Ask The Chancellors – Instareaction

Well, there we go then. Channel 4 have got in there first, kicking off the historic series of debates which are going to be a feature of this general election for the first time ever. So what to make of it all?

Naturally, as a Lib Dem, and a sane person to boot, I thought Vince won. The studio audience seemed to agree, too – I think I’m right in saying Vince got more applause than the other two put together. It got a bit embarrassing, really – when you even get applause for saying “I told you so”, you know there’s something going on!

But there’s little point in going on about Vince. I think the real story here is how shifty and nervous George Osborne looked. His voice wobbled from time to time, sure, but the real giveaway was not in his body language or tone of voice. It was in what he said. Time after time, he appealed to higher authorities – “under David Cameron’s leadership”, “lots of economists agree with me”, “it’s not just me, as chancellor you’re part of a team”, “I agree with Vince”. He constantly prefaced his remarks with backup from someone more credible than him, implicitly acknowledging that Vince knows more than he does about economics (anyone remember that priceless Evan Davis interview?) by including Vince in this group. If there was any doubt about that, he more or less conceded it at the end, by feeling the need to chuck in the old “Lib Dems aren’t going to form the government” bollocks, because he could see that the way things were going, the conclusion people would draw from this programme would be to vote Lib Dem.

All we need now is for people to stick with that judgement, and not let themselves be swayed by the Tories’ spin machine.

George Osborne Is Still Not Fit To Be Chancellor

Today’s Guardian has this story about inconsistencies in George Osborne’s claimed savings from raising the male pension age:

The NIESR said Osborne’s team had made a mistake in their calculations, misreading a paper written by the thinktank earlier this year. Osborne aides originally based their calculations on a NIESR document in the House of Commons library. After his speech the thinktank sought clarification of his assumptions. It has recalculated the figures and will present them at a conference on Monday.

The NIESR aren’t, of course, the first people to wonder whether everything about Osborne’s plans really adds up; the Lib Dems’ very own Work and Pensions guru spotted this one a few days ago, commenting:

The only other explanation is that this is a figure for a whole Parliament – ie an annual saving times 5. Presumably in the 2016 to 2020 Parliament you could save over £10 billion from this measure, and then you are not far off the Tory figure. But the impression they seem to want to give is that this is a huge and specific cut, when, in the context of a Government deficit this year forecast to be in excess of £175 billion, £2 billion saving on pensions starts to look a lot more modest. Surely they can’t be trying to mislead us??

Why yes, Steve, they might just be. Not quite the fiddle you guessed, instead they are quoting the figures to us not in today’s money, but in 2020 money:

A spokesman for Osborne said the £13bn savings included inflationary rises between 2009 and 2020.

This, despite NIESR’s judgment that “There is no way of knowing how much it will save except in today’s money,” adding that (in today’s money) “the package that the Conservatives are proposing … will only raise £4bn [in 2016]”. The savings the Tories are talking about will only really fill out in about 2023. Not really going to help much with the deficit in the meantime, is it?

As our own Lord Oakshott comments in the Guardian’s piece: “This saga of incompetence and dishonesty shoots to pieces his claims to be a responsible chancellor.” Coming hot on the heels of a conference where the Tories main aim seemed to be to polish up George Osborne’s reputation and make him look chancellor-like, this is a bit of a problem for George. After all, it doesn’t look great for the NIESR to be holding a conference on Monday at which they essentially mark George’s work, and give him a “must try harder”.

Like Matthew Oakshott said at conference, Vince is a professional, George is an amateur. Not only do we realise it, not only do most people in business and finance realise it, but the Tories know it. Deep down. I watched the conference coverage of Tory conference on BBC Parliament. Ignoring, for a moment, the rather sullen response he got to some of his speech, lets talk instead about how many veiled criticisms were voiced from both the floor and the stage about Osborne’s lack of experience. On the afternoon when Ken Clarke spoke, the session which he lead was full of comments to the effect that people without any business experience shouldn’t be running our economy, to warm applause from the floor. All very well when you’re pointing up some of the experience of the Tory party’s business team, many of them parachuted straight from industry into the Lords, but it rather falls down when you remember that Boy George has done almost nothing in the world of business either.

Wikipedia offers us this summary of George Osborne’s experience before going into politics:

Osborne’s first job was to provide data entry services to the National Health Service to record the names of people who had died in London. He also briefly worked for Selfridges. He originally intended to pursue a career as a journalist, but, after missing out on a position at a national newspaper, was informed of a vacant job at the Conservative Central Office.

Brilliant. OK, so that’s not necessarily a sympathetically written description. But even the Tories’ own website can only manage this:

After a short spell as a freelance journalist, George joined the Conservative Research Department in 1994 and has since dedicated himself wholly to politics.

It doesn’t exactly suggest the kind of background experience that was repeatedly called for at Tory Conference, does it? I might as well throw in, for good measure, a quick reminder: Vince Cable was Chief Economist for Shell. Just mentioning.

The Tories hoped, following a decent conference turn from George, that these waverings might be dying away. George has come of age, they said. But it’s not just this, we’ve also recently had George’s imaginary secret documents. It’s quite clear that George still hasn’t learned to read those details properly. Many more revelations like these, and I’m not convinced that he’s quite so secure in his position as people assume.

And if he stays, and the Tories are serious about installing him as Chancellor, then we all ought to be very worried.

Cameron Tries To "Nudge" His Way Out Of Recession

The Tories have announced a plan today to give companies National Insurance breaks on employing people who have been unemployed for over 3 months. Detail on their website, but the gist is this:

It costs the government £8100 per annum in benefits payments and lost income tax receipts to support an unemployed person. So their proposal is as follows:

Private sector employers, who hire someone who has been claiming unemployment benefits for more than three months (13 weeks) and who has not previously worked for that company in the previous year, would receive a credit against Employers National Insurance Contributions. The credit would be worth £2,500 for full time jobs of 30 hours a week or more, or half that amount for part time work of 16 hours a week or more. It would be phased out beyond the higher rate tax threshold so that only basic rate taxpayers would be eligible for the full amount.
• To prevent companies making people redundant in order to replace them and claim the tax cut, the payment would only be available to companies that had made no redundancies in the previous three months, or for three months after claiming the credit.
• To limit the amount given in tax cuts to companies who are already growing rapidly, the tax cut would be limited to a maximum of 20 per cent of the workforce of any one company.
• The credit would be available for one year after the employee starts their new job.

David Cameron doesn’t believe you can borrow your way out of a recession, it seems. Instead, he seems to intend to Nudge his way out of one. It’s a pity, then, that in the words of Nick Clegg, “Cameron has drawn the fly on the floor”. This doesn’t help anyone who is already in a job. It doesn’t help businesses who are struggling to keep employing the people they already employ. It doesn’t seem likely to boost consumer spending all that much. It doesn’t even seem likely to genuinely get all that many people back into employment. All it really does is tip the scales in favour of people who have been unemployed for over 3 months.

Let’s look at this from the point of view of the people it’s aimed at: employers (and note, in passing, that the last two Tory tax announcements – VAT delay, and now this – have been aimed at helping business, not people in the most direct sense).

To employ someone on minimum wage full time costs them about £11,000 (depends what hours they’re on, so no point being too precise here). £5682 of that is above the Earnings Threshold, so National Insurance is paid on it, to the tune of 12.8%, or £727. So overall it costs the employer £11,727 to employ someone on the minimum wage. The Tory credit reduces that to £9227. Essentially, the Tories want to reduce the price of employing someone on minimum wage by 21%.

The significance of these credits only gets lower the higher the wage you’re talking about. Someone on £20,000 costs their employer £21,891 to employ. That becomes £19,391, a cut of 11%. Or if you’re on £30,000, it costs your employer £33,171, becoming £30,671, a cut of 8%. Much beyond that, the credits stop under the plan in question. So the jobs this is likely to have most impact on is those at the bottom end of the pay scale.

Fair enough. But now ask yourself this: Are you, a struggling company in the middle of a recession, going to set yourself back £9227 a year to employ someone who is currently unemployed out of the goodness of your own heart? I suggest that the answer is no. I suggest that most of the companies who are going to be taking people on in the next few years are the ones who had a pretty good chance of employing some extra people anyway: businesses who are just filling gaps left by employees leaving, or who are recruiting people they would have needed anyway. The Tories themselves admit that this would be true to some extent; the £2500 figure is based on an estimate that only ~31% of the jobs that would be created under this scheme wouldn’t have been created anyway. I suspect it would be rather less than that, depending on how bad the recession gets.

Is it too cynical of me to suspect that this isn’t really a Tory prescription for the recession at all? I reckon what this is is a bit of policy they had on the back burner as a remedy for long-term unemployment, which has been tweaked a bit and packed up in a shiny new box that says “Tax Cut!” on it, to cover up for the fact that the Tories, and specifically Gideon Osborne, don’t know anything about the economy, really, and it has only become obvious to them relatively recently that the “responsibility … sharing the proceeds of growth … no irresponsible tax cuts” line wasn’t going to cut it any more. Everyone else is talking tax cuts now, but they’ve got nothing much to announce, and the fiddly bits and pieces they’d come up with so far (Council Tax “freeze”, Marriage Bonus, Inheritance Tax threshold to millionaire-friendly level, etc) were looking a bit shabby and tight-fisted in comparison. Hence today’s policy.

It’s a good job we’ve got an economic team who were able to beat the rest of the parties to it, despite the slowing effect of the Lib Dem policy ratification process, isn’t it? We’ve had a revenue neutral package to really help people on low and middle incomes for over a year now. The way to create job growth is to give everyone a significant amount of their own money back. Spending goes up, jobs are really created, etc. Today’s Tory plan does next to nothing to mitigate the recession.

Go back to your drawing board and try again, Gideon and Dave.

Osborne’s Council Tax Freeze: A Few Questions

This morning, immediately before the speech by George Osborne, there was a bit of a buzz around the rolling news channels and on the Daily Politics that Osborne might be about to pull a bit of an inheritance-tax style rabbit out of his rhetorical hat. “Something to do with local taxation”, hinted Andrew Neil. Then I went out for lunch. Intrigued to see what it was when I returned, I flipped on the news channels, only to find that nobody was talking about it, preferring instead to keep up the constant general rumble about the US bail-out plan. Nothing very interesting, then, I guessed.

Turning to the internet to find out, this was confirmed: Osborne has promised a council tax freeze. Except he doesn’t have the ability to enforce it. All he’s doing is offering councils money from central government worth up to a 2.5% increase in council tax in their area (as I understand it). So, instead of raising the money locally, they are being encouraged to increase the centralisation of their funding stream (nicely localist, George). I wonder if any other strings will be attached to the money?And would the money be withdrawn if a council stepped over the 2.5% threshold, or would it effectively just be a bit of extra money for councils. (That might explain Osborne’s projection of 100% take-up for his scheme.)

The real test on this is whether the Tory government would reverse the Labour trend of demanding that local councils provide certain services or fund certain projects, without providing them with sufficient money to pay for them, thus forcing them to take the political hit for raising the taxes necessary to fund them, while central government basks in the glory of simply having mandated the fruits of said spending. If not, then all that this will mean is an escalation in huffing and puffing by the national Tory party, whilst local councils put up council tax because they have to.

Of course, a genuinely localist party who genuinely wanted to do something about council tax might… oh, never mind.