Monthly Archives: March 2014

Every week or so, in my previous job as comment editor, I would chat to Sir Samuel Brittan about his column. “Sam”, as he prefers, would have two or six suggestions and he was too polite to let on whether the conversation was mere courtesy. Despite his uncanny ability to arrive at my desk five minutes before deadline, it was invariably one of my favourite moments; the FT can be a special place to work.

I would occasionally suggest to Sam that he write about, say, the latest development in the eurozone crisis or the most recent announcement by the UK government. He would give the uncanny impression of someone contemplating what I had said. But soon enough, I had been enlightened as to the irrelevance of the emphemeral. More than once, Sam explained as follows: “I’m more interested in ideas.” Read more

At the Budget last week, George Osborne said that “under this government income inequality is at its lowest level for 28 years”. Talk about chutzpah. Not only is this fact reflective of the financial crisis and the response of the social security system it is also marginal in a historical sense.

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On Tuesday, official data showed that UK inflation, as measured by the Consumer Price Index, rose by 1.7 per cent in the year to February, a slower pace than the 1.9 per cent reported last month. Employee earnings adjusted for CPI fell at their slowest pace since April 2010. If “real wages” were to rise this year, the government hopes this fact would protect it from attacks by the opposition Labour party about the cost of living. The gap between inflation and earnings is more than simply a technical matter.

However, that makes the technicalities more important to understand. The analytical debate about “real wages” tends to focus on measures of wages. But how inflation is measured obviously matters, too. This chart from the Resolution Foundation shows two forecasts for real weekly median earnings – one using CPI and the other using RPI-J, a supplementary measure that includes housing costs and has a controversial history.

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In the capital, about half of households rent. The other half own.

At present, the official of national statistics’ monthly house price data are a cause of mixed emotions; there needs to be a psychological term for renters’ remorse.

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The pension reforms announced at the Budget have jolted Westminster from its pre-election ennui. Conservatives and Liberal Democrats are cock-a-hoop. But “It has been a disorienting few days for the opposition”, as Rafael Behr writes.

This is what can happen when a new policy is as uncompromisingly ideological as the change to annuities. Most of the objectives for government policy are not inherently divisive; parties tend to disagree over means rather than ends. In this case, however, the chancellor succeeded in making whether one supports or opposes the idea of voluntary annuities a case study in moral discombobulation. Read more

I like it when one chart demolishes two myths.

The graph below from Citi’s Michael Saunders shows how the coalition government has consistently delayed its fiscal tightening.

This suggests how the chancellor has been less dogged in pursuit of “plan A” than often believed. If you were being kind you could say it was a sign of pragmatism. But it also indicates how, contrary to the Budget rhetoric about responsibility, George Osborne is funding some tax cuts with temporary revenue-raisers and unspecified spending cuts. Ironically, it is the sort of financial short-termism depicted above that worries the morte thoughtful critics of the chancellor’s pensions changes. Read more

“HS2 chief envisages benefits across north ” Financial Times, March 18

I’m buzzin’ for high-speed rail, like the rest of Manchester.

Some might say.

It’ll be supersonic.

It won’t be that fast but it will cut journey times among some cities north of London and between them and the UK capital, according to High Speed 2 Plus.

What’s that?

The latest master plan for the controversial rail network.

That’s well mint.

Doubtless. But before you acquiesce to a £50bn project, shouldn’t you ask for whom it is well mint? Read more

On Thursday, the Institute for Fiscal Studies delivered its verdict on the Budget. If you prefer prose, I recommend director Paul Johnson’s lucid explanation. But for pithiness, you can’t beat this slide from Gemma Tetlow’s presentation:

For all the chancellor’s talk of investing for the long-term, the evidence from the IFS suggests that he is doing the opposite: funding permanent tax cuts through temporary schemes and to-be-determined spending cuts. Read more

In spite of his genuinely radical pensions reforms, George Osborne’s Budget had a familiar underlying theme: austerity will be with us, or at least some of us, for the rest of the decade. In this respect, the next parliament will be like the last.

However, the way the public finances are measured will change. The below is quite wonkish but it could have an important political consequence, making it more likely that the chancellor will meet the second part of his “fiscal mandate” – that public sector net debt excluding financial transactions is falling as a share of GDP by 2015/16, despite nothing having changed in the real world.

I’ll try to make the following as painless as possible. Read more

The pension changes announced at the Budget are explained quite well in the formal consultation document. I like the additional freedom being offered to pensioners. I don’t weep for the injuries to the annuities industry. But I’m worried about the short-termism that could be unleashed and the scope for new charlatans. It is no coincidence that behavioural economics is arguably most useful in pensions policy, when it helps to overcome inherent biases towards undervaluing our lifespans.

One aspect that has been neglected so far is social care – and this could end up being the test of the wisdom of the reforms. Paying for elderly care is one of biggest and fudged issues in public policy. Labour policy is that social care services should be merged with the NHS; thus it would be paid for out of taxation. When the opposition works out what it thinks of the proposed reforms, I’d expect it to talk a lot about social care.  Read more

When the new pound coin was compared with the threpenny bit, a currency that I think was last used in 1368, we should have known this would be a Budget for those in their dotage. The Conservative party’s core vote has eroded, in part because of the rise of the United Kingdom Independence party, which for all its huffing about the EU is more concerned with the familiar: immigration and living standards. The chart below, via IpsosMori/the Guardian shows the extent of this erosion. It depicts voting intention by age. Last year, for the first time, baby boomers became no more likely to say they would vote Conservative as the so-called Generation X (1966-1979).

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At Wednesday’s Budget, the chancellor announced details of the “welfare cap”, which was first proposed in 2011. This is different from the benefits cap: the limit on the amount one household can receive in benefits per week. The former is a big, potentially sensible idea; the latter is a small, stupid idea.

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Consider this a graphic complement to your bluffer’s guide.

1. This is Britain’s fiscal future. Taken from the IFS, it shows how we are not yet half way towards the full fiscal consolidation planned by this government. This amounts to about one-tenth of national income. The colours within each bar show how consolidation is biased towards spending cuts and against tax rises, and how benefit cuts will take up a larger share in the next parliament.

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Mike Brewer from the Institute for Fiscal Studies published a cogent note on Tuesday about the UK government’s “tax-free” childcare. It echoes some of the points I tried to make yesterday about the changes, namely that they are broadly sensible but there is no firm evidence to say that they will do what they are supposed to do, i.e., increase the number of parents in work. There is a big risk that simply subsidising demand will translate into higher sticker costs for parents since the supply side of the market is not working as one would hope of a competitive sector. This is without getting to the argument of whether we should think of nurseries as a market in the first place.

But Mr Brewer makes another important point. A household is eligible for tax-free childcare if the parent(s) are both working and neither receive financial support through working tax credits, or in the future, Universal Credit. What do you need to do to be classified as “working” and therefore ensure that your family gets up to £2,000 in support for childcare? You need to self-certify that you earn £50 per week. No income tax or national insurance is paid at this rate, so it would be hard for HMRC to check. “There will also be a very large incentive for some second earners to claim that they are earning that much: it could be worth thousands of pounds in childcare subsidy”, Mr Brewer writes.  Read more

The previous post looked at the changes announced on Tuesday to “childcare accounts”, a subsidy to working parents to help pay for nursery and/or childminders. But for lower income parents, there was a more important change announced regarding Universal Credit, the government’s all-singing, all-dancing, not-yet-working reform to the benefits system, due to be rolled out at some point in the next few years.

Most of the coverage on the childcare changes has focused on the subsidy. But the Universal Credit changes are important and they affect a lot of people: about one half of all households with dependent children will receive UC.

The childcare fix announced today suggests how, in a complex system where rates are being changed from year to year, such disincentives can still emerge. The change sounds simple: under UC, the government will now pay for up to 85 per cent of childcare costs, rather than 70 per cent, as previously proposed. This is why it was necessary:

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This chart shows why affordable childcare matters:

On Tuesday, the government announced tweaks to the childcare policies it introduced at last year’s Budget. It says that these changes will help parents with childcare costs and therefore support those wishing to return to work. Will they? Read more

Wednesday is the UK’s Budget day. For those who enjoyed exams when they were younger, this is a glorious occasion; the chancellor announces lots of new information, including some things have that haven’t been leaked, and he prompts a scramble to understand what it means. Normal people and the rest of the world find the scene baffling. But there is a good chance you will be called upon to say something intelligent about this unintelligible event – and that this will happen before any typically-brained human being will have been able to analyse the figures.

Here are seven things that you can say in any conversation about the Budget. This bluffer’s guide has the advantage that you don’t have to watch the event.

1. “Any announcement worth less than £10bn is not worth discussing.” No-one wants to seem without perspective or worse, vision. And vision means the big picture and the big picture means big numbers Read more

The nature of low pay has changed since the introduction of the minimum wage, 15 years ago. The chart below from the report shows that extreme low pay – earning less than half the median wage – has been nearly eradicated. But low pay – earning less than two-thirds of the median wage – is as prevalent as in the late-1990s.

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Ed Miliband’s announcement on the EU in the Financial Times today is partly a recognition of this:

But it is also made with a keen awareness of this:

The Labour leader is trying to stem the bleeding of support from his party to those on the right. Europe might not be a salient issue but in today’s populist climate, it is a symbolic one. Read more

I know what you’re thinking: Alex Salmond doesn’t need political advice. He is a MacMachiavelli, a crafty schemer, “the best politician in Britain”™.

But if the referendum on Scottish independence due September 18 were held tomorrow, the Scottish National Party leader would lose, opinion polls suggest.

What to do?

I don’t claim to support this idea but what if the SNP leader were to pledge a second vote after negotiations for independence were concluded? Scots could better understand what it is they are actually voting for and perhaps those inclined towards Devo Max would find it an attractive option. Read more