Monthly Archives: November 2011

Kiran Stacey

Most of the exchanges at PMQs today were fairly predictable in the light of yesterday’s autumn statement. Ed Miliband accused the prime minister of having failed to meet his fiscal plan; the prime minister accused Labour of wanting to borrow even more.

But there was a fascinating undercurrent running throughout this session, one that took us back to the politics of the 1970s and 80s.

It began with Miliband’s first question. Perhaps surprisingly, given links to the unions are often perceived as one of Labour’s weak points, he went straight in on the strike action by public sector workers taking place across the country today. Not only that, but he identified overtly with those on strike: Read more

Welcome to the Westminster blog’s live coverage of chancellor George Osborne’s autumn statement. One of the most eagerly anticipated statements since the coalition government took power was expected to offer a gloomy prognosis on the economy. Michael Hunter and Gordon Smith from the FT main newsdesk covered the statement live from 12.30 with additional comment from FT colleagues.

14.10 Thanks for joining us. You can find much more, including the full text of the chancellor’s speech and comprehensive analysis, including video interviews, at more

Kiran Stacey

Unless there is a last minute U-turn in Whitehall tonight, one of the ways which George Osborne will pay for the various jobs and infrastructure schemes in Tuesday’s growth review will be to squeeze tax credits.

This is a result of protracted bargaining – Osborne wanted to freeze benefits, but the combined efforts of the Lib Dems and Iain Duncan Smith put a stop to that. Eventually the compromise was made that credits would come under the axeman’s blade instead.

So who suffers if these are frozen or cut? Read more

Nick Clegg has moved to strengthen his team in Whitehall with the appointment of Neil Sherlock, a KPMG partner in charge of public affairs, as his “director of government relations”.

Mr Sherlock is one of a new intake of Liberal Democrat special advisers – Spads in the jargon – who have been brought into government to ensure that Mr Clegg’s influence is felt across all areas of government policy.

The KPMG man is the ultimate Lib Dem insider. A former parliamentary candidate, he has written speeches and provided advice for a series of Lib Dem leaders (except Charles Kennedy, with whom he enjoyed frosty relations). His wife, Kate Parminter, is a Lib Dem peer in the Lords. Read more

Jim Pickard

It was the Sunday Times which broke the news on November 13 of “Osborne’s £50bn plan for growth“. The newspaper revealed that the chancellor had devised a major infrastructure programme funded by private sector money to boost the flagging economy.

It described a “£50bn housing and road-building boom” through harnassing the wealth held by pension fund managers and insurance companies. Read more

Kiran Stacey

The controversy over how Nick Clegg’s £1bn jobs fund is to be paid for has overshadowed the announcement itself, much to the annoyance of the Lib Dems. This morning, John Humphrys spent most of his interview with Clegg asking him whether tax credits were going to be squeezed to pay for his plan.

I should point out that no tax is hypothecated: we should not think the tax credits money is going directly into the jobs fund. However these things are true: Read more

Jim Pickard

It may seem like an age ago but there was another growth review back in March, which some may have already forgotten.

Not FT Westminster. We’ve been back through the 137 initiatives launched back then to see how they fared. Under our unscientific calculations Vince Cable and George Osborne deserve a B- for their efforts. Read more

Jim Pickard

Earlier this week Lord Heseltine aligned himself with Vince Cable by signalling his opposition to the Beecroft reforms, which would make it easier to fire workers.

Last night made a speech at the Whitehall and Industry Group where he compared Britain with Germany in terms of their economic strengths, pointedly warning that the Germans have long had an impressive “industrial strategy”: “In terms of industrial policy (in the UK) there are serious deficiencies,” warned the former deputy prime minister. Read more

Jim Pickard

Any idea that the British government could afford to take its eye off Libya was dashed today by news of an imminent report by the United Nations suggesting some 7,000 detainees are being held in the newly liberated country.

The report by the UN secretary-general, Ban ki-Moon, says the prisoners include women and children. There are also many black Africans who have been tortured for their skin colour as suspected Gaddafi sympathisers. The report, due to be published on Monday, suggests that many prisoners have been held in private jails not under the control of the interim government. Prisoners lack access to legal due process and many courts are “not fully operational” Read more

Jim Pickard

I revealed a few weeks ago that the government is considering paying families “cashback” of £150 to take up the Green Deal, the flagship energy-saving scheme. The deal begins in October next year and lets people spend thousands of pounds improving their home insulation; the cost then comes off their (lower) bills gradually over the ensuing years.

I’ve just been told that the Treasury (in the form of Danny Alexander) is about to announce £200m for the project as part of next week’s growth review. Read more

Kiran Stacey

The outcome of last week’s final quad meeting before next week’s autumn review seems to have resulted in rather a strange compromise.

George Osborne entered the meeting arguing for a freeze in some benefits (not pensions or disability living allowance) to pay for a package of other measures, including tax cuts and action on youth unemployment. But he was met with stiff resistance from Nick Clegg in particular, who didn’t want to punish the poorest by giving them a sub-inflation rise in benefits.

In the end, as we revealed this morning, they agreed that benefits would go up with CPI, as would normally be the case. But the chancellor insisted that money had to be saved somewhere, and the surprising compromise reached would be that it would come from tax credits instead. Treasury officials are now working on how exactly that money will be saved.

Clegg also won his argument that some of the money (£1bn to be precise) should be used to fund a short-term work placement scheme for young people to get access to the jobs market. Read more

Jim Pickard

George Osborne wants to channel billions of pounds of pension fund money into big infrastructure projects such as rail, road and energy projects.

This is the premise of Monday’s “infrastructure review”, in which the chancellor will update us on progress on getting this big plan off the ground – along with a list of 40 or 50 “top priority” infrastructure schemes which we should see happening quite soon.

The curious thing, however, is that pension funds already pay for infrastructure projects, and not only through PFI schemes. This is because they regularly buy tens of billions of pounds of government bonds (gilts) which are then used to finance general government stuff: including capital investment.

Investors in infrastructure schemes usually expect more income given that risk is perceived as higher than supposedly risk-free gilts (although the Eurozone crisis has put a dent in that concept).

So why would Osborne want to borrow in this more expensive way? Could it be a rather less visible way of accumulating government debt than simply going to the capital markets? That was of course one of the true rationales for the now controversial PFI system.

Here is the government spiel:  The World Economic Forum ranked the UK at just 33rd in the world for the quality of its infrastructure, down from 9th in 2005. The government anticipates that some £200bn needs to be invested in UK economic infrastructure over the next five years, with most of that spent in energy and transport. The coalition believes that previous governments failed to produce a coherent view of the long-term needs for British infrastructure.

Ministers are determined to lever in private sector investment and reduce the cost of capital for projects and programmes – and officials have been working for months on “efficient and effective funding models“. Key to this is encouraging participation by pension funds also overseas sources such as sovereign wealth funds.

In the UK the level of infrastructure investment is estimated to be under 1 per cent of pension fund assets compared to 8-15 per cent in Australia or Canada. Officials and ministers want to change this.

So far, so straightforward.

The key is to lower the cost of capital, which increases as “risk transfer” increases. For example building a toll road is high-risk Read more

Kiran Stacey

Ed Miliband had some good lines ready for today’s prime minister’s questions. He decided to focus on youth unemployment, which recently topped 1 million people for the first time since records began.

Sensibly, he focused on long-term youth unemployment (over 12 months out of work, which is now at 260,000 people): both because Cameron would probably misinterpret the question and try to answer on overall youth unemployment (he did), and because the longer young people stay out of work, the harder it is for them to get back into the jobs market when the economy recovers.

Miliband decided to focus on the effect of scrapping Labour’s Future Jobs Fund, but Cameron was able to bat that away by referring to the Work Programme: Read more

Jim Pickard

Plans to reform the funding of political parties will be unveiled in a few hours’ time but already appear doomed amid continued infighting between Labour and the Tories.

Sir Christopher Kelly’s committee on standards in public life will hold a press conference setting out out proposals including a suggested £10,000 cap on donations, changes to union funding and £20m a year of state funding. It will also suggest that members of the public will be able to give up to £1,000 tax-free to political parties, just as they currently can with charities.

Yet dissent over the issue is reflected within the committee itself, which will produce two separate “notes of dissent” – effectively minority reports – at odds with the main recommendations.

Former minister Margaret Beckett, the Labour member, will argue against a proposal to

 Read more

Nicholas Timmins

Buried away in the sweeping proposals from the government commissioned review of how sickness absence from work should be handled is a small bombshell.

Alongside a new independent assessment service to which patients would be sent after 4 weeks on the sick, plus a new brokering service to help people swap a job they can’t do for one they can, is a proposal for tax relief on private medical insurance and private medical treatment aimed at getting people back to work.

This is a highly sensitive issue. In his determination to seal the NHS off as an electoral issue for the Conservatives, David Cameron, in one of his earliest acts as party leader ruled out tax relief for private medical care – declaring that “we should not use taxpayer’s money to encourage the better off to opt out”. Read more

Jim Pickard

If you read Grant Shapps’ statement today the housing minister gives the distinct impression that housebuilding is bouncing back from its recent historic lows.

“Housebuilding in 2010-11 was 29 per cent higher compared to 2008-9, and compared to 2009-10, it was 17 per cent higher,” the minister declared. Read more

Jim Pickard

David Cameron is poised to announce a flagship scheme to underwrite hundreds of millions of pounds of mortgages for new-build homes in an attempt to boost the ailing housebuilding industry, according to numerous sources.

The mortgage indemnity scheme is set to be unveiled by the prime minister on Monday as the centrepiece of a wider housing review. The government will underwrite a small percentage of each new loan on newly built property, leaving taxpayers on the hook if there was to be a severe housing downturn. Read more

Jim Pickard

You have to take your hat off to the government and Virgin Money for their PR operation, which has left the nation believing that Northern Rock is now in the hands of cuddly balloonist Sir Richard Branson.

The numbers tell a different story. Wilbur Ross, who we introduced you to yesterday morning, put in nearly £260m – some five times the £50m investment made by Virgin Group. Stanhope Investments, the Abu Dhabi fund, also put in £50m. Read more

Elizabeth Rigby

Mark Field, the Tory MP for the City and Westminster, and Ed Balls, the shadow chancellor, make an unlikely pairing. But both men yesterday came out and attacked the government’s sale of Northern Rock to Virgin Money, asking whether it was the right time to strike such a deal against the backdrop of choppy markets.

Both wondered whether George Osborne might have extracted more than the £747m on completion of the sale — total proceeds could rise to just over £1bn over five years — had he waited a little longer. Both men also asked whether the government had fully explored the idea of the bank being turned into a mutual.

(Meanwhile Lib Dem peer Lord Oakeshott has put down some parliamentary questions asking if the Treasury have made it a condition of the deal that full British tax must be paid on all profits of Northern Rock and all dividends and capital gains received by the consortium.)

Others were more realistic on Thursday, with Lord Myners, the former Labour City minister, telling the Financial Times that his was a “very good price” to have achieved in Read more

Kiran Stacey

The unemployment stats on Wednesday triggered a new round of speculation about whether George Osborne was likely to meet his two fiscal targets: balancing the structural current deficit and having debt falling as a ratio to GDP by the end of the parliament.

Neither target is quite as tough as you might think, however, as the Guardian has pointed out today. On the debt target, technically, the government could borrow billions more than it is currently planning and still not breach it, as long as it slowed borrowing towards the end of the parliament and showed debt was falling by 2015. This is unlikely to happen (partially because it could breach the other target), but it is possible. Read more