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UK Housing Crisis

Awkward Intervention

Posted by: Mason, September 2, 2010

House prices fell for the second consecutive month in a row in August, the first consecutive fall since February 2009. Prices fell 0.9% last month, following a 0.5% decline in July, leaving the average house price at just over £166,500. Nationwide’s Chief Economist and author of the report, Martin Gahbauer, suggested that raised supply in the market had led to the falls: "Given that the price increases of the last year had gotten ahead of the recovery in the wider economy, the current correction is not an unhealthy development."

The annual rate of house price inflation fell sharply from 6.6% in July to 3.9% in August. Although falling prices would normally be welcomed by first-time buyers, their attempts at getting on the property ladder are being challenged at present by the large deposits being demanded by lenders. Meanwhile, figures from the Bank of England show that the number of mortgages approved for UK home buyers was barely changed in July at 48,722.

The figures reinforce data from lenders and surveys which suggest that prices have reached a plateau after the revival that started in the spring of 2009.

The Bank's figures show that in July, the number of mortgage approvals was just 160 higher than in June and only slightly higher than the average recorded in the previous six months.

While lenders continued to severely ration their loans to house buyers, net mortgage lending rose by only £86m in July - one of the lowest monthly increases on record. A degree of caution is, no doubt, being exercised, in light of the immediacy of the October spending review.

According to the National Housing Federation (NHF), house prices in England will dip again next year by 3%, before steadily climbing thereafter. The federation expects prices to be 22% higher by 2015 than they were in 2009, bringing the average price of a house to £226,900.

"A combination of circumstances in the market has made it very, very difficult for house prices to recover" NHF Chief Executive David Orr told the BBC.

(The real problem here) “is that we've created a kind of perfect storm where there is negative equity for some people and they're trapped and can't move, but prices haven't come down enough to make buying a home a realistic option for people in their 20s and 30s in ordinary jobs - We really are in danger of pricing people out of owner-occupation."

He also criticised Government decisions to scrap regional house-building targets and withdraw funding for affordable housing – something Mason has previously argued against.

"Proposed caps on housing benefit payments could also put nearly a million people on low incomes at risk of losing their home," he added.

Banking

Impossible Profit

Posted by: Mason, August 31, 2010.

The Government could make a minimum of £30bn profit in the wake of the bailout of British banks during the financial crisis, according to an analysis published today.

The Treasury’s liabilities could have, at the height of the crisis, extended to some £850bn, prompting anger and resentment toward the sector and the then Labour Government from many quarters of the public.

However, if equity prices rise in line with predicted economic growth over the next five years, a profit of around £19bn will be returned to the taxpayer by 2015, according to The Banker magazine. At least a further £8bn will be due from fees for loans, bond guarantees and the asset protection scheme (APS) set up by the Treasury in 2009 to restore confidence in banks.

Lloyds paid £2.5bn in fees to join the APS, but did not participate, while losses at RBS are unlikely to be large enough for the bank to call upon the guarantee of taxpayer money, for which it has so far paid £1.4bn. UK taxpayers are, at present, breaking even on their 83% shareholding in Royal Bank of Scotland and 41% of Lloyds TSB, when dividends and other earnings are taken into account.

This estimate, while a welcome vindication of the bailout, assumes that the Government’s shares in the banks will be sold by 2015 – the potential profit could be significantly higher, if the bank’s share prices continue to recover thereafter – as is widely expected. This fact was often overlooked at the height of the crisis, despite many references by the then Chancellor Alastair Darling.

Further evidence, if it were ever needed, that the severity of the UK’s budget deficit is being exaggerated by the coalition, in order to win support for severe austerity measures…

UK Housing Crisis

Black Clouds

Posted by: Mason, August 21, 2010.

House prices fell in July for the first time since February. So far in 2010, demand from homebuyers has made little progress in building upon the recovery seen during much of 2009. An opportunity then, for Government intervention to address the UK’s chronic housing shortage?

Not so, it seems, as that shortage, already exacerbated by the decimation of the construction industry during the recession, looks set to worsen in the coming year, as a Government shift in planning policy has seen, in only two months, councils reject projects that would have delivered more than 7,500 new homes, according to Financial Times research.

In a statement to the House on July 6^th, the Secretary of State for Communities and Local Government, the Rt Hon Eric Pickles MP reiterated the Conservative manifesto’s pledge to revoke and then abolish regional strategies, stating that “new ways for local authorities to address strategic planning and infrastructure issues based on cooperation will be introduced”.

Local planning authorities will now assume the responsibility of the RSS for establishing the level of local housing provision and identifying a long term supply of housing land, effectively opening the door to a review of local authority housing targets.

This uncertainty has since been cited as the basis for the rejection of a number of schemes across the country, including a plan for 1,200 homes in Newmarket and 2,000 homes in Winchester. In all, projects set to deliver over 7,500 new homes across the UK have been cancelled as a direct result of the legislative intervention.

The coalition Government has promised an incentive system whereby councils will, for six years, receive matched funding for any new council tax revenue generated from the building of extra homes. This does not, however, recognise the magnitude of the situation.

The IMF recently calculated the share of the increase in real house prices in the UK over the last ten years that cannot be accounted for by fundamental factors such as lower interest rates and rising incomes. This “house-price gap” suggests that prices are about 30% higher than can be justified by fundamentals. There is a real risk that this gap will widen yet further in the coming years.

The assumptions of the Department of Communities and Local Government suggest that new households are projected to increase by, on average, 252,000 each year between now and 2031. The peak of housing completions came in 2007/2008 – just before the financial crisis hit the construction sector – 168,140 homes were completed, still some 84,000 less than would be needed to satisfy demand and maintain house prices. In the financial year to April 2010, only 113,420 new homes were completed – a deficit of some 139,000 homes. More troubling, is the number of housing starts in that period – only 87,360. There is a clear and present risk of further house-price rises in the coming years.

Policy makers must realise that while foreign reserves and investment in the World’s capital markets and irresponsible bank lending were undoubtedly responsible for the last recession, neither would have had anything like the same impact were it not for house-price rises giving UK savers ‘collateral’ to borrow off.

It seems that while the storm may have ended, black clouds still shroud the horizon; Mason wonders who, if anyone in Whitehall, has noticed…

Austerity Consensus

Bucking The Trend

Posted by: Mason, August 19, 2010.

A former member of the Bank of England’s Monetary Policy Committee, David Blanchflower, has today suggested that taxes, not spending, should be cut in the present climate, in order to stabilise the economy.

Mr Blanchflower recommended a reduction in employees' National Insurance contributions (NICs) from 11pc to 5pc for two years and across all income groups, effective immediately, that would stimulate spending and fuel growth. "This would encourage individuals to spend more, and companies would boost hiring because of the lower price of labour," he said.

"The danger is the Coalition's policies will push the economy back into recession... Cutting public spending and raising taxes at this point in the cycle is inevitably going to lower economic growth and raise the number of jobless. (We must) revive economic growth (which would0 probably reduce the size of the budget deficit in the long run as it would increase Government revenue"

The scrapping of the coalition’s ‘emergency’ Budget and awarding workers a two-year tax ‘holiday’ on NICs, public spending would increase by an estimated £28bn this year and £35bn in 2011. The extra borrowing required would drive the budget deficit above its current forecast of £149bn this year and £121bn in 2011.

In a column for Bloomberg, Mr Blanchflower said his biggest concern is the recent plunge in household and business confidence and urged ministers to stop "talking the economy down". "Energy Secretary Chris Huhne said the UK economy is 'bankrupt' and 'shattered', which it clearly is not," Mr Blanchflower stressed.

Alistair Darling, the Shadow Chancellor, has also repeatedly warned that the risk of a "reckless style of austerity economics, has always been that it will hit confidence and hit jobs".

Mason has repeatedly warned of the risks to the economy that severe budget cuts present, but must repeat his admiration for the central tenet of the Coalition’s budget – to eliminate the structural budget deficit. The difficulty this presents, is that there are significant price pressures on businesses at present – many expect to raise their prices in the coming year. This, coupled with stubbornly high inflation, presents a real risk that families (and businesses) disposable income (cash flow) will take yet another hit. The private sector is still far too reliant upon Government spending for a withdrawal of such stimulus to do anything other than return the economy to recession.

Moody’s Investors Service recently suggested that, at present, the top AAA ratings of the United States, Great Britain, France and Germany are well positioned. Yet, the credit ratings agency also warned of an increased possibility of a downgrade due to the need to revive growth, at a time when fiscal stimuli are effectively no longer available; regain or preserve access to affordable funding through credible medium-term fiscal adjustment programs and the limited amount of time that Governments have to confront problems such as aging populations.

There is a balance to be struck between deficit reduction and growth inducement.

In this light, Mason believes that the supposed ‘urgency’ with which the budget deficit must be cut, is nothing other than political theatre – a media strategy to win support for the severe measures now being implemented. The grave risk to the economy now, is that if it does fall back into recession as a result of the austerity measures, there will be no Government stimulus to reverse this decline.

There were at least three measures that should have been taken in order to avoid this eventuality. Firstly, the withdrawal of the NI increase, to be replaced with a VAT increase was a mistake. The UK’s employment figures held up well during the recession, thanks to the flexibility of the workforce and would arguably, have been able to cope with a NI increase. Inflation, however, has remained high throughout and is the central danger to recovery – a VAT increase will only worsen this problem in the short term – this increase should have been significantly delayed.

Government spending cuts should have been delayed until at least April 2011. This may have given the business community time to recover from the recession and reinforce the fragile growth witnessed thus far.

Mr Blanchflower’s suggestions, whilst seemingly extreme, do actually serve to highlight the key threat to the economy at present – a message then, that shouldn’t be ignored.

Global Economy

Contained Recovery

Posted by: Mason, August 18, 2010.

Signs of strength appear to be creeping back into the global economy, as the use of shipping containers, a bellwether for global growth, surpassed the record levels seen in 2008.

Boosted by the movement of goods to and from emerging economies, Maersk Line the world’s largest container carrier, reported a 13 per cent year on year increase in volumes on long-distance routes served by its ships; services between Asia and North America saw an 11 per cent increase and those to and from Latin America saw an 18 per cent improvement.

The recovery in trade has been so extreme, that Maersk and several other lines have struggled to cope with the demand. However, the increased volumes have pushed up rates per container shipped by as much as 30 per cent, thus boosting the profitability of lines; Maersk is forecasting net profits of more than $4bn for the coming year.

Immigration

Limited Options

Posted by: Mason, July 30, 2010.

According to the BBC, Britain now exports more to the Irish Republic than it does to Brazil, India, Russia and China combined. With this in mind, it seems logical that, in order to rectify the matter, the British Government would direct every available resource toward further developing trade relations with nations such as India.

Not so it seems, as the Prime Minister’s first trade mission to India has been dominated by the coalition’s foolish proposal to cap the number of skilled workers entering the UK.

David Cameron likes nothing more than to pontificate about Britain’s broken society and its failed immigration policies. The answer, we are told, is to cap the number of immigrants entering the UK, thus releasing the pressure on front line public services such as the NHS and schools.

Interestingly though, the largest categories of immigrants that enter the UK are EU nationals (who are entitled to come to the UK without a visa because of the UK’s membership of the EU) and relatives of people settled here (because the right to family life is recognised by the European Convention on Human Rights (ECHR), to which the UK is a signatory). Short of taking the UK out of the EU and annulling the UK’s signature to the ECHR, there is nothing that can be done about such migration.

Introducing a "cap" — whether temporary or permanent — on highly trained and highly skilled workers only, is nothing more than political theatre if the end goal is to reduce overall levels of immigration. There were 590,000 migrants to the UK in 2008; within that, the number of highly skilled workers admitted last year to take up positions of employment was around 93,000.

The only conceivable impact of the announcement of a cap on immigration numbers, is to reinforce the perception that unemployment and bad housing are caused by immigration — and that is useful in ideological terms for a Government that is causing unemployment and poverty through excessive spending cuts and halting the building of social housing.

More worrying still, is the fact that through the limits to entry placed upon highly skilled immigrants, the Government are actively reducing the ability of business to grow the UK out of recession, by depriving them of the competitive advantage offered by the flexibility of the UK’s labour market.

This all leaves Mason rather confused – a Government that swept to power promising to ensure that business will lead economic recovery when private sector stimulus is withdrawn has so far abolished the Infrastructure Planning Commission – the body that fast-tracks large-scale infrastructure projects that would otherwise be bogged down in local authority bureaucracy, eliminated the annual investment allowances for high-end, high-technology manufacturers, withdrawn public sector stimulus in this financial year despite repeated pleading from business that the recovery has yet to take hold and enforced a cap on highly skilled migration to the UK, meaning that UK firms that cannot recruit locally must now scale back plans for investment and expansion. One wonders what might have happened if the coalition were not pro-business…

House Prices

Solid Foundations

Posted by: Mason, April 30, 2010.

House Prices rose by 1% in April, according to Nationwide, meaning that the annual rate of inflation has moved into double figures for the first time since June 2007.

The average price of a UK property has increased by 10.5% since April last year, and now stands at £167,802; the latest increase follows a similar rise in March and suggests the market is starting to pick up after a slow start to the year.

While still 10% below their October 2007 peak, recent Economist research suggests that house prices in the UK are overpriced by some 30%, indicating that the pre-recession housing bubble has yet to burst.

Nationwide's Chief Economist, Martin Gahbauer, believes that since the strong rebound in prices over the past year had taken place when the mortgage market was subdued, these figures implied that it was a lack of stock, rather than an increase in cash buyers that was driving the market.

"The importance of cash buyers in the market started to decline at exactly the same time as house prices began the strong rebound that has lasted up until the present day," he said.

"Rather than a surge in cash buyers, the more important driver of rising house prices has been the low level of stock for sale, as many homeowners and buy-to-let landlords continue to wait for prices to recover to peak 2007 levels before deciding to sell up or move."

This paper has continually warned of a lack of supply in the housing market and advocated a £6bn home-building scheme as part of the Government stimulus package, issued at the height of the recession. With close to two million on the waiting list for social housing and an obvious lack of supply in the market, a key underlying threat to the economic recovery remains the continued inflation of the housing bubble, particularly when one considers that this bubble was a key driver of the last recession.

In light of the Government’s failure to address this matter as part of the stimulus, house building was decimated by the recession and while firms are beginning to recruit again, the pace of construction is still far inferior to the levels required to keep pace with demand.

It would seem that there is a lack of political will to address the matter with any kind of urgency, as each leader failed to acknowledge the severity of the matter when directly questioned in last night’s final television debate. There is merit in the Liberal Democrat proposal to renovate dilapidated houses, a measure that would also aid the regeneration of inner cities, however, this will not go far enough.

That said, any kind of scheme to boost house building looks unworkable at present, given the state of the nation’s finances. There is, however, an economic case for protecting existing spending on housing in the short term, over and above the need to protect the NHS, schools and policing, as most of the parties have pledged to do.

National Insurance

Serious Questions

Posted by: Mason, April 22, 2010.

Two of the signatories to a letter supporting the Tory proposal to scrap Labour's rise in national insurance have been nominated to become working peers by the Conservative party.

Simon Wolfson, the chief executive of Next, has donated £238,250 to Conservative central office since January 2006, in seven donations. He was reported as one of the leading figures behind the round-robin letter calling for Labour's increase in national insurance to be scrapped and for efficiency savings to be found instead. He has worked closely with the shadow chancellor, George Osborne, in developing the Conservatives' economic policy.

Sir Anthony Bamford, chairman of construction equipment maker JCB, has given the Tories more than £1m over the past five years either in his own name or through the family-controlled firm, according to the Electoral Commission. He has also given money to the shadow cabinet.

As my previous post contests, it is important not to recognise partisan rhetoric as informed opinion – particularly in an election year. Like last week’s debate, this election has once again seen politicians and the media avoid giving serious answers to serious questions, in the hope that what they do say upsets as few as possible. It is clear that signatories of the National Insurance campaign, such as Mr Wolfson and Mr Bamford, must not be identified as impartial and that politicians now begin to treat voters with the respect that they deserve. Tough decisions must be made to bring down the budget deficit before it becomes more expensive for the UK to borrow.

There is mounting evidence to suggest that households are seeing disposable income decrease further, despite the return to growth for the economy as a whole and this must now be acknowledged as a key risk to future growth. In light of this, any proposals to increase VAT in the short term must be met with derision (though this must feature as a deficit reduction tool in the medium term) and while National Insurance rises are not ideal, there appears to be underlying strength in employment figures that suggests that by April 2011 (when the rise is set to take effect), the economy will be able to stand the burden of this tax rise.

Unemployment

A Strong Directive

Posted by: Mason, April 21, 2010.

The number of people unemployed in the UK rose by 43,000 to 2.5 million (8%) during the three months to February, according to ONS labour market statistics released today. This is roughly in line with projections of a peak in unemployment this year at something like 2.65 million, before falling gradually throughout 2011 and again demonstrates that there is underlying strength in the labour market that will form the foundations of the recovery.

The figures also showed a record number of part-time workers, once again demonstrating the benefits of legislation such as the part-time workers directive and the work undertaken by agencies such as JobCentre Plus, that have increased the flexibility of the workforce, thus offering some form of employment for those that would have been unemployed in previous recessions.

The figures also show the continued increase in public sector pay, at a rate that is double that of private sector and highlights the urgent need to address public sector pay and pensions as a major part of the deficit reduction program.

Inflation

Trouble Ahead

Posted by: Mason, April 20, 2010.

The Governor of the Bank of England, Mervyn King, is set to write to Chancellor Alastair Darling for the second month in a row today, to explain the jump in inflation from 3% in February, to 3.4% in March.

The Office of National Statistics (ONS) released their latest assessment of inflation this morning, suggesting that the Consumer Price Index (CPI) jumped 0.4 per cent while the Retail Price Index (RPI) rose to 4.4 per cent, up from 3.7 per cent in February.

While inflation is expected to return to its target level of 2% during the course of the year, the escalation of this temporary increase has come as a shock to many economists, who expected the surge, largely due to VAT returning to its 17.5% level in January, to recede from its February ‘peak’.

The ONS believe that March’s increase came from low petrol prices in 2009 (compared with the present high of £6 per gallon) and also reflects the 1 per cent drop in inflation in March 2009, while the RPI rise was mainly driven by mortgage interest payments. It would also appear that the weakness of sterling has forced firms to raise the prices of their imported goods – a demonstrative weakness in the principle that the UK will experience an export-led recovery, in spite of its import-based economy.

The figures will also complicate the options available to a Government that already has to contend with the conflicting aims of reducing the budget deficit and growing the economy. With prices now rising faster than wages, the initial impact of the higher inflation figures reinforces the serious threat to the economy - highlighted by this paper on a number of occasions – of the continued squeeze on disposable incomes that will suppress demand, rendering unrealistic, Conservative proposals to increase VAT, a tax on consumption.

National Insurance

Cuckoo in the Nest

Posted by: Mason, April 02, 2010.

So, a further 14 executives joined the formal discourse against the national insurance rises, started yesterday by 23 of the nations most prominent businessmen, including Marks & Spencer chief executive Sir Stuart Rose, Sainsbury's boss Justin King and easyGroup's Sir Stelios Haji-Ioannou.

In a letter to the Telegraph, the business leaders said the proposed NI increase was an "additional tax on jobs" and would come into effect "at exactly the wrong time in the economic cycle".

Conservative leader David Cameron called it a "significant" moment in the election campaign, coming shortly after his party’s proposals to scrap the rise came under fire during the recent televised Chancellor’s debate.

This paper has gone to great lengths to suggest that while the national insurance rise is not ideal, it is more preferable than a rise on VAT, with consumer confidence fragile, poor retail figures, rising food and fuel prices and inflation in excess of 3%. The average family is experiencing a further squeeze in disposable income, that is set continue throughout the rest of the year. Last week’s budget saw a staged introduction of the planned rise in fuel duty and is a far more effective “tax cut”, though still costing some £550million.

This and any future Government has so little room to manoeuvre within a £167bn budget deficit, that any opportunity to save money needs to be taken – this means that a responsible Chancellor should be making any efficiency savings possible and introducing modest tax rises.

It is surely no coincidence that, with an election round the corner and the once commanding Conservative polling lead slipping, that a large number of business leaders have come out against a tax rise that is proving central to the election campaign. It must also come as no surprise that the vocal opposition to the rise has come from those who have an obvious incentive for opposing something that will cost their companies money.

Eight of the executives have donated money as individuals to the Conservatives in the past and over a dozen of them have previous links to the party.

We must be careful then, not to recognise partisan rhetoric as informed opinion.

National Insurance

The Real Debate

Posted by: Mason, March 29, 2010.

Chancellor Alastair Darling clashed with Conservative counterpart George Osbourne over tax cuts in last night’s inaugural chancellor’s debate. Broadcast on Channel 4, the debate, while never reaching an explosive level, proved to illustrate some of the key differences between the parties in the run up to the election.

Given the Conservative announcement earlier in the day of plans to block some of next year's planned National Insurance rises, it was inevitable that this was the issue to dominate proceedings.

Shadow Chancellor George Osborne pledged to scrap the 1% rise for those earning more than £20,000, describing it as "a tax on jobs and the middle classes" and suggesting that seven out of 10 workers will be better off. In order to pay for the £6bn-a-year cut, Mr Osbourne pledged to enact many of the Government’s efficiency savings with immediate effect, saying that the tax rise was the "wrong priority" and voters faced "five more years of waste, debt and taxes" under Labour.

Chancellor Alistair Darling announced two 0.5% increases in National Insurance to take effect in April 2011 - one in his 2008 pre-Budget report and one in 2009. They are central to the Government's plans to cut the budget deficit. Mr Darling retorted, "For the last year you have been saying that you needed to cut debt further and faster, and yet today, the first opportunity you had when you thought you had identified some savings, instead of cutting debt you have promised to change the National Insurance contributions," Mr Darling told him.

"You are spending nearly £30bn over a Parliament and you can't identify the credible way with which you can pay for that....That really is to take an irresponsible risk. It is poor, poor judgement."

Mr Darling’s position was supported by the Liberal Democrat’s Economic Spokesman Vince Cable, who repeatedly charged Mr Osbourne with "pledging lower taxes whilst cutting the deficit faster can only be paid for by dramatic cuts in spending which you have so far refused to spell out"

In January, two business groups urged the Government to scrap the rise in national insurance, arguing that it could endanger the economic recovery. The British Chambers of Commerce and the Chartered Institute of Personnel and Development (CIPD) said business would suffer from the extra financial burden which will hit any upturn in the labour market. Unemployment has fallen since that time and preliminary figures show that this trend is set to continue into the summer. While a NI rise in such a situation is not ideal, it is more preferable than a rise on VAT, with consumer confidence fragile, poor retail figures, rising food and fuel prices and inflation in excess of 3%. The average family is experiencing a further squeeze in disposable income, that is set continue throughout the rest of the year. Last week’s budget saw a staged introduction of the planned rise in fuel duty and is a far more effective “tax cut”, though still costing some £550million.

Indeed the NI rise is not set to be enforced until April 2011 and should leave sufficient time to entrench the recovery before its effects are felt.

The move to repeal the national insurance increase is significant, as the Conservative faithful have been crying out for a Tory tax cut to rally the party’s supporters and potential voters, at a time when the polls having been causing anxiety among the party’s high command. In this instance, one must question this motive for introducing such economic policy, particularly in light of the fragile recovery and urgent need to reduce the deficit. Party leader David Cameron has repeatedly called for deep cuts in Government spending to take immediate effect – such is the urgency required to reduce levels of debt, he claims. Surely then, plans to repeal national insurance rises worth £30bn over five years are diametrically opposed to the mantra touted by the party in recent months?

In this context, I refer to Mr Cable’s remarks at the end of the debate last night, where it was suggested that once in Government the Conservatives would "get their noses in the trough and reward their rich backers". A little excessive maybe, but one must question, that if Mr Osborne really has identified savings in Whitehall of £12bn in total, of which £6bn will go towards the NI cut, why has there not been a proposal to realise these savings and implement the national insurance increase over a temporary period of, say, five years, bringing in a total of some £18bn per year for the period.

When placed in the context of a budget deficit of £167bn and the requirement to reduce this by at least half (£84bn) over that period, surely Mr Osbourne must realise that in the long term, the extra taxes will reduce the impact of departmental budget cuts across the board and through this, the overall impact on the economy?

Obviously not…

Conservative Spending Cuts

When Easter Became Christmas

Posted by: Mason, March 28, 2010.

Conservative leader David Cameron yesterday insisted that there would be a limit to what his party could do this year to tackle the country's deficit - if it wins the upcoming election.

Cameron has previously remarked that his party would make faster and deeper cuts than the Labour Party to trim the budget deficit, expected to reach £167bn this year, but has begun to reverse his comments after voters showed concern at his “age of austerity” message.

"Well as I said, we can make a start," Cameron told BBC television. "I'm not going to give you a figure today, I'm not going to do that but we can make a start. I've said it can't be, you cannot do a huge amount in 2010."

Labour, which has said it will halve the deficit in four years, warns any cuts this year could damage the fragile economic recovery, preferring to wait until 2011. "Soon we will say what we think needs to happen early on in terms of some of these savings but ... there's a limit to what you can do in a budget in 2010, for the year 2010, not least because we have an election in May for instance, we have a budget in June," Cameron added.

"You're already quite a way through that 2010 year but you can make a start."

This paper is rather dubious of the notion that the month of May is quite a way through the financial year starting just a month previous, but fully endorses the new Conservative policy of limited cuts during 2010. As Labour Chancellor Alastair Darling has repeatedly said: “To go further or faster, I believe, would be to take an unacceptable risk with the economy and that's one I'm not prepared to take”

Budget aftermath

Departmental Efficiency Savings

Posted by: Mason, March 24, 2010.

I thought it might be useful to document some of the departmental efficiency savings announced today after the budget:

The Ministry of Justice will save £343m. Measures include cutting the cost of senior civil servants by 20%, saving £27m from Ministry of Justice quangos, abolishing 19 court boards and "rationalising" the London estate from 18 buildings to four.

The Department for Health will save £4.3bn. Measures include saving £1.5bn by cutting procurement costs, saving £555m by reducing sickness absence, saving £60m by using energy more efficiently and saving £100m from the IT programme.

The Department for Environment, Food and Rural Affairs will save £194m. Measures include saving £25m by cutting spending on consultants and saving £100m by cutting spending on items like finance and human resources.

The Department for Work and Pension will save £350m. Measures include saving £180m by getting better value out of major contracts and saving £40m in property costs.

The Department for Communities and Local Government will save £200m. Measures include saving £130m from back office, procurement, consultancy and marketing costs.

One department is not announcing cuts/savings. The Ministry of Defence has put out a press release saying its budget is going up in real terms.

Conservative Spending Cuts

That's What Advisers Are For

Posted by: Mason, March 8, 2010.

A senior adviser to the Conservative Party has today warned that the party could plunge the UK back into recession if it brings in big public spending cuts immediately after winning the General Election.

Sir Alan Budd, who would head a new independent Office of Budget Responsibility to enforce financial discipline under a Conservative Government, said: "If you go too quickly then there is a risk that the recovery will be snuffed out and we will go back into a recession. I mean what the Americans say, 'Remember 1937'."

Conservative sources denied that Sir Alan's remarks were at odds with the policy of David Cameron and George Osborne, insisting they had said only that Britain needed to "make a start" on cuts this year, but also claimed the party stance was vindicated by separate reports published today by the two main employers' bodies, the Confederation of British Industry and the Institute of Directors, who both call on the Government to balance the nation's books more quickly.

Shadow Chancellor George Osborne said: "The voices of British business are now saying what we Conservatives have been saying - earlier action on the deficit is a key to securing the recovery"

Conservative Spending Cuts

The British Flip-Flop

Posted by: Mason, March 2, 2010.

Cutting national debt is the top priority for a Conservative Government, party leader David Cameron insisted on Tuesday.

"We're borrowing this year a Greek style percentage of our GDP," Cameron said in an interview with Reuters. I believe that credibility would be reinforced by some early action on the deficit."

I think the argument that says that any action to make any reduction in Government spending would somehow automatically tip the country back into recession is wrong,"

Such comments seem to represent another reversal of policy from that announced during an interview with the BBC on February 1st, where the Conservative leader suggested that the party would not make "swingeing cuts" to public spending during its first year, if it were to be elected.

UPDATE: Posted by: Mason, March 02, 2010.

In the same interview, when asked if a rise in VAT was on the cards, Mr Cameron said there were no concrete plans:

"No responsible Government can ever rule out tax increases but the whole point about our programme is we want to try and achieve the reduction of this deficit by getting public spending under control and getting the economy going," he said.

Why Cameron should stand by the Tory "dinosaur"

Second Class Respect

Posted by: Mason, February 18, 2010.

Pompous, arrogant, a snob – just some of the many accusations aimed at Sir Nicholas Winterton recently.

The honourable member for Macclesfield erupted after it was suggested that MPs should only travel second-class on trains at the taxpayers’ expense.

Calling most voters “a different type of people” is not the route one could imagine taking to endear oneself to the electorate, so it is perhaps just as well that the Tory “dinosaur” is standing down at the election.

But his complaint - that MPs should be entitled to travel first-class - is a valid one.

If an MP needs to scrutinise proposed laws going before Parliament, read and respond to letters from constituents, or prepare themselves for a select committee meeting, then wanting “quiet and privacy” is surely a reasonable request.

Sir Nicholas insists he was not saying people who used standard class were inferior but that, in general, they were not working while travelling.

However, the Conservative hierarchy has been quick to distance itself from his comments, for fear of being labelled “the same old Tories”.

The brave thing for party leader David Cameron to do would be to say that he had a point.

What people seem to forget, is that MPs are working on our behalf and creating better working conditions for them means they are more likely to be effective in their roles, whether is representing their constituents, holding the Government to account or running the country. In doing so, the role of Member of Parliament is one that carries great prestige – and while recent events have shown an abuse of this standing, to over-react would be just as disrespectful.

It is hard to avoid the conclusion that people just want to give MPs “a good kicking” - Sir Nicholas’ comments were yet another opportunity to deride them as “out of touch with reality” – an opportunity too good to miss for most tabloids.

The more unfairly we treat our MPs, the less likely it is that good people in the future will want to put themselves forward for a career in public service.

And that’s a high cost you won’t be able to claim back on expenses…

The Northern Rail Hub

A Welcome Investment

Posted by: Mason, February 16, 2010.

A £530m investment package to transform rail travel in the north of England through better stations and quicker, more frequent services was unveiled by Network Rail today.

The “Northern Hub” study identifies what needs to be done to respond to the significant growth seen in the region and to help drive economic prosperity. Since 1997, UK road capacity has increased by 1%, yet road use has risen 26% over the same period, indicating a clear need to consider the benefits of other forms of transport. In Yorkshire and the Humber, transport infrastructure spending per head of pop in 2007/8 was £245, compared to the English average of £323, this despite the fact that the region’s modal spilt is second highest in the country (behind London) at 25% (i.e. 25% of journeys not made by car/motorbike/taxi) and the fact that rail use in the region increased by 72% between 1995/96 and 2005/6 representing, by a distance, the fastest growth in rail use of any region of the UK.

If Network Rail is successful in gaining the funding from the Department for Transport, there will be a 40% increase in the number of trains every day – this is some 700 extra services, representing a capacity boost of 3.5million passengers per year. There will be quicker and more frequent services for Newcastle, Liverpool, Manchester, Leeds and Sheffield. The plans also include a refurbishment of Manchester Victoria station, turning it into a major interchange and identify the need to increase freight capacity on the region's railways.

Iain Coucher, chief executive of Network Rail, said; "Our ambitious vision includes miles of track, new platforms and electrification to keep driving up passenger demand while keeping freight on the rails - and lorries off of our already congested roads.

The Northern Hub proposes significant investment in rail over the next 10 years to build on work which is already underway. By removing historic bottlenecks – such as at Manchester - it would allow faster line speeds, [thus] reducing journey times. New track would give greater timetable flexibility – allowing fast trains to overtake and run at speed while still providing space on the network for vital local stopping services and freight”

Branson's pitch to MP's epitomises the vision that made him a billionnaire

A True Leader

Posted by: Mason, February 08, 2010.

Sir Richard Branson and fellow leading businessmen are set to warn Ministers this week that the world is running out of oil and faces an ‘oil crunch’ within five years.

The founder of the Virgin group, whose rail, airline and travel companies all rely on the resource, will say that the coming crisis could be even more serious than the credit crunch.

"The next five years will see us face another crunch – the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well," Branson will say.

"Our message to Government and businesses is clear: act," he says in a foreword to a new report on the crisis. "Don't let the oil crunch catch us out in the way that the credit crunch did."

Other British executives who will support the warning include Ian Marchant, chief executive of Scottish and Southern Energy group, and Brian Souter, chief executive of transport operator Stagecoach.

The issue also came up at the recent World Economic Forum in Davos, where Thierry Desmarest, Chief Executive of the Total oil company, suggested that the World could struggle to produce more than 10% above present levels.

Sir Richard’s noble efforts to give this issue a prominent national political platform should not go unnoticed. The economic case for a strong, swift move to alternative energy is compelling and is gaining momentum.

Emerging industries, like renewable energy production, must be nurtured, in order to embed them into the future economy and provide sustainable employment for the next generation. The Government’s intention to facilitate the building of a number of offshore wind-farms in our territorial waters, potentially creating thousands of sustainable manufacturing jobs is certainly a step in the right direction.

It is absolutely crucial that the Government continues in the same vein – with substantial investment and the right business environment within which this kind of manufacturing activity can take place, even if that means tax-breaks for the industry.

The inevitable shift from oil-based energy production to renewable energy production, presents a unique economic opportunity for the countries that are quick to embrace it…

Conservative Praise for the Government's Economic Achievements

A Forthright Politician

Posted by: Mason, February 03, 2010.

Lord Freud, a former businessman and now a Conservative spokesman on welfare, today congratulated the Government on its handling of the recession, saying that its actions have prevented up to 500,000 people from losing their jobs.

He also admitted that the UK experience of the recession has been much better than during the previous recession of 1992, which was overseen by John Major's Tory Government.

Freud praised the Government's flexible labour market during debates on the Government's child poverty bill, stating that one of the key differences in this recession was the degree of labour market flexibility in the private sector, adding that the Government had shown far greater willingness than its European counterparts not to subsidise this flexibility – saving significant sums of money - but instead preferred a switch to part-time working.

Echoing the view of many independent economists – including this paper, he said that the Government must be praised for “not subsidising a process of adjustment, but allowing the market and the contract between the employers and employees to hold sway” – despite the adverse effect on employees.

"In practice what happened economically, was that instead of having another half million people unemployed and fully dependent on the state, the misery was spread"

Yvette Cooper, the Work and Pensions Secretary, had, earlier this week, suggested that the Government may save as much as £10bn over five years due to lower-than-predicted unemployment, though she expects joblessness to continue to rise, largely due to seasonal trends, until the summer.

Her assessment has been broadly backed by the Chartered Institute of Personnel and Development which at the beginning of January predicted unemployment would peak this summer at 2.8 million.

The jobless total fell for the first time since the recession at the end of December; the unemployment rate now stands at 7.8%. This is compared to 9.1% in Germany, 9.7% in the US and 19.5% in Spain.

The number of 16- to-24-year-olds out of work also fell, down from 943,000 in September to 927,000 in November. The number of people claiming jobseeker's allowance reduced to 1.61 million.

These encouraging figures are also, in no small measure, down to the increased effectiveness of Job Centres and the success of the Regional Development Agencies (RDAs) introduced by the Government in 1999.

The fact that the future of RDAs will be threatened by any future Conservative administration is of great concern to business and, in light of the thousands of people that remain in work as a result of them, should be of great concern to voters, come election day…

To swinge or not to swinge

Laurel and Hardy

Posted by: Mason, February 01, 2010.

The Conservative Party would not make "swingeing cuts" to public spending during its first year, if it were to be elected, party leader David Cameron has told the BBC.

Quite a turnaround from the leader of a party that has already pledged – on many occasions - significant cuts in an emergency budget shortly after the General Election.

His decision has played strongly into Labour’s desire to contrast the inexperience of Mr Cameron and Mr Osborne with that of Mr Brown, and to encourage voters to once again look at the performance of both the prime minister and Mr Cameron during the banking crisis. The Tory leader has consistently opposed measures taken to buttress the British banking system.

In 2009, Shadow Health Secretary Andrew Lansley told the BBC that in order to protect priority spending on the NHS, schools and international development, a Conservative government would cut expenditure in other areas by a total of 10 per cent between 2011-5.

Labour, whilst already committed to halving the UK’s £176 billion deficit within four years, have insisted this could not start soon after the General Election, due to the very real danger that it could halt or even reverse the economic recovery.

“We are just seeing the early signs of recovery, but the road ahead will be bumpy. That is why we cannot take risks. The economy needs continued support until the recovery is fully locked in. That is why Labour is leaving Government spending and investment in place for 2010/11” said business secretary Lord Mandelson.

The Conservatives, on the other hand, have for long insisted that the spending cuts had to start quickly, and this year, if international bondholders were not to be frightened off buying British government debt and forcing the treasury to pay exorbitant rates of interest for it. Now, however, Mr Cameron is saying the cuts in the first year must not be “swingeing”.

“Instead of bobbing around like a cork in water David Cameron should level with the British people.

“If he refuses to be clear, if he will not be honest, people will conclude that – for electoral reasons – he is hiding the truth and that the Conservatives’ proposed cuts will indeed eat into the recovery and throw Britain back into recession and lost jobs.”

“What we are witnessing from the Tories is either a dishonest rhetorical gloss to hide their true intentions or a remarkable intellectual collapse.”

“Either way it does not inspire confidence in this Laurel and Hardy duo”

Quite...

UPDATE: Posted by: Mason, February 02, 2010.

Shadow Chancellor George Osborne also said yesterday, that a Tory government would deliver speeds of 100 megabits per second (Mbps) to the "majority" of homes by 2017.

A Government report on the UK's digital future - Digital Britain - was published in June 2009; the action plan included universal access to broadband by 2012. The wide-ranging report also tackled internet regulation and public service broadcasting.

Two u-turns in less than 24 hours for the Conservative party – and their lead has slipped to seven per cent, according to a new poll released today.

The ComRes poll for the Independent puts the Conservatives on 38%, unchanged since last month, while Labour go up two points to 31%. The Liberal Democrats stand unchanged on 19%.

If replicated at a General Election, the result would leave David Cameron 24 seats short of an overall majority in a hung parliament.

The poll results suggest a lack of faith in Mr Cameron's economic plans.

The ComRes poll found 82% of respondents wanted clearer answers from Mr Cameron about what he intended to do with the economy.

Only 24% of people believed the recession would have been less severe if the Conservatives had been in power, while 69% did not.

Mr Cameron remains ahead of Gordon Brown on future handling of the economy, however, with just 40% of people saying they trust Mr Brown more than Mr Cameron on helping Britain's economy to recover. Fifty-two per cent disagreed.

Few voters were in the mood to credit Labour with the tentative economic recovery either. Only 37% said the party could take credit for dragging the UK out of recession, while 59% disagreed.

Interestingly, Mr Cameron retains his popularity among men, with a 16% lead. But he continues to struggle with the women's vote, where Labour lead by four per cent.

There are also signs Labour is winning back its traditional core vote. In the bottom DE social group, Labour leads by 44% to 33%.

Not the best start to February for the Conservative Leader…

Chilcot

Misguided Culture

Posted by: Mason, January 29, 2010.

So, today was the day. As former Prime Minister Tony Blair took his place in front Sir John Chilcot, one wondered if anything he was about to say would be more telling than his last interview – with Fern Britton. Instead, he confirmed what he had said then: Even before the attacks on New York, he told the inquiry, "force was always an option... if necessary, we were going to remove him."

This enquiry, the third on the Iraq War already, offers the opportunity to reflect on the effectiveness of parliamentary accountability in the decision-making process.

One can only hope that the decision to go to war was based on a reasoned judgement of the consequences of both acting and not. In that, we must trust our elected leaders. The enquiry could be argued to be reinforcing democracy; by its very nature it provides checks and balances to the Government. If this argument is to be accepted however, one must question the role of Parliament. A report released today questions the quality of legislation over the last twenty years and suggests that Government agenda is being led by badly trained ministers, rushing through "ill thought-out" legislation to satisfy media demands.

The Better Government Initiative was compiled by 14 former senior civil servants and suggests that successive Governments have created "perverse incentives" and "unintended consequences of targets and performance indicators". There is "confusion and loss of expertise resulting from frequent changes of policy or organisation and movement of staff to meet new demands", it adds.

A committee of Peers have also suggested that the Prime Minister's office and its permanent secretaries should be "subject to appropriate parliamentary accountability mechanisms". They believe that political power is too centralised with the prime minister, and that Downing Street needs to be more accountable. Both reports paint a picture of a Parliament that has, over the last two decades at least, failed to scrutinise the actions of the Government to the fullest extent.

While it is understandable that many of the families of those killed in Iraq wish to see Prime Minister Blair questioned by the Chilcot enquiry, one must question such a mechanism’s effectiveness at holding Government to account, particularly in light of the role played in such affairs by the media. Were Parliament to offer effective scrutiny of the Government’s actions, such an exercise would not be necessary…