Tag Archives: Budget

FCNK – Fur Coat, No Knickers

British politics are cyclical and there are two views as to the nature of the cycle. One is that Labour is in power for a bit and then the Conservatives come along with lots of shovels and clear up the mess. The other view is that it is Labour politicians who wield the shovels after the Conservatives’ turn.

There is another other great political constant , not-only in British politics but worldwide.  Ultimately, all party leaders fail – as do their parties. Then the other lot make an attempt. Then the shovels come out etc. etc.

This is an unbreakable cycle. The cycle can only be broken by  totalitarianism . However,  totalitarian States always have a “sell-by” date because the chaos of the democratic party-based cycle is always waiting in the wings to deliver its own flavour of damage. Totalitarianism often degenerates into tyranny, followed by the chaos of either imposed or self-imposed democracy. Just look at Iraq.

The root cause of chaos in democracy is always created by  the impact of political ideology on economics.  The latest change in the United Kingdom government is an excellent example.

There is no doubt that the British economy is in chaos and that the Conservatives believe that their policies are the only way to hose away the Labour mess.

Chancellor George Osborne is standing where he started two years ago. In the economic foothills of a great 5-year economic and political climb. Unfortunately, the peak towards which he is guiding us will not remain still and two years after the journey began, the ultimate goal has moved.

If he is a good Chancellor, he will not be afraid to change direction as we travel. Let us hope that he does not repeat Labour’s mistake and refuse to shed the shackles of ideology when the going gets tough. To put it in political terms, there will be times when he will need to think as a Socialist and other times when he will need to be even more right-wing than currently seems healthy.

That is why it is good for him to have a few Liberals in tow – although, ideally a few left wing Labourites may have been preferable.

Adam Smith is his Wealth of Nations (1776) referred to the United Kingdom as  “a nation that is governed by shopkeepers“.  Subsequently,  Napoleon said  “‘Angleterre est une nation de boutiquiers.” In typical French fashion, neither original nor accurate but we understand what he meant. He thought that he was being disparaging whereas Adam Smith’s original quotation was more about the Britain expanding its Empire for the sole purpose of establishing new markets of customers for its own economy. Like shopkeepers would.

Had Napoleon foreseen what the British economy was to become in the 21st century, he may have said, “Angleterre est une nation d’administrateurs, fonctionnaires et conseillers en gestion”

England is a country of administrators, Civil Servants and Consultants.”

If there is one good reason for the present change in government, then that is it.

There are jobs which create wealth and there are jobs which are the so-called “Cost Centres” – the jobs which only spend. Administrators, both public and private who don’t actually contribute to production are a drain on an economy.  Any organisation which is heavy on administration compromises its ability to generate a surplus – the same applies to a State.

Under New Labour, organisations such as the NHS  experienced an massive influx of administrators and  there has been a mushrooming of  Quangos. More and more inquiries have cost the economy millions, as have the gradually expanding mini-Westminsters that are our Local Authorities. Empire-building has become  the Public Sector’s favourite contact sport.

Obviously being politicians, the Conservatives  are not able to say that there are too many non-productive civil servants but that is exactly what they do mean when they point out that the so-called Public Sector needs some rationalisation –  but the gradual expansion of the administrative classes is nothing new.

My first job many years ago was in the Scientific Civil Service. Our establishment had just over 200 of us researching and more than 400 administrators. We were in prefabricated temporary structures whereas the pen-pushers  had a modern office block.  The argument was that as we were spending taxpayers’ money, no cost was too great in order to ensure that every single penny spent was controlled and accounted-for. Plus ça change.

Until very recently, there has been a “no expense spared” attitude among both public servants and politicians with little or no incentive for either of them to control expenditure. A case of   rampant accelerating Cost Centre growth.

That is why the Chancellor announced a freeze on Public Sector pay and launched a probe into public service pensions and why the budgets of government departments will be cut by 25%. In addition, the Civil List has been frozen at £7.9 million p.a. and the Government will dispose of some of its assets in order to raise cash – notably, the air traffic organisation NATS, the Tote and the student loan book.

However, in spite of  the banking system remaining one of the government’s major creditors, it has been “clobbered” with an annual levy which will probably only collect about £2 billion per year. Compare that with the total cost (so far) of rescuing our banking system, which is well-in-excess of £850 billion.

Unfortunately, the government is also committed to hand-outs to a long queue of advisers and consultants. Notably,  Slaughter & May, the international law firm will be paid nearly £33 million for commercial legal advice and Pricewaterhouse Coopers over £11 million for its work on asset protection.

The government is also paying Credit Suisse at least £500,00 per month for advice on the asset protection scheme with a similar amount being paid to Deutsche Bank.

Needless to say, there are other government “advisers” on the payroll so the final total cost of the government’s bank rescue activities is far from established because it is open-ended.

In spite of the crippling government (and therefore taxpayer) expenditure on the banks, they are still declaring weirdly high profits, paying themselves bonuses and not delivering the commercial lending agreed with the previous Chancellor.

The government has not been able to fund all this purely from the income that it generates from taxation so it has had to borrow more and more. Hence the huge deficit and the international pressure to do something about it.

That explains  the increase in VAT, the quite major changes to the benefits system, the various “tweaks” to personal taxation, the sell-offs and cuts in public expenditure.

That has all had to be counterbalanced by an encouragement for business to produce more, hire more people and thereby generate not-only more tax for the government but also stimulate us all to spend more in order to maintain the  “produce-sell-buy-spend” cycle.

The Chancellor has taken a bit of a risk because he is assuming that the “produce” stage of the cycle will ultimately act like a defibrillator applied to a dying patient’s heart. He believes that ultimately it is business which makes an economy function. On the other hand, the Socialists believe that the cycle begins with “spend”. Hence their concept of , for instance spending on roads, railways and other government-driven projects in the hope that “spend” creates employment plus income for the individual, which in turn stimulates demand which drives production.  Same principle but a   fundamentally different starting point.

It has been shown many times that Cost Centres (mostly support functions) do not generate direct profit. The drivers of any economy are Profit Centres – the ones that make something and then sell it at a profit.

The current debt-ridden economic climate needs the harsh but correct approach favoured by the Chancellor.  For the moment, the Profit Centres have it. Although that does NOT mean that the “Austerity Method” cannot be tempered with a bit of good old-fashioned government spending when necessary.

Ideology must never be a bar to sound economic common sense.

Finally, the government has the one major Cost Centre and that is the Benefits System. The system has been abused  – of that there is no doubt.  As part of its strategy, the last Labour government needed to massage its unemployment statistics. Encouraging more and more individuals to avoid the dole queue by remaining in education is an example of a  transparently obvious ploy. The other was an over-generous benefits system especially the blatantly abused Disablities Allowance which cost the taxpayer over £11 billion per year.

The Disabilities Allowance was introduced 20 years ago by a Conservative government when under 1 million people were eligible. In the intervening years, the number of claimants has grown to approximately 3 million which represents a substantial percentage of the working population.

The Chancellor’s approach of proper medical testing for Disabilities Allowance claimants may sound Draconian  but absolutely necessary because in spite of the fact that unemployment statistics will doubtless be adversely affected, there will be a corresponding increase in those eligible for work. Once again,  an example of Cost Centres being converted into potential Profit Centres.

What of normal productive workers, entrepreneurs and those engaged in support functions which are designed to keep the economy going? Have we escaped intact?

The answer is that we are all subject to collateral damage, either through increased living costs or unemployment. The real unemployment figure has been approaching 3 million for a few years and it is only now that Gordon Brown’s Canute-like posturings have been consigned to the poubelle of history , that an accurate picture has emerged.

The picture is this:

None of us is as well-off as we imagined during the New Labour years of illusory plenty. Many have been screwing the system for too long. It started with the politicians and it is now our turn to realise that the days of  “Fur Coat , No Knickers” are well and truly over.

Chancellor’s Autumn Statement – just the facts

“We will do whatever it takes to protect Britain from this debt storm” in Europe.

Office for Budget Responsibility does not predict a recession in UK.

OBR forecast: GDP growth estimated at 0.9% in 2011. 0.7% in 2012 (down from 2.5%).

Borrowing falling but not as fast as forecast.

OBR sees additional borrowing of £5bn in 2011/12, £20bn in 2012/13 and £30bn in 2013/14.

Public sector pay awards set at average of 1% increase after the pay freeze ends next Spring.

NHS and schools budgets protected.

Deal on public sector pensions is “fair”.

Basic state pension to rise by £5.30 next April. Pension credit also uprated by £5.30.

In 2026 – state pension age will rise to 67.

Benefits uprated by 5.2% next April.

Credit Easing to help small business – ceiling of £40bn. National Loan Guarantee Scheme to use country’s record low interest rate to ease interest rates charged to firms who borrow from banks.

Country’s low rate to benefit families too through mortgage indemnities. Will reinvigorate “right to buy” to also help construction sector.

Bank Levy rate to rise from January 1st.

National Infrastructure Plan to get Britain building to improve roads, bridges, rail, schools etc. It will be paid for through”British savings for British jobs.” £20bn to come from pension schemes.

£5bn of additional Government spending on infrastructure plan – 90% of homes will have access tosuper-fast broadband.

Regional Growth Fund for England to get extra £1bn.

£0.5bn for science projects.

Health & Safety red tape to be cut further for small firms.

Corporate tax rate to fall to 25%.

Business rates holiday extended until April 2013.

8.7% unemployment rate forecast for next year by OBR.

New Youth Contract to offer work experience and assistance getting into private sector to help ease youth unemployment.

Extra £1.2bn to schools with 100 extra ‘free schools’. Maths Free schools to help UK’s science industry.

Free nursery places for 40% of the country’s 2-year olds (260,000)

Planned 3p per litre fuel duty increase in January is cancelled. August’s planned increase to be reduced.

Rail fares capped at 1% higher than CPI inflation

Darling has the solution in his hands.

If you have read a good balance of the reporting and commentary on yesterday’s budget, you will have realised by now that this was a political budget. The Chancellor and his puppet-master know that their stewardship of the economy has a maximum of 12 months to run and then , as is the fashion nowadays, the lecture and non-exec circuits beckon. There is light at the end of the tunnel for some but unfortunately, not for all.

There is no point in raking through the coals of yesterday’s return to Old Labour and the 21st Century embrace of the Politics of Envy.

“Let’s do the rich!”and the great unwashed and the slack-jawed champagne Socialists will most likely follow. Trouble is that the great unwashed is fast becoming the great unemployed and Tony Blair’s Champagne Socialists (teachers, media people etc.) are now more Cava Sippers than being able to afford the real thing. Some have even moved to pink Zinfandel!

The Budget was delivered with all the panache and conviction of a  tortoise that knew that it would never catch the Conservative hare. And did you see the Hammer-horror grin that Brown’s face morphed into when Darling sat back down into the wet patch.

Cigarettes – √. Booze – √. – Petrol – √.

Let’s make it look as if we are going to upset the rich – “It’s always good to piss on their strawberries”. -√.

Oh yes – Pensioners  – √.

Did you notice that the Chancellor looked a bit uncomfortable talking in mere pounds and pence. After all, he is used to lots of noughts now. When the scale of Government’s borrowing was announced there was a definite shift in the Earth’s orbit as economists’ scrotums shrunk to a tenth of their size – at the speed of light. Some may remain dysfunctional for years to come. Like the banks.

This was a Budget by Numbers when what was needed was a masterpiece. The trouble is that before this Government is run out of town,  Chancellor  Darling will touch up an already impossibly bad economic picture with another Budget. What was that Chris Rea song? Oh yes – The Road to Hell.

You may be wondering why all seems to be well with the Banks  – they should have all completed rehab by now and should be ready to score us some readies. Their Social Worker – otherwise known as the Treasury is telling us that they still need a bit of time to regain confidence. That is why they are currently being fed a “money substitute” through the medium of quantitative easing.

How is it that a few of the big banks have declared such surreally fat profits? Have you never wondered why or how they seem to have been rehabilitated so quickly? They are still cooking the books, ignoring the fact that they are still insolvent. The difference is that now they are doing it with this and other Governments’ connivance. To put it simply – it is a world-wide con trick. There is naughtiness afoot.

If we knew the real figures, we would panic. The fact is that for every pound or dollar that the Banks once had in their coffers, they lent or gave away at least 50. They tied the modern Gordian Knot not with rope but with worthless paper and they have fashioned what  appears to be the most complicated paper chain ever conceived. Currently they all owe each other billions because they screwed each over, many times over. The screwer was also the screwee and vice versa.

This has been institutional fraud carried out by banks on other banks and  the only reason why they are not all standing in the dock is that there isn’t enough dock available.

The other important factor is that instead of doing what Alexander the Great did and cutting through the knot, Governments still think that they can untie it . If they carry on their random attempts, it could take a generation.

The banks have the Governments by the balls.

That brings us neatly to a rather pathetic silver-haired Edinburgh Solicitor predicting that we are soon to experience a recovery with a growth rate of 3.5%. That statement really is not worth commenting upon because of the poor man’s past record – which is similar to Russell Grant’s. In fact…………………………..

There are billions of pounds stashed away in funds, in banks and in insurance companies. That money belongs to us and many of us will have to wait years before we can get our hands on it.  I am referring, of course to Pensions. Personal pensions, group pensions, small company pensions… they come in a hundred delicious flavours.

There was a time when someone leaving a company  – whether voluntarily or otherwise could take their accrued pension with them. Let us say that the Chancellor announced that for the next two years, anyone being made redundant or who wanted to stop working could have all of their accrued pension immediately. What effect would that have.

Firstly, we would have “spenders” in the economy. who could provide a massive buying stimulus to all retailers. The Government would save on benefits because many of these individuals would suddenly have “savings”.

Secondly the institutions holding the pensions would not have to be “persuaded” to part with the money because if they refused, they would be breaking the law. And if the didn’t have the money, then we would all know.

Thirdly, employers would think twice before sacking anyone if they knew that they would not-only have to fund their redundancy pay but that they would also have to hand over accrued pension benefits.

Too simple? The alternative is to keep feeding the banks with money that we do not have and that has a time limit which is not as far away as we seem to think.

 

 

2008 BUDGET (Move over Darling)

The leader of the Liberals – you know, the Cameron clone – had it spot-on yesterday. You could not see Prime Minister’s lips move as the Chancellor delivered his Budget speech. Or could you?

The Chancellor managed to achieve just the right tone of moribund apathy that you would expect from a dead man standing. Meanwhile, Gordon Brown sat there with his Archie Andrews rictus-like grin and nodded. Many years ago, I shared a platform with Alistair Darling. I faced the audience straight after his riveting talk on Pensions. I could not go wrong! With Mr Darling as my warm-up man, I could have been a Jehovah’s witness with a speech impediment and I would have gone down a storm.

You know the way that a nervous mother mouths her child’s every word at the school Nativity play? It’s not surprising because she has spent days and weeks helping her sprog to learn lines and knows them off by heart. Yesterday, Brown was that mother!

Would little Alistair screw up his lines? Was his tie straight? Did he remember to comb his hair? Did he sound as if he was reading his mum’s shopping list?

Yes.