I’m not sure the coalition agreement lives up to the billing. Compared with budget plans the government has inherited from its Labour predecessor, the agreement includes no specific new spending cuts, lots of public spending pledges, copious tax cuts and a commitment to faster deficit reduction. Unless there are huge spending cuts or tax increases planned but not yet announced, far from contracting, the deficit is about to deepen.
Mr Osborne will have to announce public spending cuts of £57bn a year by 2013-14 from a non-protected budget of about £260bn – cuts of about 22 per cent. The next few months will see the government progressively coming clean about these figures, blaming its predecessor for the mess it has inherited, and softening the public up for the brutal cuts to come. Read more
Gilts down, sterling down and UK equities down. These things have followed news of a hung parliament in the UK, but there is plenty more bearish news out there to spook the markets. For example: (1) Yesterday’s record 1000-point intraday drop in the Dow, due to a clerical error or some massive sales, depending whom you believe; (2) Fears of further sovereign debt crises in Europe, where equities have been falling for days; and (3) Japan’s decision to inject $21.6bn overnight liquidity — using a crisis-era tool last used (to this extent) in late 2008.
Apparently, there is a great turnout today – some pundits are saying it might be the highest since 1997. But which party benefits most from high turnout?
Here is one indirect – some would say tenuous – answer: (1) the gap between Conservative and “progressive” (Lib+Lab) votes narrows when turnout is high (see table); (2) the occasional voter tends to be more progressive than conservative (a controversial claim based on the idea that conservative voters are more motivated to perform their civic duty); (3) the progressive parties will split votes. Read more
In the last election, one seat required 26,900 Labour votes, or 44,300 Tory votes, or 96,600 Lib Dem votes. That astonishing Lib Dem figure – almost four times as many voters for a yellow seat than a red – is in fact a vast improvement on their historical average.
How the UK electorate has voted over time. The clear winner over time has been the “Didn’t Vote” party….
*Update* N.B. Our commenter rightly alludes to the disenfranchised, who are not shown on this chart at all. “Didn’t vote” covers those registered, but not voting.
Fancy a bit of light relief after all that voting? Try to fix the UK deficit yourself with the FT’s interactive game, and see how bad the economy really is!
Based on pretty much the same opinion polls, how can UKPolling report predict the Conservatives will be 52 seats short of an overall majority, while FiveThirtyEight predict the shortfall will be only 18?
My colleague Alex Barker on the Westminster Blog sums up the arguments very neatly here, and if you want to read the full threads of the political nerds at war, all the links are here on the FiveThirtyEight site. I will just point to the evidence for both sides and then add some observations about the 2010 exit poll, which should give a pretty good prediction of the result at 10pm tomorrow.
Although there are quite a few differences between the models the big difference is that traditional UK predictions on seats are based on a uniform national swing, while the new kids on the block suggest a proportionate loss model is best. Uniform swing assumes that the national percentage point change in votes for a particular party will be replicated in every constituency. Nate Silver at FiveThrityEight argues that it is better to assume Labour loses the same proportion of its vote in each constituency, with the result that the percentage point losses are greater where Labour scored well in 2005.
What evidence exists? Read more
If anyone had hopes that the final leaders’ debate would provide answers to the huge issue of cutting the budget deficit, they would have been sorely disappointed. All three leaders ducked the issue.
Although they were asked to spell out the coming spending cuts, all stuck to a familiar script of evasion and bickering.
Nick Clegg highlighted tiny spending cuts in defence from and biometric passports which are nothing like the sort of scale of cuts he recognises are needed. He even damaged his part’s reputation for slightly greater candour on spending cuts by getting close to pledging to protect hospitals and schools from cuts in his opening statement.
Gordon Brown did not mention spending cuts at all in his first answer and repeatedly insisted that the £6bn of spending cuts the Conservatives propose for 2010-11 would threaten a double-dip recession, while the more than £12bn of tax increases in 2010-11 had no effect on the economy.
David Cameron gave the impression that the Conservatives had spelt out difficult choices ahead and then mentioned a pay freeze in the public sector, an area which saves about £3.5bn and to which all parties have signed up to something very similar. Of the rest of the £46bn or so spending cuts a Conservative chancellor would need to introduce for the next three years, we heard nothing.
According to the on-screen worm judging the popularity of each leader in real time, Read more
This is probably wishful thinking, but I would like party leaders tonight to do the following:
Too much to ask? I will come back to this after the debate.
David Hale, the US economist, told Australian TV last night that Mervyn King believes the coming fiscal austerity will keep the next government out of power for a generation.
“I saw the governor of the Bank of England last week when I was in London and he told me whoever wins this election will be out of power for a whole generation because of how tough the fiscal austerity will have to be.
And now we have the problem that it may not even be a majority government, it may have to be some kind of coalition government or some kind of informal coalition where one party agrees to support the other party, at least in producing a budget, and none of that will be good for financial confidence. I’d be very bearish right now on both the British pound and on the British Government bond market.”
Since Mr Hale thinks it is OK to speak freely about a private conversation, for the interests of clarity, I will do the same.
Mr Hale did not meet the governor of the Bank of England last week as he has claimed. In fact he met him in early March, long before the election campaign and long before the Budget on March 24. At a private breakfast meeting on March 12, Mr Hale reported a similar, but not identical, account of his conversation with the governor. I was present. His remarks about Mr King struck me at the time as exaggerated. Read more
The UK election is dominated by the ramifications of no political party gaining a parliamentary majority and the cross-party co-operation that might follow. A different form of future co-operation was raised by Sir John Gieve, former deputy governor of the Bank of England, today – that between the Bank of England and the Treasury.
I am deeply indebted to my colleague James Mackintosh, the FT’s investment editor, who heard Sir John this morning. It certainly makes interesting reading and goes a lot further than Sir John went in his final speech as deputy governor last year. Read more
I am at the Institute for Fiscal Studies launch of their election analysis. It is a pretty dismal affair; not because the work is bad, but because all three main parties’ plans are woeful compared with the necessary repair job for the public finances and the tax system.
The differences between the parties on the public finances is small, IFS says and, as the FT demonstrated yesterday, all parties’ “public spending plans are particularly vague”. The big row over the speed of fiscal tightening makes “a relatively modest difference to the long term outlook for government borrowing and debt”. Read more
UK politicians looking to slash public spending or increase taxes should reduce losses from fraud in the public sector instead, estimated at a whopping £38bn. So says a report by accounting firm MacIntyre Hudson LLP, in conjunction with the Centre for Counter Fraud Studies at Portsmouth University.
Fraud* – “where someone intentionally or recklessly obtains resources to which they are not entitled” – is grossly underestimated in the UK, argues the report. Of 132 investigations into fraud in the public sector in the past decade, the average loss rate was found to be 4.57 per cent of total spend. The UK Treasury, by contrast, reports just £4.2m fraud, or 0.026 per cent, though this is qualified with the admission that “the analysis does not necessarily offer a complete picture”. Read more
In his press conference this morning, Gordon Brown had a nice line about the Conservatives. He said: ”Novices cannot be trusted with the recovery”. His abuse of statistics throughout the press conference simply screamed: “The prime minister cannot be trusted”.
Here are two examples. Read more
Ken Clarke, shadow business secretary, is an angry man and thinks British politics is being trivialised.
“We are in danger of treating this election as if it is just some TV celebrity talent contest. Read more
Now that all the party manifestos are out, they make pretty rum reading. Those outside the UK might think that when you are running an 11 per cent-of-national-income budget deficit, this might dominate politics and the parties would be falling over themselves to tell the public how they planned to sort it out. Not a bit of it. Today’s FT shows the main parties are all at least £30bn short of describing the public spending cuts that will be needed in the first three years of government alone, just to meet the Treasury’s forecasts. And a longer piece goes into the detail of Britain, a country drenched by the deficit.
The trouble is, as an economist friend of mine told me yesterday, this is an equilibrium position. If one party conceals the truth from the electorate or thinks the others will, it makes sense for them all to follow. No one wants to be portrayed as offering misery and gloom if they win. Read more
The Liberal Democrats usually get away with little scrutiny of their specific policies because the party will not form the next government, even if it might be highly influential in the event of a hung parliament.
Without going through the 109 pages in detail, there is good, bad and downright ugly aspects to the LibDem claims and plans. Read more
Unnamed “experts” are wheeled out in the Conservative manifesto to bolster the Tories’ fight against the planned rise in national insurance contributions. The manifesto warns:
“This jobs tax, which will hit small businesses especially hard, will kill off the recovery. Experts predict it will cost 57,000 jobs in small and medium-sized businesses alone”.
But there is another expert the party has, for some reason, decided not to quote in its manifesto—Rupert Harrison, the Conservatives’ chief economic adviser. Yesterday, the party referred enquirers on national insurance to a peer-reviewed article he co-authored in the esteemed Economic Journal in 2007.
Perhaps the party did not expect journalists to bother to read or understand the equations. Read more