Open Road

Thursday Nov 27th 2008

PBR – the terms of the debate have changed

It is rarely that the terms of the political and economic debate change fundamentally in a Budget or a PBR.  But they have this time.

Borrowing of £118 billion is at a quite staggering level.  This is twice as high as John Major had in the mid 1990s and he had to introduce 19 tax rises and massively squeeze public expenditure to deal with.  It took 4-6 years to get the public finances back in shape in the mid 1990s and it will take at least as long as that to do it now.

So the next government – between 2010 and 2015 or thereabouts – whoever they are – will have to massively raise taxes and slash public expenditure.  They will simply have no choice.

Labour’s spending plans in this PBR involve taking the axe to public spending from 2011 to 2015.  According to the IFS, if health spending is protected, then every other government department will need to have a freeze during this period.  All capital expenditure is frozen.  For Labour this is an extraordinary admission.  It has stood for capital investment in the public services ever since 1997 and its criticism of the Tories’ lack of capital investment in the 1990s was one of the many reasons why Labour came to power.  The public services and the public realm will face a massive squeeze for at least five years after 2010.

Monday Nov 24th 2008

Pre-Budget Realisations

My guesses from a quick skim what we will all start to read about in the newspapers over the next few days:

First of all of course some sneaky tax increases not mentioned – as well as the increase in rate for those earning over £150,000 tax allowances for those earning between £100,000 and £140,000 will be halved – this will raise £1.32 billion by 2011, about twice as much as the increase of the top rate.

I am sure we all heard that sin duties on fuel, alcohol and tobacco are going up to compensate for the VAT cut. What you may have missed is that when VAT goes back up duty will stay up. And incidentally fuel duty goes up 2p a litre from next Monday.

You might have thought that after last time government would have learnt about taxing pensions, but in fact pension lifetime and annual allowances are being frozen, netting an extra £400 million by 2011.

The idea of the government’s measures is they blow a hole in the finances now but then start to fill that hole by 2010. However, a quick glance at Table B5 will reveal that this depends on further value for money savings. These, whilst worthy, always have a slightly surreal, non-cash generating air. Apparently 86,700 civil service posts were lost between 2004 and 2007. However, the size of the civil service went down from 530,000 to 490,000. So, there must have been some new posts.

There are some other optimistic wheezes lying at the back of the budget – estimated unemployment claimant count of 1.41 million only in 2009, and estimated Consumer Price inflation of a paltry 0.5% by the last quarter. Pessimists may note that Retail Price Inflation is estimated at a spectacularly deflationary -2%.

You heard it here first.

Monday Nov 17th 2008

Boris: 6 months on

Andrew thinks he’s doing rather well, Dave is less convinced. Fair-minded Martin can see both sides of the argument. This writer thinks that, of the ragbag of City Hall watchers who regularly put fingers to keyboards, the commentator who’s nailed it best is wise old Tony.  I guess you don’t get to run the LSE’s “Greater London Group” (whatever that is) for nothing.

Friday Nov 7th 2008

Change is here

I met up with friends on Wednesday and celebrated the amazing realization that Barack Obama was going to be the next President of USA. For the whole day we thought we were dreaming.

I am a mixed race Londoner and throughout the day I felt like I was having a wonderful dream. My fear was, that at any second my alarm clock was going to wake me up.

Yes, this is a victory for every black person dead and alive, but it is also a massive victory for every race. Let’s hope that from this point on different races can start to live their lives without hidden prejudices.

The people of America have shown that they can look up to, respect and trust a black man to run their country, so surely communities can also do the same amongst each other.

May 2010 Prediction: Labour to win the General Election

Place your bets now – William Hill are offering 9/4.

The economic crisis has not been good news for David Cameron and the Opposition. Logic suggests that they should now be out of sight in the polls given the almost miraculous scale of the Government’s failings. Instead, although already healthy, support has not budged. It may even be ebbing away.