Monthly Archives: April 2014

The approach taken by the UK government to estimate the effects of the carbon budgets on economic growth uses the HMRC CGE (“computable general equilibrium”) model. (See the 2011 carbon plan, p.181). This model has proved controversial for its use in assessing tax cuts but its use in climate change policy also warrants scrutiny.

Here is how it works:

First, calculate how the economy would work under a few simplifying assumptions.

Suppose there is never any unemployment or idle capacity.

Suppose there is no risk or uncertainty about the future.

Imagine there is no financial system or monetary policy. Read more

In an ideal world all zero-hour contracts would be of the Augie March variety: they would represent the preference of an individual for freedom and flexibility. Instead, they are too often the unwanted consequence of a low wage, insecure labour market.

Data released Wednesday morning by the Office of National Statistics tell us more about zero-hours contracts, longstanding arrangements that have been more widely used and more widely discussed in the aftermath of the last recession. The data, as well as new research from the Resolution Foundation tell us more about how many people are employed under these arrangements – and, crucially, who they might be.  Read more

Christian Wolmar has written a short history of High Speed Rail 2 for the London Review of Books. “What is the point of HS2?”, he asks. The transport commentator is an opponent of the project, which passed through another legislative tunnel on Monday evening. Nevertheless, his essay is a sober account of why HS2 is going ahead, despite the protean arguments of its supporters. For anyone beguiled by the voodoo economics of both sides of the debate, it is an essential read.

Wolmar contests that the shifting claims made for HS2 reflect its haphazard origins. None of the major rail reviews of the Labour government recommended a north-south line, Wolmar says. He argues that the creation in 2009 of High Speed Two, the government-sponsored company in charge of the project, was partly a political response to Conservative support for the idea and partly a response to environmental concerns about expanding Heathrow. Under the stewardship of Andrew Adonis, Labour’s fervent reformer, it soon became a central part of its economic response to the crisis. The coalition government adopted it as an emblem of the Conservative party’s modernisation and, incongruously, a way of both “rebalancing” the geography of the economy and winning a “global race”. Read more

In February, I wrote about the increase in the use of food banks. This is a charged issue, not only because of the origin of the lad on the front page of the Daily Mirror.

Charities such as the Trussell Trust argue that more people are receiving food parcels because more people need food. Demand is up, they say, partly due to specific changes to the benefits system made by the coalition government.

The Department for Work and Pensions says the increase is about supply rather than demand. It argues, for instance, that there are many more food banks than there were five years ago and points out that if things are free then people will want them. Media coverage about the issue might also have raised would-be users’ awareness.

On Wednesday, the Trussell Trust released data for the financial year 2013/14.

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On Wednesday, the latest official employment data released by the Office for National Statistics showed a fall in the unemployment rate to 6.9 per cent and a rise in the growth rate of one measure of annual earnings. Strong stuff. Important stuff, too – and not only for the Bank of England and what’s left of its forward guidance policy. The relationship between wages and prices is politically important; the government has been keenly waiting for the day that pay outpaces inflation.

Is this the day? Not quite.

This is perhaps the most important chart from the ONS release. It shows the annual growth rates of CPI inflation (yellow line) and pay including (dark blue line) and excluding (light blue line) bonuses for the past five years. The latest pay data refer to the annualised growth over the three months from December to February. As you can see on the right hand side of this graph, for the first time in about four years, there is convergence: total pay (including bonuses) for employees was 1.7 per cent higher than a year earlier and CPI inflation in February was also 1.7 per cent.

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Dynamic modelling sounds like something Cara Delivinge might do as she scatters hashtags across Instagram. But it is actually even more subversive and exciting than our Cara. If the advocates of this mathematical economic modelling technique get their way, then it could transform how public policy is assessed in Britain. In doing so, it could make arguing for tax cuts and a smaller state a lot easier.

Let’s look back to the Autumn Statement. In its response to the chancellor’s annual announcements, The Taxpayers’ Alliance highlighted three areas where it says there are “weaknesses in tax policy”. Predictably, one weakness is that taxes are too high. Another is that there are too many of them. But the third recommendation is more esoteric. The pressure group said that “dynamic modelling” should be used for “all fiscal policy changes announced by the government”.

What is so important about this?

One clue comes in the form of a paper released on Monday by the Treasury and HM Revenue & Customs into the coalition’s policies on fuel duty, the tax on refined petrol, diesel and other fuels.  Read more

I studied for an undergraduate degree in England and for a masters in the US. In America, I learnt of the debt some of my fellow students had taken on. The English system I had studied under from 2003 to 2006, and which ended in 2012, seemed relatively generous. But after reading Thursday’s report by the Institute of Fiscal Studies into what the new system of student funding means for future graduates from English universities, I suspect that the idea that the average American graduate is more indebted may soon no longer hold. Graduates of English universities could shortly become the most indebted in the world. Read more

The Uses of Literacy (1957) by Richard Hoggart, who died on Thursday, was a book that shaped how many Britons see their culture and politics. Published the same year as Michael Young’s Family and Kinship in East London (1957), it showed the rhythm and cadence of lives in industrial communities, which had been muffled by the haughtiness of Britain after the second world war. As the historian David Kynaston tells us in Modernity Britain (2013), Alan Bennett said The Uses: “made me feel that my life, dull though it was, might be made the stuff of literature”.

Not everyone felt that way. Kynaston also quotes from Kingsley Amis’s typically lordly and disdainful review of The Uses: “It would be pleasant to say of the book written out of such obvious earnestness and decency of feeling that it represented an achievement, but it is only an attempt.” You can see where Martin gets it from. Read more

Iain Mansfield has won the “Brexit” prize, a competition run by the Institute of Economic Affairs think-tank to find the best way for how Britain could leave the EU. The diplomat has also written a fantasy novel called Imperial Visions. I would love to say that Mansfield confused his non-fiction and fiction but that would be harsh; his essay is thoughtful and more reasoned than the headlines greeting it suggest.

But ultimately, I think Mansfield is slightly too generous to his own analytic case in some places. But it is not as if he says that Brexit would bring a more prosperous future. Rather, he thinks it’s a wash. After reading this essay – one meant to outline the best course for UK withdrawal from the EU – I am left more convinced, rather than less, that the burden of proof remains with those proposing Brexit.

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Statistics released on Wednesday by the Higher Education Funding Council for England show that the number of overseas students studying at English universities has declined for the first time in 30 years. The data should raise concerns about the openness of the UK to the rest of the world. It is hard to win a “global race” if fewer people want to start on your track.

The chart below shows the number of overseas full-time undergraduate students entering an English university each year since 2005-6. Students from the rest of the EU are represented by the red bars and non-EU (“international”) students by the blue bars. The figures between the bars show annual percentage growth. Read more