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 www.ft.com/autumn2011Read 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