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Posts Tagged ‘George Osborne’

We need to make better use of Quantitative Easing

10/05/2013, 07:30:48 AM

by Dan McCurry

George Osborne’s nanny state policy responses are failing our banks and perverting our markets. In the midst of the political rhetoric on welfare and debt, there is one economic policy that the chancellor has implemented which has a genuinely significant impact: Quantitative Easing (QE).

This has had a profound impact on the economy.

The normal way for the money to be supplied into the economy is for banks to provide loans. If ten £1k loans are made for every deposit of £1k, then £9k of new money has been put into circulation. The banks are liable for it if it isn’t paid back, so they have become expert at judging risk. The supply of money makes a good demonstration of the private sector achieving a public good, normally.

The problem is that lending is too slow. As a result there is a lack of new money going into the economy but people are continuing to repay the loans they previously took out. The net effect is less and less money in the economy. If money is the oil on the cogs, then without it, the machinery will grind to a halt.

As a policy response, we’ve had QE. The Bank of England is creating money on a grand scale. Under Quantitative Easing they have so far produced an extra £375billion. In this respect it is the largest nationalisation of private sector service since the 1945 Labour government. I wonder if George Osborne realises that.

For a long time the banks have been receiving contradictory instructions from government. They must lend more, but they must increase their capital reserves. It’s like telling a schoolboy to spend his pocket money then scolding him for not saving it.

As a result, innovative policies are not only proving expensive but also potentially counter-productive. The government driven Funding for Lending Scheme (FLS) aims to subsidise bank lending for small businesses.

It is bad economics. It has lowered the interest paid to savers, but achieved little increase to the loans given to small businesses. With the state competing with savers, the banks no longer need to attract deposits as they have cheaper source with government cash.

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Labour is fighting the wrong campaign

05/05/2013, 09:16:02 AM

by Anthony Painter

Since 1993, Labour performance in county council elections on a national equivalent basis is as follows: 39%, 44%, 42%, 36%, 22% and 29%. Thursday was better than the absolutely disastrous 2009 result that came a year before its second worst defeat in the modern political era. But it was a performance significantly worse than a party expecting to be winning a majority in two years’ time should have had.

The comfortable thing to do now is focus on the Tories’ travails and UKIP’s surge. But for anyone who wants to see a Labour Government in 2015, the far more sensible thing is to focus on Labour for a while. It is very difficult to write a piece cautioning the party about its current direction when so many new councillors have just been elected and so many local campaigns were so effective. That tremendous work absolutely needs to be acknowledged. Unfortunately though, the overall picture is extremely worrying. There has been a spooky silence on this fact since Thursday and that ultimately won’t help Labour win the majority it should in 2015.

Labour’s strategy isn’t working and it needs to reassess radically the approach that it is taking. Labour has decided to adopt Obama 2008-style “hopey-change” as a strategy. The problem is that next election doesn’t have a hopey-change feel to it. People want change but it is a desire for change that is sceptical and grounded in perception of what will be effective rather than wispy visions.

The 2015 election has a “please spare us from George Osborne but don’t be silly” feel to it. If it were an American election it would be 1992 rather than 2008. It’s the economy, stupid but that doesn’t mean anything goes. It’s just as winnable for Ed Miliband’s Labour as it was for Bill Clinton’s Democrats (UKIP as the Ross Perot of the UK anyone?) and Neil Kinnock’s Labour in 1992. One won and one lost and in that tale lies the strategy that can take Miliband to Downing Street.

There is time to correct what has gone wrong over the last few weeks. Moreover, Ed Miliband has come back from set-backs before – stronger, wiser, more effective. His conference speeches in 2011 and 2012 barely merit comparison; the latter was vastly superior which got across a similar message.

Labour’s campaign came to abrupt halt in a down-the-line interview on BBC Radio 4’s World at One. It was the moment when its strategic weakness was completely exposed. Hopey-change met stark reality in what was simply a series of very straightforward questions that any opposition hopeful of winning power should be able to take in its stride.

Miliband’s problem is not one bad interview. It’s what lay behind that interview. And the biggest concern is the policy weakness.

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Osborne’s reputation for economic competence is fatally damaged. Labour must now start restoring theirs

23/04/2013, 12:13:09 PM

by Matthew Whittley

Perceptions of economic competence will largely determine who takes power in 2015. It is well-known that Labour has its work cut out to regain trust with the nation’s purse strings, but if anyone needed further proof that the economy isn’t safe in George Osborne’s hands, the need look no further than today’s economic news.

The latest figures tell us that there has been no improvement in underlying borrowing, which is has been running at almost the same level for the past two years. According to OBR forecasts, it will be around the same this year. As a result of the failure to stimulate any growth in the economy, the government is now set to borrow £245 billion more than planned

George Osborne’s main opportunity to do something about the hole he’s dug for the nation, was in March with the budget. But he blew it: the budget amounted to no more than a “do nothing” series of holding measures.

With household budgets squeezed and business lacking confidence to invest, Osborne should have prioritised growth by borrowing to invest in capital projects, rather than borrowing to finance failure as is currently happening. One doesn’t need a PhD in macroeconomics to know that capital spending has a huge multiplier effect on growth.

However, the derisory £2.5bn of capital investment promised in the budget falls way short of what is required to kick-start the economy. To put this figure in context, the Economist, hardly a bastion of Keynesianism, recommended an extra £28bn of infrastructure investment.

It should have become clear by now to him that the debt can’t be reduced in the absence of growth. The UK has grown only 0.7% since the third quarter of 2010. During that time, Japan and Italy are the only major G20 economies to have performed worse than the UK.

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The last few weeks have shown politics at its worst: tribal, divisive and ugly

18/04/2013, 07:00:22 AM

by Peter Watt

Sometimes politics is a noble and even beautiful pursuit where words can capture a moment and inspire. Just think of Martin Luther King on the steps of the Lincoln Memorial in 1963 or any one of a number of Churchill’s wartime orations.

Then there are political decisions that become once in a generation moments that end up uniting most of the country like the decision to go to war in 1939 or to create a National Health Service in its aftermath.

Other decisions remain more controversial but can still be seen as being decisive moments like the decision to join the EEC, the privatisation program of the 1980’s or the second Iraq war. The point is that over the years politics has mattered because it involved inspiration and decisions being taken that mattered even if they were opposed.

But in the last few years it has felt that politics has mattered less and less. Partly this is because the world has changed so that politics seems to have less influence than say global big business or the seemingly uncontrollable economic forces.

And partly it is the advent of the information age where the internet and social media has fragmented the sense of a shared experience. The reality is that you can set your “virtual preferences” so that you can simply block that which is of little interest or irrelevant.

But politics itself also has to bear some responsibility. In recent months, in addition to being seen as irrelevant, politics has also been ugly. And that ugliness will have served to further drive a wedge between them-and-us; between the tiny band of political warriors and the majority more interested in fuel prices, the security of their family and Gangnam style on YouTube.

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Our Dalit class had enough problems before Philpott

06/04/2013, 07:00:31 AM

by Kevin Meagher

So which class does Mick Philpott belong to then? I guess he would end up in the “precariat” group, described as the “poorest and most deprived” in the BBC’s new parlour game, the Great British Class Calculator. After this last week it’s hardly a cheap shot to point out that he’s not exactly working class is he?

Hear, hear! snarks George Osborne, keen to insert himself into the furore over whether Philpott’s life on benefits caused his descent into immorality, chirruping the sentiments in Wednesday’s Daily Mail whose notorious headline labelled him a “Vile product of welfare UK.”

“There’s a question about the welfare state, and taxpayers who pay, subsidising lifestyles like that” Osborne intoned the other day, not one to let the chance to make a cheap political point pass him by. Not so much aspiration as aspersion nation.

Perhaps, then, Osborne and Paul Dacre can tell us when the rot set in? Just how many years does it take idling on benefits, as they see it, to warp someone’s values enough before a man will set fire to his own house and kill his own kids? Ten years? Twenty?

Given Philpott stabbed a former girlfriend back in 1978 – relatively speaking, years of full employment and plenty – could it simply be that he wasn’t wired-up properly to begin with and his employment status has nothing to do with his proclivity towards violence and nihilistic behaviour?

Back to class though. Twenty years ago, we talked gravely of “the underclass” to try and characterise those left high and dry by Thatcherism. You know the ones. Britain’s Dalits - our unloved and unwanted countrymen and women who long ago slipped out of the mainstream. Those whose ignorance is supposedly exceeded only by their fecklessness. The untouchables on housing estates we would gladly cross the road to avoid; that’s if we ever ventured into their neighbourhoods to begin with. Which we don’t.

The right now offers them castigation, the left, pity. But belief in true equality – in the equal worth of all – means these people should never have been allowed to sink so low in the first place. However sink they have; left with poorer health and fewer qualifications, living out a prospectless existence amid pawn shops, take-aways, drug-dealers, loan-sharks and bull mastiffs. Reduced to existing in the here and now. Too unskilled to keep pace with the modern world of work and priced out of low-skilled jobs by cheaper, immigrant labour.

No wonder they hate politicians. But given they’re not on the electoral register there’s not much they can do about it. I wonder if any of the parties knows how Mick Philpott votes? I suspect his street hasn’t seen a canvassing team in quite a while. The only time politicians meet these people is when they are pouring out tales of misfortune to them at their surgeries. Our political parties have nothing to say to those at the bottom of the pile because they want nothing from them. Labour long ago gave up trying to mobilise them.

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Erosion of universal benefits is destroying public support for the welfare state

05/04/2013, 07:00:15 AM

by Robin Thorpe

Earlier this week George Osborne stated that “this month, around nine out of 10 working households will be better off as a result of the changes we are making”.

The BBC report on this speech (before it happened, which frankly annoys me, why can’t politicians just give a speech and have it reported after the event? Why must it be released beforehand?) states that;

“This month saw the start of sweeping changes across public services including reform of the benefits system.

Mr Osborne argues that the government has had to take difficult decisions to cut the deficit and the current benefits system is fundamentally “broken”.

Changes include:

The introduction of a £26,000 cap on the amount of benefits a household can receive

A cut to housing benefit for working-age social housing tenants whose property is deemed to be larger than they need

Disability living allowance replaced by personal independence payment

Working-age benefits and tax credits uprated by 1% – a below-inflation cap

The chancellor believes the changes to benefits and tax will be fairer and help ensure that the country can live within its means and compete globally”

For all the rhetoric both in favour and against these cuts I would agree with Osborne on the limited claim that the vast majority of the public are in favour of these changes to the benefit system and do not agree with Labour or other critics of the changes. The very fact that 9 out of 10 people will purportedly be better off underlines the reason why most people agree with the changes. This, however, does not make it the right thing to do.

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Help to Buy is another Tory policy that will help millionaires most

22/03/2013, 10:09:20 AM

by Radhika Madhani

In Wednesday’s budget George Osborne revealed his Help to Buy scheme. On the face of it,this looks great: financial assistance for homebuyers, and a supposed boost to the economy through the stimulation of the property market. But a closer look will reveal that the chancellor has developed a scheme to help the wealthy and create unaffordable housing in the property market.

Help to Buy has two key parts. The first relates to government proposals to loan up to 20 per cent deposits for borrowers, providing they put in at least 5 per cent of the deposit through their own means (thus allowing for a 25 per cent deposit in the mortgage application process).

This deposit assistance will apply to new-build properties in England worth up to £600,000, and will come into effect in April this year. The second part of the scheme relates to a mortgage guarantee designed to support £130 billion worth of loans. Coming into effect next year, this guarantee will place a £12 billion guarantee on the taxpayer for mortgages between 80 and 90 per cent loan-to-value (LTV), and will apply to first-time-buyers (FTBs) and existing borrowers.

Looking at the scheme as a whole, Help to Buy is a real missed opportunity in reforming the property market. Presently, those wishing to buy their own homes face the problem of high property prices, high interest rates (at least when compared with the Bank of England’s current base rate of 0.5%), high LTV requirements, and stringent and complex affordability calculations used by lenders in assessing borrowers’ ability to repay the mortgage. Help to Buy fails to address all of these problems.

The first part of Help to Buy will obviously encourage more people to buy their own properties. With the government providing up to 20 per cent deposits to borrowers, there will of course be an increase in mortgage applications.

But unless this demand is matched in supply, Help to Buy will actually have a severely damaging impact on the economy. It is a basic economic principle that increased demand without increased supply will lead to a rise in prices. Yesterday the chancellor failed to announce a government commitment to build enough houses to stimulate the economy, and without these new homes we can expect a huge increase in property prices that will distort the market even further, especially in the London property bubble.

Property values will be unnecessarily pushed up, and far from helping FTBs and families, Osborne’s budget will actually create an unaffordable housing market. The economic rationale behind the government’s decision is almost impossible to understand, and we have here a clear example of an ill thought out, incompetent, and potentially disastrous policy.

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This “no change” Budget fails to inspire

21/03/2013, 01:34:06 PM

by Simon Fitzpatrick

We were warned that this would be a no-change Budget, and it seems that was no bluff.

Yes, Osborne is cutting a little more from departmental budgets and yes, he’s spending a little more on housing and infrastructure.

He will accelerate the rise in personal income tax allowances, cancel the planned fuel duty rise for a second year and go further on cutting corporation tax.

But predominantly these are measures that were already in place, and going a little further on them in no way alters the direction of travel.

And try as he might, the chancellor cannot disguise the fact that that direction of travel is not pretty. By every one of his self-set tests, George Osborne’s plan is not working.

A chancellor who pledged to eliminate the budget deficit in this Parliament now concedes that we will still be running a deficit of 2.2% in 2017-18. Debt as a percentage of GDP will not begin falling until the same year. And growth forecasts are down again – just 0.6% is forecast this year. If the OBR’s track record on forecasts is anything to go by, we’ll be lucky if there’s not a “negative” in front of that figure.

In the face of so much bleak news, Osborne seemed determined to win himself some positive headlines regardless by announcing some populist measures for the ‘man on the street’. The man on the street George Osborne has in mind drinks beer and drives a Vauxhall Astra, though hopefully not in quick succession.

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Osborne chooses Tory politics over one nation economics

21/03/2013, 11:42:11 AM

by Jonathan Todd

Daniel Finkelstein is a leading commentator and one of David Cameron’s most articulate defenders. No other columnist has the economic gravitas of Martin Wolf. Pieces from Finkelstein and Wolf in the week before the Budget exposed the tensions at the heart of the government’s economic and political strategies.

Finkelstein argued that the Conservatives have three assets: David Cameron; a Labour Party that “has pitched itself too far to the left”; and “the large constituency of voters who … don’t want to borrow more”.

On the same day Martin Wolf demolished David Cameron’s “there is no alternative” speech.

“What truly is incredible is that Mr Cameron cannot understand that, if an entity that spends close to half of gross domestic product retrenches as the private sector is also retrenching, the decline in overall output may be so large that its finances end up worse than when it started.”

What Wolf considers economically indefensible – not taking advantage of rock bottom interest rates to borrow more to stimulate recovery – is what Finkelstein considers to be a political strength. Those who join Wolf in advocating stimulus include: Labour, TUC, CBI, BCC, Vince Cable, IMF, NIESR, Bloomberg, The Economist, and Oxford Economics.

Equally, the political rationale that Finkelstein appeals to is not groundless. That 10 per cent more voters blame the last Labour government for the cuts than the current government speaks to the reputation for dangerous profligacy that continues to attach to Ed Miliband’s party (YouGov, 17/18 Feb). These voters believe that the Conservatives are doing the tough but necessary, while Labour offers only a risk, not a sound alternative.

This popular view, which sustains Finkelstein’s political logic, is, however, challenged by a growing economic consensus in favour of an approach quite different from that offered by Osborne.

He talks of supply-side reform when it is an absence of demand that holds the UK back. He claims fiscal responsibility when the stuff of genuine fiscal responsibility would involve recovering this demand. He pins his hopes on active monetary policy – near zero interest rates and QE – when the experience of recent years provides amble justification for Keynes’ view that loose monetary policy amounts to pushing on a piece of string in a depressed economy.

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Labour must not be smug about bad economic news

07/03/2013, 07:00:54 AM

by Peter Watt

This time in two weeks we will all be chewing over the chancellor’s budget. If the mood music is to be believed then we will not be reviewing a dramatic budget replete with economic flourish. Rather it will basically be a restatement of the deficit reduction plan outlined in the coalition agreement.

There will in all likelihood be the addition of a few targeted tax breaks, some nod to infrastructure spending and some extension of the state backed business bank. But basically no real change in approach. However Osborne is no fool, so we can safely say that he will have something up his sleeve that will be the measure that he hopes will define his budget.

Presumably he and his team will do a better job of politically sense checking his budget this year than last! Team Osborne is under pressure from their own side as MPs can see the possibility of winning the next election slowly becoming less likely.

But Labour will also be under pressure. Whilst Labour’s economic numbers are improving they are still blamed by much of the electorate for causing the economic woes facing Osborne and the country. And that is why the tone of their response will really matter.

Generally speaking, if you are held responsible for causing a problem it is not a good idea to appear really pleased that someone who is trying to sort out your mess is struggling! It certainly won’t convince anyone that you didn’t actually cause the problem in the first place. It is unlikely to make you look clever; in fact it will probably simply reinforce the idea that the whole thing was your fault anyway, and that you had failed to learn the lessons and were in fact in denial.

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