Economy

In his conference speech, David Cameron said a Conservative government released from coalition would make two changes to income tax by 2020. He presented the first – a rise in the amount of money people earn before they pay income tax to £12,500 – as a tax cut for minimum wage workers. He presented the second – a rise in the level at which workers start paying the 40p rate of income tax to £50,000 – as a tax cut for the middle class. Neither change is quite what Mr Cameron says it is.

The chart below suggests how much people making various incomes stand to benefit from the changes. (Source: Ben Richards.) Treat it as illustrative: the exact numbers will depend, among other things, on when the cuts are introduced. But it shows how the bulk of the benefits would be skewed towards those in the top quarter of earners.

 

The Parisian arriving in London by train alights at a resplendent station. St Pancras, and the adjacent King’s Cross, make Gare du Nord look like a provincial hub. The surrounding area, once a ramshackle collection of properties, is gleaming with new hotels, offices and prime accommodation. It is a clear sign of how London’s economic geography has changed in the 21st century. The inner city has developed rapidly. Poverty is moving to the outskirts of the capital. As its core grows faster than its periphery, London is becoming more like Paris. 

Many people make irrational, uninformed and potentially devastating decisions about what they do with their money. They can be bamboozled or defrauded by those with better information or cruel intentions. The financial crisis was only the most acute reminder of how pervasive poor decision-making can be when it comes to money.

From today, pupils aged 14-16 in the UK will be taught “financial literacy” as part of the national curriculum. They will be taught about credit and debt, savings and pensions, and public finance. (It is like the FT graduate scheme on a massive scale.) The hope is that this will better equip youngsters to make smart decisions about what to do – and what not to do – with their money as they go through their lives.

Will it work?  

On Tuesday morning George Osborne was asked by the BBC’s Evan Davis whether he’d rather fund Crossrail 2 or trans-Pennine rail, assuming that both projects had a positive benefit to cost ratio. Politicians tend to shun hypothetical questions but the Chancellor of the Exchequer used this one to make the following argument:

‘I hope we don’t have to make a choice between the two. I think the real choice in our country is actually spending money on this big economic infrastructure, transpennine rail links, Crossrail 2 in London and the like, and spending money on, for example, welfare payments which are not generating either a real economic return and at the same time, are trapping people in poverty.’

Whenever someone mentions what the “real” this or that is, be careful. There are many choices involved in how the British state should spends its tax revenues and indeed what size the state should be in the first place. To reduce them to one “real” choice representing a fraction of overall spend is like saying that the real choice I face is between a Heart of Midlothian season ticket and feeding myself. (Essentials, both.)  

An independent Scotland would not have to join the EU. But most Scots want Scotland to be an EU member and it is a central plank of SNP policy. There is no precedent, however, for what happens if part of a member state becomes independent and wishes to remain part of the EU. (Greenland, Germany and Czechoslovakia are all relevant but different cases.) This is one reason why both sides have been vigorously engaging in claim and counter-claim over EU law.

 

I don’t want to get carried away – it is all too easy to admire someone’s goal and their tenacity while forgetting to evaluate them based on their results and in their historical context. At this point, it takes Govian willpower to say that his structural reforms to the education system have been a success – for three reasons.

Firstly, and rather obviously, we hardly know anything about the performance of children that have attended free schools, or those who have been taught under the Gove era. Ofsted reviews of free school suggest they are no better than others. What we know about the features of the best performing schools across the world (mostly teacher quality but also data-driven classrooms, high aspirations, longer hours, etc.) are only sporadically apparent in the first waves of free schools.

Secondly, the National Audit Office and others have raised serious concerns over the transparency of the selection process, free schools’ availability where they are most needed, and the looming trouble in the department’s capital budget. Collateral damage from a battle against an incalcitrant bureaucracy? Perhaps. When you blast a blob goo comes out. But one can not read these reports and celebrate success.

Thirdly, Mr Gove may have been the most radical reformer in the coalition but his changes should be seen in their proper context. Checking them against Thatcher’s legacy is important. So too is realising that they are a turbocharged version of the reforms began under the Blair government – free schools are academies. (Literally – they are academies under law.) I sense a tendency among some Conservatives to confuse how Mr Gove revolutionised the party’s views on education with him being the first and only person in the country to want to shake up the schools system.  

Today’s young people are less likely to booze, take drugs or commit crimes than previous generations. They are sober, serious and staid. Socially, their maturity belies their years. But as a new report makes clear, the Great Recession has made them economically juvenile: in receipt of more support from the state and from their parents. Young people are growing up faster and slower than their forebears.

In their annual survey on living standards in Britain, the Institute for Fiscal Studies and the Joseph Rowntree Foundation suggest that the fastest growing type of inequality over the past five years has been between the young and the old, rather than between the rich and the poor or London and the rest of the country. (There is of course overlap here, and the IFS says the rich-poor divide will soon widen.) This rupture promises to affect the future of Britain’s economy for generations to come.
 

Not a single track has been laid for High Speed 2 and yet George Osborne is already talking about “High Speed 3″, an extension of the project to link Manchester and Leeds. In a speech on Monday in Manchester, the chancellor spoke of his support for a “Northern powerhouse”: a conurbation to rival London, connected by transport links such as HS3, and governed by independent mayors. It is an excellent idea.

Although there will be a temptation to see Mr Osborne’s speech as simply another part of the HS2 debate, that would be simplistic. It represents the coming together of different conceptions of the future for British cities – and as ever political necessities.


 

Not content with writing brilliantly about one wizard, JK Rowling has blogged about Alex Salmond. In a post on her website the Harry Potter author explains why she is donating £1m to the No campaign – and will be voting against Scottish independence.

I encourage anyone interested in the referendum on Scottish independence to read Ms Rowling. She expresses more clearly than most unionists the idea that patriotism is compatible with scepticism of independence. Ms Rowling may also help to explain why the Yes campaign is struggling to convince women. Hers is a proud, quiet and pragmatic defence of Scotland within the UK, one that will chime with many voters.  

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”.