Category: Recession

Jim Pickard

It was a relief to Ed Miliband that his defeated elder brother took a step back from frontline politics after losing the Labour leadership race in September. But David Miliband has remained, like Banquo at the feast, a visible presence on the backbenches from where he could – at some theoretical later date – still return to wreak revenge.

A survey in yesterday’s Sunday Times makes troubling reading for Ed. It suggests that 12 per cent of the public think Ed would be the better Labour leader, far below the 37 per cent for David. That is a very similar finding to surveys published during the summer.

Meanwhile pollsters found that 40 per cent of the public do not rate Ed Miliband’s leadership skills, compared to 27 per cent who do.

Back then Ed’s allies shrugged off those polls. Within a few months, they argued, people would have seen Ed in action and would have warmed to him. (David’s position as foreign secretary had given him a higher profile).

That shift in public opinion does not seem to have happened, however, although Labour as a party is now consistently ahead in the polls. The unknown unknown is where Labour would be polling if it had a more charismatic and decisive leader.

David is keeping his powder dry in terms of any remaining Labour ambitions. This morning he was quoted in his local newspaper saying:

“I’ve got to admit I wish the leadership campaign had gone differently, but who knows what will happen in the future?…I think Ed’s done well. It’s a very difficult job being the leader of the

The Liberal Democrat position on student fees has been bungled in countless ways. But there must be one error of judgement that is more important than the rest — call it the original sin. Here are my top three contenders:

1. Nick Clegg ducking the chance to reform the policy in 2009

Most senior Lib Dems knew they had a policy to scrap tuition fees that was unrealistic and unaffordable. Secret work was done to come up with an alternative that maintained a critical stance but cost a lot less. The result was a more progressive form of tuition fees — something like the proposals today. When this was put to the Lib Dem MPs and the federal policy group, it went down terribly. Some MPs thought it was futile to attempt to scrap a vote-winning policy when any change would be blocked by the Lib Dem conference. Apparently one of the most persuasive arguments  was that the Lib Dems were not going to win the election, so why do the responsible thing?  Clegg eventually ducked the confrontation with his party at the 2009 annual conference. How he must be regretting it now.

Margaret Thatcher always had a soft spot for David Young, the businessman who brought some “can do” spirit to the old Department of Trade and Industry.

Baroness Thatcher said of Lord Young: “Other people brought me problems. David brought me solutions.”

David Cameron clearly had the same view of the smooth Lord Young – until Thursday night. It was then that the prime minister’s new enterprise adviser became a rather big political problem in his own right.

Before the print was dry on the Daily Telegraph, Lord Young was offering his “profound” apologies, after claiming the majority of British people had “never had it so good” since the “so-called recession”.

He said complaints about government spending cuts were coming from “people who think they have a right for the state to support them”.

A spokesman for Mr Cameron said the prime minister was “very unimpressed” by the peer, whom he appointed as his enterprise adviser earlier this month.

The prime minister “believes at this difficult time politicians need to be careful with their choice of words – these words are as offensive as they are inaccurate”, said the spokesman.

The problem is that Mr Cameron has a carefully constructed narrative about the cuts: that he didn’t want to do it, but was forced to scale back the state because of the fiscal mess left behind by Labour.

Only by showing himself to be a compassionate cutter (protecting the NHS was a key part of that political message) can the prime minister hope to carry the country with him.

Labour believes this is phoney and that the Tories are cutting for ideological reasons. They are waiting for the Tory “mask” to slip.

Lord Young is not exactly a front ranking politician these days, but Mr Cameron knows he can ill-afford senior Conservatives using such blunt – and insensitive – language, just as the cuts are about to bite.

Jim Pickard

I am trying to take my eyes off the Mail’s scoop on Tony Blair giving a £50,000 lecture to toilet roll and disinfectant manufacturers – and instead concentrate on the big issue of the day. That is, Iain Duncan Smith’s plan to make the workless do manual labour in return for their dole money.

It throws up plenty of questions. Namely:

1] How much will it cost to find the work and ensure that claimants are carrying it out? Bear in mind that there are now 1.5m people on Jobseekers’ Allowance. (A total of 5m are on some form of out-of-work allowance, of which 2.5m are on incapacity benefit). If all are put through this system it would surely cost billions of pounds to administrate.

UPDATE: It will only apply to a small minority of claimants. The scheme may prove to be rather symbolic.

2] Will the entire scheme instead only apply to a handful of the unemployed? To quote the Sunday Times: “Job advisers will be given powers to send benefits claimants on placements“. That sounds discretionary rather than universal.

UPDATE: Indeed. The DWP tells me this scheme only applies to those who aren’t trying hard to find a job. “It gives advisers more discretion when someone is not working at trying to find a job,” says a spokeswoman.

3] What kind of work will they be doing? The theory is that each will have to do four weeks of work at 30 hours a week – that is a block of 120 hours’ labour.

UPDATE: The scheme would be carried out by councils, companies, charities and other voluntary groups. Yet none have signed up to the deal or – it seems – even been approached, according to the DWP. It is still very early days as to how this would work, it seems. Don’t be surprised if the scheme ends up in the hands of existing welfare-to-work providers.

4] Will any of this be economically productive? If so, how will they match people’s skills with the requisite work? (It’s a complicated challenge).

5] Will companies be able to take advantage of the unemployed by getting them to work for almost nothing? Does that leave people open to exploitation?

6] Is the scheme as radical as it sounds or do officials already have similar powers?

UPDATE: The latter. “Advisers do have powers in place at the moment, but they are not very widely used,” says the DWP. I’ve done a bit of research and it turns out that Labour’s “Flexible New Deal” – which was around last year – forced people to do ‘four weeks’ work experience’ .

7] If it is not economically productive, will it all be fruitless Keynesian tasks such as litter-picking, digging holes or rolling boulders up hills and back again?

8] Will the policy only apply to those who have been out of work for a certain length of time? If so how long?

UPDATE: Yes, it is aimed at those who show no interest or application in finding a job. But defining such individuals is down to their advisers – which implies a rather arbitrary judgment. Some officials will doubtless be tougher than others.

9] How often will they have to do the hard labour? Once a year? Every six months? Every five years?

UPDATE: It is still not clear

10] Does it only apply to “layabouts” (the phrase in the Sunday Times) and “no-hopers” (News of the World)? Or will the 1m currently in work – but expected to lose their jobs as a direct or indirect result of the spending review – also face the test?

UPDATE: In theory, no, at least not at first.

Jim Pickard

Phil Woolas has just lost an historic court case in which he was accused of making false claims before the general election. There will now be a re-election for his seat, which he won in May with a majority of just 103 votes.

The case was the first of its kind for a century.

As the FT reported last month:

Phil Woolas was re-elected by a slim majority in Oldham east and Saddleworth, beating the Liberal Democrat candidate Elwyn Watkins. Mr Watkins claims Mr Woolas made false statements about him in an attempt to influence the result.

The court heard that Mr Woolas’s campaign team aimed to “galvanise the white Sun vote” against Mr Watkins, claiming Mr Watkins had tried to “woo” and “pander” to Muslim fanatics and militants, the court was told.

Now the Labour MP has lost the case it will set a curious precedent for British elections, where mud-slinging is widespread and many candidates are thrifty with the actualité.

Without wanting to trivialise a no doubt serious case, where does Woolas’s defeat leave Britain’s political parties in future elections? Will their leaders have to muzzle all candidates for fear of twisting the truth?

Take this general election, where the Lib Dems made a fervent promise to protect tuition fees and prevent them from rising higher. It was a promise worth its weight in hot air. Should some of their MPs face fresh elections?

Jim Pickard

The letter published today by the Treasury – from BAE Systems to David Cameron – is a bombshell that explains in stark outline why ministers pressed ahead with an order for two aircraft carriers despite fiscal constraints.

Alex revealed a month ago that the contract was written in such a way that cancelling one of the ships would still leave taxpayers with a similar bill to proceeding with both.

As he wrote for the FT newspaper:

Mr Cameron had pressed Liam Fox, defence secretary, to recheck costs of the programme after expressing bafflement about one carrier being more expensive than two. The anomaly is caused by a “terms of business agreement” with BAE Systems that requires substitute work to be provided if the second carrier were to be cancelled.

Paul Waugh points out that the cost of both carriers was £5.2bn with the cost of one at £4.8bn, almost as much.

In fact the letter makes it clear that cancelling one of the carriers could have been even more expensive. This is because of “consequential costs”, including “rationalisation”, amounting to £690m because three yards would have to be closed with the loss of 5,000 jobs. Then there would be “additional rationalisation costs”. And finally, a potential termination liability.

The letter suggests that BAE Systems could be compensated in part through some alternative contracts for other kit (“the direct award of more work” might “ameliorate” the position) but this alone would not be enough.

As Andrew Tyrie, Treasury Select Committee chairman, has put it:

“This letter shows what an impossible position the government were put into by this contract. This is an absolutely crazy situation…we also need to know how to prevent this from ever happening again.”

In opposition one of Vince Cable’s favourite pastimes was taunting Barclays and Bob Diamond, their investment banking chief.

“What must be clear is that if the directors of Barclays Capital, or its equivalent, want their bank to become the world’s largest casino that’s up to them, but only if there is no question of the British taxpayer guaranteeing it,” he thundered in one column.

Since becoming business secretary he has tempered his rhetoric a touch. But he’s still fond of calling Barclays a casino and it seems that Diamond, now promoted to chief executive, has had enough.

He told The Sunday Telegraph that it was “disappointing” to hear references to banks as casinos:

We will hear words like casino banking that have no basis in reality and generally come from people that don’t understand what a bank does and how important risk is in terms of the business we do with our clients. There is no empirical evidence that big is bad or big is risky. The reason that Barclays is a bigger bank than it was 10 years ago is because our clients are.

There is certainly no sign of political compromise there. Behind all this is also an implicit warning that attempting to split the bank’s retail and investment banking activities will force Barclays to leave London.

Tough talk. But, at least regarding the politics of banking, Diamond may do well to heed a warning from Boris Johnson, one of few remaining cheerleaders for big City bonuses.

The London mayor pointed out this morning that the “huge” City bonus season will coincide with the public spending cuts starting to bite. Given that the city was “implicated in the dawn of this crisis”, Boris’ advice is that Diamond and other must find “big visible ways” to support the less fortunate.

“They’ve got to understand the political consequences of doing nothing about the huge bonuses they are about to receive,” he said. It is probably sound advice.

The axe is hovering over the £2.7bn winter fuel payments. But cutting this bung to the over-60s is harder than it seems. Even if Osborne decided, say, to pay out £600m less than Gordon Brown, it would make no contribution at all to cutting the deficit.

How so? The Labour wheeze was to top-off the winter fuel payment with a one-off bonus each year, which was presented as a Gordon’s munificent Christmas gift. Last year it amounted to £600m. The Budget books doesn’t expect this bonus to be repeated, so the future winter fuel payments are only scored as £2.1bn in 2010, not the £2.7bn actually spent in 2009.

The dilemma for Osborne is:

– Find an extra £600m from savings or increasing debt to pay out as much as Brown in 2009, or

– Take the political hit from withdrawing £50 off all pensioners (and £100 off all those over 80), without any upside in terms of deficit reduction.

The Office of Budget Responsibility faces a big credibility test today. Chris Giles, the FT’s economics editor, has an agenda-setting story that raises doubts over its very purpose and independence. It is far more significant than any speculation over Sir Alan Budd’s departure.

Through persistent questioning, Chris uncovered that the OBR tweaked its Budget forecasts at the last-minute to erase around 175,000 public sector job losses by 2014/15.

The political result? David Cameron was able to claim in the Commons that his Budget would cost fewer job losses than if Labour had been in power. Cameron was comparing apples and pears.

The OBR predicted that there would be only 30,000 extra public sector jobs lost over the next four years compared to if Labour was in power – 490,000 against 460,000 - despite the coalition’s much deeper spending cuts. This figure would have been vastly higher if the body hadn’t made these last-minute changes to its modelling.

The reasons for the revisions are even more surprising than the end result. Without telling anyone about the changes, the OBR assumed that George Osborne would:

1) Cut state contributions for public sector pensions (an assumption that pre-empts the conclusions of John Hutton’s pension commission)

2) Put the brakes on promotions in the public sector (even though the chancellor has never announced such a policy)

There are three possible explanations: the independent OBR is taking orders from the chancellor; practising economic telepathy; or inserting random policy into its forecasts.

Meanwhile actual coalition policy announcements that would lower long term growth under the original OBR model — such a limiting net-migration to 1990s levels — were excluded. Hmm.

What do you think the OBR is for?

Now this is odd. Since George Osborne and his axemen entered the Treasury, far from cutting the school building programme, they’ve actually allowed it to swell.

Around £1.5bn of additional contracts have been signed since May, a billion of which came in the last 21 days. Given departments are facing average cuts of 25 per cent, you have to wonder what on earth is going on.

The truth is that there is no underground Keynesian resistance movement in Whitehall. It is just that the Treasury and Michael Gove have been unable to take a decision on what to cut. An announcement has been repeatedly delayed — the political pain and technical hitches were just too great.

The political indecision comes with a price tag. Had a moratorium been announced immediately, none of the contracts for Barking, Derby, Oldham and Camden would have been signed. Now if these projects are ditched (not unlikely) the government will pay cancellation costs. A waste of money.

What lessons are there from this?

1.  Cutting is harder than ministers expected. Building Schools for the Future was a prime target for savings. But the hard reality of the political fallout is understandably debilitating. Gove must decide what to do with around 1,200 school building projects planned over the next three years. They’re scattered conveniently across scores of marginal constituencies (take a bow Mr Balls). Between 500 and 900 will have to be aborted — meaning contracts cancelled, the hopes of parents dashed, jobs lost, MPs infuriated. It is a horrible decision.

2. Cancelling contracts is expensive. Once builders or contractors are selected as preferred bidder, they expect compensation if the government pull out. It costs money, basically, to scrap spending plans. The Treasury half understand this. But clearly they’re not across it enough. It will require upfront money for defence, education and transport, for instance, to slash spending over the long term. (Or indeed to cut staff numbers.) Planning on these complications, though, doesn’t appear to be as advanced as it should be.

3. Early decisions save money. Taking bold action as fast as possible stops liabilities building up. It permits industry to plan. It stops needless work carrying on while the decision is thrashed out. The Autumn spending review may be the deadline. But the Treasury must not be afraid of stopping work in between.

Now here is a rather unfortunate statistical quirk facing the chancellor.

Our economics team ran some tests to show the regional impact of cuts and illustrate the challenge of eliminating the deficit without punishing the poor.

If you cut social security payments by 10 per cent, for instance, they found the poorest areas were hit hardest. Household disposable income fell by 3.6 per cent in Merseyside and only 2.1 per cent in Berkshire and Buckinghamshire.

George Osborne may be a bit more worried by the second test they ran, which showed the regional distribution of cutting a fifth of spending in sectors dominated by the public sector (public administration, education and defence).

Again, the poorest areas suffered most, with the local economy of West Wales taking a 3.3 per cent hit.

Now which area was least affected? You guessed it: Cheshire. The well-to-do home of Osborne’s constituency only saw a 1.5 per cent dip in its economic prospects.

You can put down Cheshire’s resilience to the chancellor’s axe as a statistical oddity. But there is a serious lesson to be drawn from this exercise.

Achieving Nick Clegg’s “progressive austerity” will be terrifically hard, particularly if benefits for middle class pensioners and parents are protected. And even if the direct impact on income from this Budget is shown to be “fair” to the poor, it is unlikely to fully reflect their sensitivity to the spending squeeze on public services.

*This superb graphic is from Chris Giles’ must-read piece on the £85bn consolidation George Osborne will begin on Tuesday.

Jim Pickard

Robert Peston is not only a former colleague but also a superb financial journalist. But I can’t quite agree with the premise on his blog today – “a coalition housing crash” – that changing stamp duty could prompt a damaging property downturn. (To be fair his argument is more nuanced than the heading suggests).

I’ve been pondering for some time how the government could restrain any newfound housing bubble if the current trends (prices rose 10.5 per cent in the year to April, according to Nationwide*) continue. Prices are still lower than their peak but shooting up in many parts of the country (admittedly not all) as a direct result of the Bank of England base rate being at the artificially low rate of 0.5 per cent. Mortgage rates are therefore lower than they might otherwise be, a situation that could in the coming few years have a dangerous impact on the market. Letting this trend continue – until it is once again unsustainable – is the real risk for the coalition.

Westminster blog

on the UK political scene

About this blog Blog guide
Jim Pickard and Kiran Stacey, FT Westminster correspondents, share the latest news and analysis on the UK's political scene.

Follow the latest news on the UK coalition government.

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All posts are published in UK time.

Contact the Westminster blog team: Jim Pickard, Kiran Stacey, Nicholas Timmins, Elizabeth Rigby and Helen Warrell.

The illustrations of Jim and Kiran are by Nick Hardcastle.

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The authors

Jim Pickard joined the lobby team in January 2008. He has been at the Financial Times since 1999 as a regional correspondent, assistant UK news editor and property correspondent.

Kiran Stacey is an FT political correspondent, having joined the lobby in 2011. He started at the FT as a graduate trainee in 2008, working on desks including UK companies and US equity markets before taking over the FT's Energy Source blog.

Contributors

Elizabeth Rigby, the FT's chief political correspondent, joined the lobby team in September 2010. Elizabeth has worked at the FT for more than a decade and was most recently its consumer industries editor.

Helen Warrell is the FT's UK reporter, covering home affairs, crime and policing. She joined the FT in 2008 and has spent time as a reporter in the Brussels bureau and more recently, editing the paper's Asia coverage on the world news desk.

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