chat about ‘what could go’; micro-debate which tacitly accepts that the overall argument for austerity measures has been won, and focusses instead on whether or not ministerial walking to work actually saves money, or whether the St George flag can be run up the flagpole during the World Cup for minimal cost.


At least David Cameron entertained the macro debate on economic policy, and we don’t get much of that in the UK.   But, while it’s good to talk, unfortunately, the content of his argument – as opposed to the fact of it – really bothered me.  And, though I was planning to comment less on politics, as this dismal week rolls on, I’m feeling more and more bothered.


Do you really want to hurt me?


Cameron harangued Labour again.  So much for the New Politics the Coalition promised us.  Every time these guys open their mouths, it is to slam Labour.  Is it that they really want to hurt us, or is it that Labour are a soft target at the moment?  I’m beginning to wonder whether it was right to create such a long campaign window for the leadership election.  We need a new leader to marshall a proper Opposition, fast.


Gold!


Mr Cameron gave the impression that, now he’s looked under the bonnet, the country is in a bigger mess than he realised.  He said hitherto unpublished Treasury figures revealed Britain could be facing an annual interest bill of £70bn on debt in 2015.  He struck gold finding that figure.  Has anybody got the detail on it?  It probably has a dozen assumptions built into it – e.g. borrowing continuing to grow,  interest rates rising, blah blah.  Especially as this was the only new figure he revealed, we need the detail behind it.  I haven’t seen anybody explaining or challenging this number.  But I’d bet the Treasury has any number of worst-case forecasts for 2015, and that this is only one doomsday scenario.  And there may well be any number of rosy scenarios too, in the same Treasury vaults.


In the absence of detail for a projected figure, it’s a shame he made no mention of the latest actual figures, which showed that borrowing in fact came in many billions less than forecast.  See my earlier comment.   Nor did Mr Cameron mention that growth results came in (slightly) above forecast.


What he did say was that the impending cuts are going to be very bad, and would affect every man, woman and child in this country.  It was sobering stuff, and gave some commentators the willies.  Playing sweetly into the Tories’ hands, they asked “does this mean all bets are off?  All the ring-fencing you promised during the election – all those promises?  You can’t keep them now, can you?”


I’m sorry, but I want to see more evidence than this putative “£70bn in 2015” figure before I let anybody off the hook on their election promises.


You’ve got an -ology!?


Once he had frightened us all with the £70bn figure, Cameron relaxed into his ideological position, repeatedly quoting the contraction in the private sector relative to the public sector.


“And while private-sector employment fell in this period (since 2007) by 3.7%, public-sector employment actually rose. So it has been, if you like, a tale of two economies: a public-sector boom and a private-sector bust”


For Cameron, this is self-evidently wrong.  The private sector, in his world-view, is the ‘real’ economy, and the public sector is somehow phoney and unreal, even immoral.  The public sector crowds out the private one.  It is a cancer that needs to be cut out.  Just like a cancer, it needs early radiotherapy:


“And now, today, we’re all paying the price because the size of the public sector has got way out of step with the size of the private sector. We’re going to have to try and get it back in line and that will be much more painful than if we had kept things properly in balance all along.”


Cameron really thinks this is truth, not ideology. 


“We are not doing this because we want to. We are not driven by some theory or some ideology. We are doing this as a government because we have to, driven by the urgent truth…”


But anyone who has even a basic knowledge of the dividing lines between economists will know that it is indeed a question of ideology.  Any economist will tell you that in a recession the private sector will contract faster than the state sector; that is inevitable.  Any Keynesian economist will tell you it is also desirable – it is beneficial that the state sector stays large to compensate for the private sector running scared.  Indeed the same economist is likely to tell you that the goverment should deliberately expand its spending for the same reason.  It’s nothing new.  It’s called fiscal stimulus.   When markets collapse, guess what?  We need governments to intervene.


Cameron would have us believe that government is, axiomatically, the problem.  It’s a story that only really plays for the fit, the strong, the economically self-reliant.   Fine if that’s you.  Fine if you’ll always be that way and never need help.  Fine if you live in a gated community away from others not so lucky.  For the rest of us, it’s a horrible and frightening piece of ideology.


Ashes to ashes


The ‘sovereign debt crisis’ is the perfect excuse to abandon the compassion the Tories espoused under Cameron in opposition.  It has an ash-cloud quality to it; it feels as if it is some external thing we have no choice but to respond to; it is the unavoidable reality of the international market in government debt.   Chin up, Dunkirk spirit; we can’t fly for a bit, but we’ll survive.  Where Labour failed to convince the nation that the global economic meltdown was exogenous, despite it being true, the Coalition seems to be able to appeal to the global markets and get away with it.   They are defter politicians than Labour under Brown.  They seem to have convinced us that unless we cut off our own legs, the global financial markets will do it for us, and take our arms for good measure.


“The global financial markets are no longer focusing simply on the financial position of the banks. They want to know that the governments that have supported the banks over the last 18 months are taking the actions to bring their own finances under control.”


I’m not entirely sure it’s true.  Whilst my friend in the hedge fund game tells me the markets fear that if governments aren’t reliable, ‘there’s nowhere left to run’, I can’t help wondering what will happen if all Western economies vie for pole position in the self-flagellation stakes.  Investors have to invest somewhere; assuming we all take the same action, relatively speaking nothing will change.  It’s only if other nations do it and we don’t that we’ll become relatively less attractive.  There’s an element of ‘satisfying the markets’ that’s like a financial nuclear arms race; cripplingly costly, and hard to justify to our children.


What’s true, and terrifying, is that the mood in Europe, the mood of the G20 and the IMF – until now laudably pro-stimulus – is beginning to swing towards panic and retrenchment.  (Notice, by the way, how the Tories seize upon this shift – exaggerating a modest change of language in Osborne’s favour at the Korea meeting – without realising they are exposing just how isolated they were on the economy only weeks ago.)  Nerve, it seems, is not going to be held.  If everyone caves and rushes to slash their budgets in an austerity race, nobody will be able to export their way out of recovery.  Other countries won’t be buying.  At the same time, domestic demand will contract as net government spending reduces.  No one to sell to, home or abroad.  The interlinked economies of Europe and the Western world will wilt together like so many flowers in a field.


Do you really want to make me cry?


Presumably, if the Tory ideology is correct, this won’t matter.  As long as the dirty bathwater goes – that nasty, polluted, immoral state spending on doctors, nurses, hospitals, child tax credits, Sure Start, pensions, tv licences for the over 75s – flush all that away, then the pain will have been worthwhile.


The 1980s are back.  Be afraid, as Eddie Izzard says.  Be very afraid.