Super Campaign Show Darling

A new record low coming up?

Is it me, or does this election already feel like a sham?

We've certainly got wall-to-wall TV coverage, but most of it is as witteringly pointless as the BBC's Campaign Show - yet more showbiz for ugly people. Indeed, on Day One of the campaign, listeners to R5 Live are already complaining that the whole thing is terminally boring and they won't be able to stand an entire month of it. Even I'm bored, and I'm actually interested in this stuff.

And yet the 2010 election ought to be gripping, because as we all know, we're facing a crisis of historic proportions.

Or do we? Do we all know that?

Because as we've noted before, as long as you haven't lost your job, and you're not dependent on savings income, your day to day life probably doesn't seem too bad. Yes, Brown is awful, but you don't have to listen to him. And Cam... well, much nicer obviously, but is he actually up to the job?

And does it matter anyway? Most people seem to think what will be will be, and if the nation runs out of money, that's going to happen whoever's in power.

Clearly, I think it matters. I think we need to get rid of this lot so we can start shrinking the state back down to size. But in truth, even I'm not that confident there'll be that much shrinking under Cam.

What's missing here is any real sense of crisis. Back in the '79 election we'd had 5 years of crisis, and the bulk of the electorate knew the underlying issues had to be gripped. But right now, for most voters, the debt crisis just hasn't bitten.

And with Cam having sensibly decided to abandon his new age of austerity, the crisis has become little more than another load of old stuff. Stuff to be wittered about on campaign shows, but disconnected from most of the world beyond Westminster.

It will change of course. One day before too much longer, the debt market will go bang. And then interest rates will soar and everyone will discover it was a real crisis after all.

By then, the election will be behind us. We'll have a new government. Or maybe the same government. Or maybe a shaky coalition. But whoever it is, they'll be forced to make spending cuts and increase taxes on a scale never even mentioned during this campaign. And we'll all be wondering why we ever elected such a bunch of imbeciles in the first place.

And my solution to this mess?

Sadly, I don't have one.

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Avoiding A Brown Recovery

Posterwise, the Tories are back in the groove. Good.

Even better, George is ruling out further tax rises*. Hurrah!

But when (please God) they hoof out Brown and this bunch of bankrupt has-beens, they will actually have to deliver on their promises. And that means reversing both growth destroying tax rises and interest rate increasing debt mountains. In other words, it means substantial spending cuts.

Which is why Cam and George need to be very careful about adding to the difficulties already caused by ring-fencing the NHS and overseas aid. Sprinkling around spending goodies like today's £200m for new cancer drugs may deliver a short-term high, but it will make life even more difficult post-May.

We can see just how difficult by taking another look at the history of cuts over the last half century. The following chart shows year-on-year percentage changes in total public spending, adjusted for inflation (TME - Total Managed Expenditure). And as we can see cuts are very rare indeed:

A few key points to highlight:

1. Life on Mars - the biggest cut by far was that achieved under the IMF cosh in 1977-78; it was driven by cuts in both current and capital spending; but note that even that legendary cut only amounted to 4% in real terms, and it was reversed within two years.
2. Ashes to Ashes - the two smaller cuts under Lawson in the late 80s reflected a recovering economy trimming welfare spending; but a key driver was years of severe restraint in current spending programmes, combined with further deep cuts in capital spending.
3. Things can only get worse - in the mid-90s, Clarke managed to cut spending two years on the trot (the second helpfully delivered to his successor in 1997-98); a rapidly recovering economy helped, but once again, a key driver was capital spending, which fell by 35% in two years.
4. Dust to dust - Labour's planned cuts (in red) are a bad joke: as we've blogged before, they amount to an actual increase in total spending over the next 4 years.

This record puts George's task into its full horrific context. Because depending on whose estimates of the structural fiscal deficit you believe, he needs to cut spending by between 10% and 20% in real terms - and also, keep it down afterwards. Which is way outside the range of anything that any living Chancellor has ever achieved.

And this time, capital spending is so much less to begin with. Back in the 70s public sector capital spending actually exceeded public borrowing - even when the latter ballooned. Which offered a fairly easy cuts target. However, in today's post privatisation world, public sector capital spending is much less than our huge deficit, so no easy option there.

But then, what do you expect? This is precisely the kind of disaster you get left with when you elect a clothead high-spending clownfest like the present crew:

They've spent so wildly that even a 20% spending cut from next year's planned level would still only get us back to the level of spending in 2004-05.

*Terms and conditions doubtless apply to George's tax offer - but the main thing is that George says there will be “no further tax increases in the emergency budget... We’ve set out our plans, they don’t involve an increase in VAT.”

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The Unspeakable In Pursuit Of The Class Struggle

All history is the history of the class struggle - the political class struggling to oppress the people

The cynicism is breathtaking. Lord "we're intensely relaxed about people getting filthy rich" Mendacity now says:

“If you look at Bob Diamond, who took £63 million in pay — that to me is the unacceptable face of banking. He hasn’t earned that money, he’s taken £63 million not by building business or adding value or creating long-term economic strength, he has done so by deal-making and shuffling paper around.”

Needless to say, the £63m figure is untrue. But more fundamentally, it is chokingly obvious why Mandy has come out with the communist manifesto this morning. It's because the latest public school educated NuLab Tristram he's forced down the throats of a local Labour Party up North has proved a Tristram too far. There is open rebellion, with the chairman of the local party pledging to stand against Trist in the election. Worryingly, it's a rebellion that could spread.

So Mand has a bash at the bankers: "there you are, you simple  plebs up North, I believe in the class struggle too - trust me - I'm right there on the barricades with you".

Yeah, right.

Almost as cynical as Bliar buying the support of his left-wing MPs for his illegal war with a ban on fox-hunting.

Bankers are of course fair game. Cam and Dave have happily laid into them, St Vince has made banker bashing his stock-in-trade, and bankers are the villains of virtually everything that appears on the BBC.

And of course, the bankers have not behaved well. They have happily gorged themselves during the emergency support operations over the last 18 months, despite the fact that taxpayers are screaming in pain all around (although we should note that Bob Diamond is actually one of the bank bosses who has waived his personal bonus this year).

But we do need a sense of perspective here. Banking and its offshoots have been by far and away Britain's most successful industry over the last two decades. As last week's Treasury Select Committee Report reminded us:

"More than one million people work in the industry, each contributing to GDP more than double the average for all employees. The industry accounts for around 8 per cent of UK output and contributes 14 per cent of tax revenues."

Yes, true, the financial crash has exposed taxpayers to a big loss. But even that loss - estimated at $200bn by the IMF - isn't that big when set against these gains. In sterling terms a loss of £130bn should be viewed against tax revenues from the financial sector which reached £67bn pa before the crisis broke (see here).

And oddly enough the guys that work in this industry don't altogether like being bashed. As BOM's correspondent on the Wharf so elegantly put it in a recent email:

"Fecking Peston was always a communist as far as I'm concerned. As is the sainted Martin Wolf. They all agree with Adair Turner that bankers are "Socially Useless". Let's see how fecking far they get without them then."

Which is why, along with his neighbours, said Wharfman is currently reviewing his wider options.

Interestingly, the Treasury Select Committee asked Turner to explain on what basis he could possibly judge banking to be "socially useless". He replied:

"to determine in concrete terms what is valuable or not is incredibly difficult, but at least if you are aware that the financial system is capable of generating activity that does not have value added for the economy... you are on your guard... It does not provide you with a nice, easy rubric to determine what is and what is not socially useless... but it means we are not open to the alternative argument that everything that exists must exist."

Er... well... thank you for that my Lord. Most helpful. Some bankers' activities may not add value to the economy, but we have no practical means of working out which.

Brilliant.

Almost as brilliant as My Lord Mandy.

PS As we've noted before, Tyler has developed an unhealthy addiction to podcast lectures delivered by left-wing academics. He's currently listening to another lecture course from Berkeley, this time on European history given by Prof Margaret Lavinia Anderson (see here - available free from iTunes U). It's excellent - wide ranging, well informed, and entertaining. And it's really stimulating to hear a serious account of history recounted from the left's perspective. The latest lecture was on Capitalism and its Critics, focusing on early socialists like Robert Owen. Anderson naturally presents the man as a hero, standing up for oppressed working people against the evil capitalists of Coketown's industrial revolution. But in doing so, she also mentions a couple of things that have been showstoppers with socialism ever since. First, its grotesque inefficiency and vulnerability toproducer capture and outright fraud - as happened when the naive Owen got defrauded out of his fortune while trying to establish his grandiose model town of New Harmony. And second, its inevitable progression to Stalinism - Owen believed children should be removed from their parents to be educated in state boarding schools, where young minds could be shaped in the paths of righteousness. We've since had plenty of opportunities to see how that one works out.

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Busted

I dare you to watch (you'll need to keep a sick bag handy)

Do you remember 1997?

Of course you do. Who could forget that brave new world? A new day had dawned, had it not. A new leader, a new beginning, and a new Chancellor. A Chancellor who admonished his debt-addicted predecessor thus:

"The Chancellor is first and foremost the guardian of the people's money."

Yes indeed, ladies and gentlemen - the People's Money. The money that belongs not to the selfish grasping rapscallions who earned it, but to The People.

"During the 1990s the national debt has doubled. This year alone the taxpayer will pay out £25 billion in interest payments on debt, more than we spend on schools. Public finances must be sustainable over the long term. If they are not then it is the poor, the elderly, and those on fixed incomes who depend on public services that will suffer most. So, as with our approach to monetary policy, so in fiscal policy: we will now establish clear rules, a new discipline, openness, and accountability.

My first rule - the golden rule - ensures that over the economic cycle the Government will borrow only to invest and that current spending will be met from taxation.

My second rule is that, as a proportion of national income, public debt will be held at a prudent and stable level over the economic cycle. And to implement these rules, I am announcing today a five year deficit reduction plan.

Together, these rules and this plan will ensure a historic break from the short-termism and expediency that have characterised the recent fiscal policies of our country. As with our monetary policy, our fiscal policy will be all the more credible for being open and accountable."

Yes, that really is what he said.

And here we are 13 years later, with debt that has already doubled again, and which is set to double again by the end of the next parliament. And debt interest payments that within a year or two will again exceed the hugely increased schools budget.

As for ensuring "a historic break from short-termism and expediency", he did that all right. Entirely disregarding short-term considerations such as red signals, and matters of expediency such as staying alive, he cranked the controls to max and slammed us into the buffers at speed. From where recovery will be a very long-term undertaking indeed.

Of course, Brown also made a number of other ludicrous pledges during those first golden months. And one of the central ones was to lift the UK's productivity levels up to those of our more successful competitors. As he put it in his 1998 budget:

"..over the next few years we must seize this opportunity - by challenging ourselves to lift our productivity in each and every industry towards the levels of the world's best...

Breaking free from old ideas of state control and crude laissez-faire, our new ambition for Britain must be... to implement for our country a medium term strategy for growth."

Not the failed Wilson National Plan, you understand, nor the failed Callaghan industrial policy with its National Enterprise Board. No, a medium term strategy for growth - something brand new and whizzo and totally 21st Century. Which is how we got all those incredibly complex and expensive arrangements like R&D tax credits.

So how do you reckon it's worked out? How do you think we've done in the international productivity league tables under Labour?

As it happens, the ONS has recently given us an update. And needless to say, it doesn't look good.

Here's the summary chart, showing UK output per worker relative to G7 average (ex UK). As we can see, despite all the huffing and puffing - and expense - there was virtually no improvement between 1997 and 2008:

Now, you might say thank God. At least Labour didn't make productivity worse.

But you should note that the ONS numbers only go up to 2008, and we know that UK productivity fell during 2009. In fact, according to the ONS itself, output per worker fell by 3.1% in 2009 compared to 2008. So watch this space.

It really is amazing how apparently intelligent people can still recall 1997 with such fond memories (eg Victoria Coren on last night's Question Time). 13 years of Labour deceit and wishful thinking have left Britain crumpled up in a busted heap. Crushed under a pile of debt and economically prostrate.

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Four Years Blogging And All I've Got To Show For It Is?

Today this blog is four years old. This is the thousandth plus post which will be read by a select group of people. Blogging is supposedly not as popular as it once was. The huge majority of them lie inert. Some, mercifully so. But not this one. So, what have I got out of four years of blogging?

1) Chinese comment spam, ridiculous PR approaches and offers of irrelevant guest blogs from total strangers.

2) A sense of guilt at still not having made this blog more visually pleasing and more easily navigable.

3) A nagging doubt that I have nothing else left to say.

4) An awareness that you need to keep repeating yourself because ideas actually spread quite slowly and orthodoxy takes a long time to overturn.

5) A constantly renewing knowledge of bands that only five other people have yet heard of thanks to a reader who has a passion for such things

6) A stalker - albeit a very nice one.

7) A true appreciation of our increased connectivity - courtesy of the night when one of my posts went global and I watched as readership swept across the globe to the extent that more people were on my blog than usually visited in a month.

8) A whole new international social circle - such that I can look at various meaningless A lists and the wired top 100 and realise that a number of these people are now my friends, as are authors I previously admired from afar but now am able to meet in person.

9) A realisation that rankings don't really matter. I'm no longer in the Technorati top 10000 nor the top 50 marketing blogs in the world and I still get noticed by new people and read by others on a weekly basis. Famous and useful for fifteen people is indeed the rule to live by. But remember, the fifteen are always changing.

10) A deep gratitude to all the readers, commenters and bloggers who have made the past four years a lot more interesting.

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So Who Do We Trust To Get Us Growing Again?

Listening to Lord Mendacity's dismissal of Britain's top businessmen today, you get the authentic Labour view on the way economies work. Despite all the NuLab spin, they have never really accepted the idea that sustainable growth is delivered by private enterprise not by government spending.

As we blogged here, their plan to hike the jobs tax will be a disaster, costing up to 500,000 jobs. And George is absolutely right to make it his top priority for cutting (or at least rescinding the increase).

But Mandy clearly doesn't understand that. Instead, he comes up with the utterly preposterous idea that these top business leaders are whacking Labour policy because they have somehow been deceived by the evil Tories.

Did Mand not read what they wrote? Just for future reference here are the key bits:

"In the last few years, the private sector has improved its productivity by around 20 per cent, while productivity in the public sector has fallen by three per cent. Savings can be made by removing the blizzard of irrelevant objectives, restrictive working practices, arcane procurement rules and Whitehall interference... As taxpayers we would welcome more efficiency in government.

As businessmen we know that stopping the national insurance rise will protect jobs and support the recovery.

Cutting government waste won’t endanger the recovery – but putting up national insurance will."

Spot on. In fact, it could easily be Tyler talking.

But it most certainly couldn't be Labour.

As we must all understand, the very biggest of the several big challenges ahead of us is how to get the economy growing sustainably. Under Labour, growth was fueled by a huge debt bubble and a crazy ramping up of public spending. But that has ended in catastophe, and we must now find another way.

Next year, even on the government's over-optimistic numbers, public spending will account for nearly half our GDP (48%). And Labour believes that to be the essential prop supporting future growth.

But there is a very different view, partly but not yet clearly, articulated by Cam and George. It is that continued high public spending and high government borrowing will soon undermine the very growth Labour say they want. It will happen via a number of different channels, but most dramatically via the impact on interest rates.

And most helpfully, Policy Exchange has just published some work on how big these effects might be. In particular, they have looked at the likely impact of our huge fiscal deficit on gilt yields and interest rates.

There is a considerable economic literature on this question, and its conclusions are unambiguous - higher government borrowing pushes up interest rates. Quite a lot. In fact, the literature suggests that the current level of UK borrowing will have the effect of pushing up gilt yields by 2-4% over where they would have been without the deficit.

Andrew Lilico and his Policy Exchange colleagues have also done their own analysis, and here's one of their pictures:

As we can see, countries with the biggest deficits tend to have the highest borrowing costs. And we can also see that our bond yields look low relative to the average relationship.

Why? Well, partly because the Bank of England has artificially supported the gilt market by buying the best part of £200bn of gilts as part of their Quantitative Easing programme - a support that has now gone. And partly because the market still believes there will be a Tory government that will cut the deficit - a support that will go if Labour get back.

The chart also shows just what happens to borrowing costs when market confidence goes - look at where Greece is.

To bang the message home, Policy Exchange works out what their expected increase in borrowing costs would mean for mortgage costs:

"In the UK a rise of 1%-2% in mortgage rates would add some £700-£1400 to the average annual mortgage bill."

And that is precisely the kind of effect that would stop our anaemic economic recovery dead in its tracks.

Which is why Labour's policy of continued high public spending is so hare-brained. Far from supporting growth over the next few years it will undermine it. From higher jobs taxes to higher mortgage rates, it is a disaster in the making.

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Town Halls Still Rich

No April Fools joke - Kent once again the winner

For those concerned about public sector profligacy, the TaxPayers' Alliance's annual Town Hall Rich List has become a must-read. Indeed, it's not too much to say that it's changed the policies of all three main parties, who all now promise much more transaparency and accountability over what top council officials pay themselves.

So well done TPA.

Well, thank you very much.

The fourth annual Rich List is published today (download here). Key points:

• 1250 council staff earned more than £100,000 in 2008-09, a 14% increase over the year. 
• 31 earned more than the Prime Minister
• The average pay rise for these Town Hall fat cats was 5% - in the same year, teachers got 2.3% and nurses got 2.7%
• The highest paying council was Kent, which had 27 bureaucrats on more than £100,000 (the top 2 got more than £300 grand)

Of course, one of the really useful things about the Rich List is that you can check on your own council - the one that's just demanded yet another increase in Council Tax (and despite the need for national belt-tightening, CT is still set to rise by an average 2% next year).

In Tyler's case, Surrey County Council has 7 staff on over £100k, with the Chief Exec on £205k.

Well, actually that's no longer true. As we blogged here, the Chief Exec and several other top staff (including at least two others from the 7), subsequently"left" after the Council's services got slammed for poor performance by the Audit Commission. Things were so bad that a temporary Chief Exec had to be parachuted in to sort it out, finding "a failure of leadership, culture and governance in its widest sense".

Which just goes to show - you can pay top dollar, that's easy. But it doesn't make a blind bit of difference to the quality of service provided.
 
As we've blogged many times, the only thing that will achieve that is full fiscal decentralisation. Councils must once again be made accountable to local people and not the Whitehall (and see this TPA Research Note).

PS A special pat on the back for the TPA's John O'Connell, who produced this year's Rich List. Production requires sending out and sifting through the hundreds of Freedom of Information requests to individual councils, so well done John.

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