Once again we must ask: 'Who governs?'

When the Conservative-Liberal coalition that had succeeded the Labour government introduced an emergency budget in September 1931, Keynes again stood out against the chorus of approval.

The budget was, he wrote, "replete with folly and injustice".

He explained to an American correspondent that "every person in this country of super-asinine propensities, everyone who hates social progress and loves deflation, feels that his hour has come and triumphantly announces how, by refraining from every form of economic activity, we can all become prosperous again." ...

We are about to embark on a momentous experiment to discover which of the two stories about the economy is true.

If, in fact, fiscal consolidation proves to be the royal road to recovery and fast growth then we might as well bury Keynes once and for all.

If however, the financial markets and their political fuglemen turn out to be as "super-asinine" as Keynes thought they were, then the challenge that financial power poses to good government has to be squarely faced.

FT  17 June 2010    Systemic Fiscal Reform

Era of austerity to see savage cuts in Whitehall

It is the poor who will contribute the most

Plans to turn record debt into surplus cheers City

What does the UK budget mean?

Portugal plots course Britain will follow

The distributional effect of tax and benefit
reforms to be introduced between June 2010 and April 2010

Executive Summary

The Chancellor claimed in his Budget speech that the June 2010 Budget was a 'progressive Budget'.

Initial analysis of this claim showed that this was not true if measures announced in the Budget were analysed in isolation, or if their effects were considered over the longer term.

Furthermore, HM Treasury analysis (as well as our own, in our post-Budget briefing) of the distributional effect of Budget measures did not include the effects of some benefit changes whose effects were difficult to allocate precisely to households.

These measures represent £4.1 billion of the £11 billion of welfare cuts announced in the emergency Budget.

In this paper we attempt to allocate the effects of these changes to housing benefit, Disability Living Allowance and tax credits to households.

We do this by making assumptions about the impact of changes to Disability Living Allowance and tax credits, and by using analysis published since the Budget by the Government on the impact of the changes to housing benefit.

Inevitably, though, these estimates will be less precise than those obtained directly from our tax and benefit microsimulation model.

Our analysis shows that the overall effect of the new reforms announced in the June 2010 Budget is regressive, whereas the tax and benefit reforms announced by the previous Government for introduction between June 2010 and April 2014 are progressive.

Low-income households of working age lose the most from the June 2010 Budget reforms because of the cuts to welfare spending.

Those who lose the least are households of working age without children in the upper half of the income distribution.

This is because they do not lose out from cuts in welfare spending and are the biggest beneficiaries from the increase in the income tax personal allowance.

The biggest change to welfare policy in the June 2010 Budget in fiscal terms was the decision to link benefits with the Consumer Price Index (CPI) rather than the Retail Prices Index (RPI) or Rossi index from April 2011.

1. This is very likely to mean less generous benefits in the years ahead.

The savings from linking to a lower index will compound over time.

The change is predicted to save the Government £1.2 billion in 2011, rising to £5.8 billion in 2014-15.

...

Conclusion

It is clear that the measures introduced in the June 2010 Budget are regressive overall.

Once we consider all reforms to be introduced by April 2014, the cash losses are smallest for the seventh, eighth and ninth income decile groups, and are very similar for all of the bottom seven expenditure decile groups.

The progressive nature of the pre-announced measures is not sufficient to offset this, so the overall package of tax and benefit reforms is also slightly regressive, at least within the bottom nine income decile groups.

The biggest losers from the June 2010 Budget are low income households of working age, while better off working-age households without children lose the least.

Low-income pensioners are less affected than other poor groups from the welfare cuts in the Budget, but richer pensioners lose more than richer households of working age from the Budget as they do not benefit from the increased personal allowance.

The biggest change to benefit policy in the June 2010 Budget in terms of the long-run saving to the government was the decision to link benefits with the Consumer Price Index (CPI) rather than the Retail Prices Index (RPI) or Rossi index from April 2011.

This is very likely to mean less generous benefits in the years ahead.

The Government argued that the CPI is a better measure of inflation than the indices to which benefits are currently linked because the way it is calculated allows for the fact consumers are able to protect themselves from price changes by substituting towards relatively cheaper good, and because the goods and services it covers better reflect the "inflation experience" of households receiving benefits.

We find the first of these arguments to be sound whereas the second is more questionable.

IFS  2010    Growing Inequalities with Neoliberalism    'We are all in it together'

What are the links between shame and poverty?

BoE policymaker turns gloom merchant

Emergency Budget ‘will hit poor hardest’

Poor families bear brunt of coalition's austerity drive

Child poverty 'will rise as cuts hit families'

Budget hits families and pensioners twice as hard

Budget hits the poorest hardest

Living 'costs at least £14,400' for a single person

UK borrowing rises less than expected

Both the BBC and the Guardian offer misleading headlines.

Borrowing has not dropped, it has gone up by less than forecasted. A very different outcome.

Net borrowing was £3.8bn in July, less than the £5.25bn forecast by economists and well down on the £6.1bn of borrowing in the same month last year.

Although it is only four months into the 2010-11 tax year, if borrowing continues at its current pace the deficit appears on course to undershoot the Budget forecast of £149bn.

July is one of the key months in the year for corporation tax receipts, and these jumped 38 per cent compared with a year ago to £8.5bn in a sign that businesses’ profits are improving ...

FT  19 Aug 2010

UK economy

Consider three mysteries discussed in the latest minutes of the Bank of England’s Monetary Policy Committee ...

First, inflation has been stubbornly and unexpectedly high – above the targeted 2 per cent rate for 41 of the last 50 months.

A 20 per cent fall in the trade-weighted value of the pound between 2007 and 2009 provides only a very partial explanation.

Second, trade. Currency devaluations are supposed to spur exports and domestic production that can replace more expensive imports.

The weak sterling has done neither.

Excluding oil, UK exports were only 2 per cent higher in the second quarter of 2010 than a year earlier, while imports rose 11 per cent ...

FT  18 Aug 2010    Rebalancing Britain's Economy

UK public finances begin to improve

UK public sector borrowing drops in July

'Deficit deniers' are not the problem: it's the debt extremists we should fear

Mr Darling's pre-election proposals for substantial cuts also represented a gamble that the economy would be able to cope with an unprecedented withdrawal of public spending.

But he was not planning a wager on the scale Mr Osborne is making.

The Chancellor's now familiar argument is that not to do so would be an even bigger gamble, because it would risk the bond markets withdrawing their support for British government debt ...

The second flaw in Mr Osborne's argument is that Britain is nowhere near as dependent on the bond market as our collective terror of the credit ratings agencies would seem to suggest.

Even leaving aside the fact that our total indebtedness is well below many of our rivals, for now at least, the money we owe is not repayable for an extended period.

Our gilts must be rolled over, on average, 14 years from today.

The comparable figure for the US, for example, is around nine years.

Moreover, while more than two-thirds of Greek debt is held by international investors, the comparable figure for Britain is less than one-third.

In other words, Britain has plenty of time to put its finances in order and more forgiving lenders with which to negotiate ...

Independent  18 Aug 2010    

Inflation threatens the recovery, too

Ministers consider cuts to winter fuel allowance

David Cameron warned over cuts to winter fuel allowance

The National Pensioners Convention ... warned against changing the winter fuel allowance system.

Dot Gibson, NPC general secretary said: "The winter death rate amongst older people is a national scandal and getting worse.

"Last winter over 36,700 pensioners died of cold-related illnesses - a staggering 13 pensioners every hour.

"Yet the Government is now considering taking the winter fuel allowance away from millions of households which will only make matters worse."

According to reports, the Government is considering raising the age at which people become eligible for the annual winter fuel handout from 60 to at least 66.

The payment - worth £250, or £400 for the over-80s last winter - could also be cut by £50 for new recipients and £100 for the oldest.

Child benefit could also be reduced in order to fund root-and-branch welfare reforms proposed by Work and Pensions Secretary Iain Duncan Smith ...

Independent  17 Aug 2010    

Benefits spending under review, says Treasury

Ministers consider cuts to winter fuel allowance

Winter fuel payment cuts to hit millions of pensioners

Plan to sell off nature reserves risks 'austerity countryside'

Some of the most beautiful areas of Britain could be sold off and wildlife and countryside protection measures cut to the bone to meet expected 40% cuts in the budget of the Department for Environment, Food and Rural Affairs, it emerged.

Among the plans being considered by the government, which once declared itself "the greenest ever", are selling off national nature reserves; privatising parts of the Forestry Commission; privatising the Met Office, one of the world's leading research organisations on climate change; and withdrawing grants to British Waterways, which manages 2,200 miles of canals and rivers.

Natural England, the government's principal nature conservation agency, has put forward 400 job cuts next year, and up to another 400 after that, potentially one third of its workforce.

There are also concerns that the Environment Agency, which looks after waterways, air and soil, will have to slash spending on pollution and waste controls and river protection after the environment secretary, Caroline Spelman, recently said she had made it "perfectly clear" that the government would maintain the level of spending on flood defences – which take up more than half the agency's budget ...

Guardian  13 Aug 2010    

Environment cuts: fight to preserve the health of the seas

'Crown jewels' of Britain's landscape could be sold off

Now Cameron jilts the environment

Our environment is the natural foundation on which our economy is built

Fox reopens Trident budget row

The battle over who will pay for Britain's new nuclear weapons system intensified today as the defence secretary, Liam Fox, reopened his row with the Treasury.

In a move likely to anger the chancellor, George Osborne – who attempted to draw a line under the dispute last month – Fox said the conversation about who will stump up the £20bn to replace Trident "is constantly ongoing".

"Ultimately, all our defence capabilities have to be paid for," he said. "Which bits are paid, over what timescale, is part of the discussions we are having and I'm not going to entertain them in public. I have enough time entertaining them in private."

Fox's comments are part of an escalating dispute with the chancellor over who should pay for a replacement nuclear weapons system.

Last month, in a sign of the Tory leadership's growing impatience with Fox, Downing Street sources said the defence secretary had been embarking on "freelance" missions and Osborne insisted there could be no special accountancy exemptions for the defence budget.

"The Trident costs, I have made it absolutely clear, are part of the defence budget," Osborne said. "All budgets have pressure. I don't think there's anything particularly unique about the Ministry of Defence."

Guardian  13 Aug 2010

Eric Pickles announces plans to scrap Audit Commission

Mr Pickles said the commission's research functions would stop and councils would be able to ask private companies to carry out audits.

There would also be a "new audit framework" for local health services.

In May, Mr Pickles vetoed the £240,000 salary for the new head of the Audit Commission.

Earlier this month he criticised its decision to pay a lobbying firm £55,617.

A source at the commission told the BBC that moving some of the auditing into the private sector could end up costing more.

But Mr Pickles said:

"The corporate centre of the Audit Commission has lost its way. Rather than being a watchdog that champions taxpayers' interests, it has become the creature of the Whitehall state.

"We need to redress this balance. Audit should remain to ensure taxpayers' money is properly spent, but this can be done in a competitive environment, drawing on professional audit expertise across the country." ...

Analysis
Laura Kuenssberg

Chief political correspondent, BBC News channel

"The Audit Commission is a body that has been responsible for checking how councils, and some health organisations, spend taxpayers' money.

There have over the last few weeks been some quite bad tempered tussles between the Audit Commission and the new coalition government.

But the fact that it is to be scrapped has come completely out of the blue.

The Communities Secretary Eric Pickles' belief is that bringing in the private sector will increase the amount of competition and drive down costs.

Sources I've spoken to believe the Audit Commission can do the job more cheaply than big private accounting firms.

Tonight, the victim of the latest cuts announcement is clear - 2,000 staff at the Audit Commission will lose their jobs - at any rate in their present form."

Commission Chairman Michael O'Higgins ... said the commission had exposed poor practice and had played a significant role in improving services across the country.

"The gerrymandering 'homes for votes' scandal at Westminster Council was uncovered by the Audit Commission," he said ...

BBC NEWS  13 Aug 2010    

Head of axed Audit Commission defends spending

Audit watchdog axed by Pickles in austerity drive

Audit Commission to be scrapped

Playground plans shelved under government spending cuts

Where were the LibDems on this one?

Coalition makes cuts to £235m Playbuilder scheme intended to create 3,500 community playgrounds across England ...

Government officials are in talks with 132 local authorities about playground funding.

Under the Playbuilder plan, each council was given funds to build 22 play areas by 2011. A large number have already been built.

Play England, the charity commissioned to help councils with their schemes, said the cuts would be a big disappointment to communities in which playgrounds had not yet been built.

"We don't argue that play spaces should be out of bounds for cuts when all areas of public spending are being cut," a spokesman said.

"But play shouldn't be seen as a soft target, either – play should not be first in line for cuts, or indeed suffer disproportionately to other areas of children's services ... "

Guardian  11 Aug 2010

Fox reopens Trident budget row with Osborne

Hundreds of playground schemes mothballed

Chancellor's cheerleaders learn austerity will hurt them too

15,000 justice ministry jobs at risk, claims union

The Public and Commercial Services Union says 15,000 of the department's 80,000 jobs are at risk.

With £4bn of the department's £9bn budget fixed for legal aid and prison costs, the cuts could bring courts "to a standstill", the PCS said.

Finance chief Ann Beasley's letter says "efficiencies... will not be enough".

Analysis Daniel Sandford Home Affairs Correspondent, BBC News

The scale of the cuts is in many ways not surprising, but the strength of the language being used is.

Ann Beasley, the director general of finance, is not letting anyone imagine it's going to be an easy ride.

But what can be done? One option is to cut legal aid so that only those on benefits get it. But that leaves huge numbers of people on low wages without any assistance.

You could cut the number of prisons, but what do you do with the prisoners?

You could cut the number of courts, but people are still going to be committing crime.

You could cut the number of probation officers, but who is going to supervise criminals when they're released?

The National Offender Management service, a bureaucratic structure created by last government, could be the first thing in the cross hairs, but it alone won't be enough.

BBC NEWS  10 Aug 2010    

Prison-building programme in doubt

Ministry of Justice job cuts put the public at risk

Ministry of Justice staff warned of big job cuts

Ministry of Justice faces £2bn cuts

Austerity cuts prompt Southern Cross warning

Care homes group is latest private company to suffer ...

The group, which generates about 70% of its revenues from local government, said lower public sector budgets would cause its underlying earnings to be 15% lower than the consensus previously predicted by City analysts.

In a statement the company said:

"The short-term outlook is challenging as pressure grows to reduce overall public sector spending. The group has continued to experience a reduction in admissions from local authorities during the third quarter. The board expects that this position will not change significantly in the final quarter and consequently full-year adjusted ebitda [earnings before interest, tax, depreciation and amortisation] is expected to be about £53m."

Guardian  09 Aug 2010    Corporate Public 'Services'    Care of the Elderly    'Putting People First'

Debts that threaten the elderly and vulnerable

Policymakers around the world face agonising choices over inflation

... we should not be deceived into thinking that the long period of stability in monetary policy – the last boost to quantitative easing (QE) was in November, and the last change in rates in March last year – denotes stability of outlook ...

triganox
Well, Mr. Prosser over the course of three articles has moved from a stance of recommending near "eternal" ultra-loose monetary policy to effectively confessing that nobody knows what is going on now or likely to happen.

Remember just over 12-months ago the MPC forecasts were that CPI would be 0.7% and in "reality" it is currently 3.1%, almost 4x higher than the forecast, that is some pretty wretched modelling.

Furthermore the famous statistic that is doing the rounds at the moment is that out of the last 50-months, CPI inflation has overshot the 2% target on 41 occasions.

Therefore Mervyn King's soothing words about "one-off factors" and inflation returning to target over the medium term hold little water round these parts, especially with the impending VAT increase in Jan 2011.

Ultimately inflation targeting, the MPC's core remit lest we forget (and not "pump-priming" the economy with ultra-loose monetary policy or even printing money!), is a zero-sum game since yes over-extended borrowers are literally laughing as they say, "what recession?" but the savers/investors in this country who outnumber mortgage holders 7:1 the MPC stance is literally a disaster and I think poses huge "moral hazard" dangers for the future.

Ultimately savers who are slowly being wiped out by stealth through inflation will be justified in thinking, "why bother saving?" and if they stop (perhaps even spending their reserves) and then fall on hard-times will have to resort to the generosity of the state which costs everyone (and the economy through higher Government spending) ----- as I said a zero-sum game.

The forecasting record of the MPC is so abyssal it utterly lacks credibility therefore they should act on the situation "as is" but of course without throwing the baby out with the bathwater which is why Andrew Sentence is correct in recommending a slow start to increasing interest rates to act as a warning shot across the bows.

Otherwise you can see what will happen, savers/investors discouraged perhaps permanently from putting mony aside, a short term fillip but a long-term disaster and those less prudent (those over-extended borrowers again) will start to assume ultra-loose monetary policy is here to stay and will start living their lives on that basis, again a short-term fillip but a long-term disaster.

Furthermore as Larry Elliot of the Guardian recently wrote, the post crisis world is starting to look alot like the pre-crisis world and ultra-loose monetary policy has the potential to tip us back into crisis if expectations of this state of affairs continue for too long (and some like Capital Economics are saying up to five years is a high possibility) since remember too loose monetary policy is what got us here in the first place.

Independent  06 Aug 2010

Larry Elliot

Fund to ease impact of immigration scrapped by stealth

Government quietly abandons Gordon Brown's £50m pot for councils to ease pressure on housing, schools and hospitals ...

Guardian  06 Aug 2010    Global Labour Market

Celebrating the boom? Me neither

... let's not OD on the GDP figures.

Over in the United States they had a similar experience – an unbelievably strong comeback from a near Depression.

But as soon as the official subsidies and support were peeled away – the scrappage scheme, a subsidy for housebuyers, tax cuts – the recovery began to stumble.

So now they're talking about renewing their stimulus packages. We are not so very different.

The collapse in credit in bank lending that was going to happen in 2008 and 2009 has been merely postponed.

Had the world allowed that to happen – and here Gordon Brown did earn his place in history as the man who led the G20 into a concerted global stimulus – then we would indeed have seen a 1930s slump and the horrors of that era revisited upon us.

Although it is going to be more orderly and contained, a contraction in credit throughout the advanced world is about to follow, and it will hurt.

It will not, for example, be good for house prices or the value of your pension pot.

In its way, it will be just as bad for the economy as the public spending cuts, and very possibly more so.

"Credit Crunch 2" is a sequel that we have all been trying to avoid ... but it is coming to a town all too near you all the same.

Independent  24 July 2009

Economic rebound a double-edged sword for George Osborne and the Bank of England

The spring of 2010 saw the fastest expansion since early 2006, when the housing market was hot, the City was booming and only a handful of Cassandras were warning that it would all end in tears ...

... it looks unlikely that Sentance will be able to muster the votes he needs to start the process by which borrowing costs start to rise to more normal levels from their current emergency rate of just 0.5%.

Firstly, there is the evidence from the United States, where the robust expansion at the end of 2009 has faded during 2010. Throughout this crisis, Britain has tended to follow the US with a lag of about six months.

Secondly, the possibility that the strength of growth between April and June was in part the result of companies rebuilding stocks after running down inventories during 2009 seems to be supported by recent weak data for consumer confidence, the housing market and bank financing of businesses.

Finally, the scale of the planned budgetary austerity is unprecedented for the post-war period, and the Bank will be concerned – even after growth of 1.1% – that the economy is not strong enough to withstand a simultaneous tightening of fiscal and monetary policy ...

Guardian  23 July 2009    Rebalancing the Economy

Together at Chequers, but this was the week that the coalition's honeymoon ended

UK sprints to rapid recovery but it may be 'as good as it gets'

Darling: GDP surge vindicates Labour

Bank of England minutes reveal surprise split on interest rates

Federal Reserve chairman warns of 'unusually uncertain' outlook for US

Ben Bernanke says struggling banking sector and Greece's near-collapse have delayed America's recovery ...

He blamed the banking sector, which continued to labour with poorly performing loans, as one of the chief drags on the ability of companies to expand.

The near collapse of the Greek economy before its bailout by the European Union was also blamed for delaying the US recovery.

He pointed to weak employment, with more than half of the unemployed having been out of work for more than six months. Average growth in private jobs of 100,000 a month this year was "insufficient to cut the jobless rate materially", and it would probably take a "significant amount of time" to restore the 8.5m jobs lost in 2008 and 2009, Bernanke said in prepared remarks.

He told Senator Christopher Dodd, chair of the committee:

"Part of the reason I'm concerned by the situation is that this is the worst labour market since the Great Depression. People who are unemployed for a long period of time see their skills atrophy. They may become demoralised, and short term unemployment becomes long term unemployment. We need to be very concerned." ...

Guardian  22 July 2010    Rebalancing the Economy

It's 'negflation' that Britain really needs to worry about

The Third Depression

Global Economy

Economy set for triple whammy

The British economy faces a triple whammy of higher inflation, lower growth and rising unemployment, according to one of the Bank of England's most senior policy makers. Living standards over the next few years will rise only "minimally".

In an interview with The Independent, the Bank's chief economist, Spencer Dale, said that he did not expect inflation to return to its 2 per cent official target before the end of next year, about a year later than previously hoped, partly because of the hike in VAT to 20 per cent from January announced in the Budget.

And, although Mr Dale acknowledged that the emergency Budget had done much to avoid the risk of a UK sovereign debt crisis and a rise in interest rates, he also acknowledged that the Budget would mean lower growth.

Mr Dale agreed that he would not be surprised if unemployment went higher in the next few months.

For the next "three, four, five years, demand in the economy will be "incredibly anaemic" relative to previous recoveries ...

Independent  22 July 2010    Rebalancing the Economy

The Bank's man keeps a hawkish eye on the 'evils' of inflation

Vince Cable unveils three-pronged economic growth strategy

Full Steam Ahead

What can be done to prevent a double-dip recession?

On both sides of the Atlantic, a plan B is gathering support that sounds more like a cruise ship than orthodox economic policy – QE2.

Monetarist economists have for months called on the Bank of England and US Federal Reserve to print more money ...

Policymakers usually depend on a cut in interest rates to ease monetary constraints and promote borrowing, but with base rates at 0.5% and governments squeezing public spending, printing money is the only lever left to pull ...

Guardian  20 July 2010    Rebalancing the Economy

MPC members considered revival of QE

Double dip fears as bank loans dry up

Budget risks return to recession, warns Treasury select committee

Public borrowing hit record high in June

• Public sector net cash requirement hit £20.9bn last month
• Surprise increase wrong-foots economists ...

Government borrowing, as measured by the public sector net cash requirement (PSNCR), climbed to £20.9bn in June, the highest since records began in April 1984, against £20.2bn for the same month last year.

The rise wrong-footed City economists who had pencilled in an improvement to £15bn.

Britain's total public sector net debt hit a fresh record of £926.9bn in June, equivalent to 63.9% of GDP, including the cost of the banking bailout ...

Guardian  20 July 2010

Osborne launches bonfire of the taxes

Let Ireland's downgrading be a lesson to you, George Osborne told

Business quangos scrapped in coalition cuts

Fox in Treasury wrangle over Trident

In which the illusion of great power status once again collides with economic reality.

Liam Fox ... is locked in high-stakes talks with the Treasury over the future funding for Britain’s nuclear deterrent ...

Construction of the new submarine platform for Trident will begin in 2014.

According to some defence officials this means that by 2020 the cost of building the four new submarines could absorb up to 25 per cent of the MoD’s procurement budget.

“The risk is that if that happens you will end up with this hugely skewed defence structure – dominated by aircraft carriers, fast jets and Trident – which is only relevant for state-on-state conflict,” said one defence figure.

Malcolm Chalmers, a defence expert at the Royal United Services Institute, a think-tank, said the Treasury’s stance might be designed to force the MoD to think much harder about how it could save money on the deterrent.

“There is no way you can complete the defence review without first working out who is paying for Trident,” he said

FT  15 July 2010

Poll backs rethink on new Trident

Britain’s debt: The untold story

The true scale of Britain's national indebtedness was laid bare by the Office for National Statistics yesterday: almost £4 trillion, or £4,000bn, about four times higher than previously acknowledged ...

The ONS itemised the public sector's main liabilities as:

* Future payments for the state old age pension: £1.1trn to £1.4trn

* Unfunded public sector pensions for teachers, NHS staff and civil servants: £770bn to £1.2trn

* Payments under private finance initiative contracts: £200bn

* Contingent liabilities (eg bank deposit guarantees): £500bn

* Nuclear power plant decommissioning: £45bn

* Impact of financial sector interventions: £1trn to £1.5trn

Leaving aside the possibility of another financial meltdown that would leave the taxpayer with the liabilities of a substantial part of the banking system, the figures suggest that the realistic total liabilities of the public sector could be as much as £3.8trn (£3,800,000,000,000) ...

Independent  14 July 2010    George Osborne    Rebalancing the Economy

Building work slumps

New building work on social housing projects fell 40 per cent during the three months to July, in a sign that government spending cuts are starting to hit the construction sector, writes Ed Hammond.

News of the fall in project starts comes just a fortnight after Connaught, which specialises in social housing maintenance, issued a profit warning that wiped out about a third of its market value.

The construction sector, which is heavily exposed to government-funded building projects, has warned that harsh spending cuts would cost thousands of jobs and damage the prospects of economic recovery.

The recent cancellation of a raft of school-building projects, which account for 10 per cent of the £100bn construction industry’s output, has raised fears that the sector may bear the brunt of the government’s austerity package.

Willmott Dixon, a construction company that specialises in social housing developments, said that many projects were going back to planning to be redesigned to cope with a different tenant mix.

The company said: “We are seeing a fair few projects being delayed, but it is not a seismic reduction in starts yet.”

The upward trend in private housing seen earlier this year has also petered out, with the value of new work starting down 2 per cent on a year ago, according Glenigan, the construction data provider.

“While social housing starts are likely to remain under pressure over the coming months, a renewed recovery in private housing starts is anticipated at the end of the year as housebuilders capitalise on gradually improving market conditions,” said Allan Wilen, Glenigan’s economics director.

FT  12 July 2010    Rebalancing the Economy

If public spending is behind the recovery ...

Osborne orders capital spending purge

With gross public sector investment, which includes depreciation, set to fall from £69bn ($105bn) to £46bn by 2014-15 – in line with Labour’s projected cuts – Mr Osborne has told cabinet colleagues to rank every project according to a strict cost-benefit analysis.

Net investment is set to fall from £49bn last year to £21bn ...

Ministers concede that plans for new schools, hospitals, libraries and other public buildings could fare the worst, not least since many were renewed during Labour’s 13 years in power.

The only special case is the Ministry of Defence ...

FT  04 July 2010

School buildings projects scrapped to save £5bn

Osborne shocks ministers with demand for 40 per cent budget cuts

Apart from cuts, cuts, cuts, there is as yet no indication of any bigger agenda at work at here.

The case for the 'small state' of neoliberal theory - implied by Dave's 'big society' - is nowhere in evidence, yet cuts of 25 per cent - or more! - suggests that functions are to be axed.

Coherence is there none.

The Chancellor has ordered cabinet ministers to plan for even deeper cuts to jobs and services over the next four years as part of his crisis plan to tackle the UK's £155bn budget deficit.

In a letter to David Cameron this weekend, the Chief Secretary to the Treasury, Danny Alexander, will confirm that departments already struggling to produce a blueprint for cutting spending by a quarter will now have to submit additional plans that could reduce their departmental budgets by two-fifths.

The alternative packages will be weighed up in advance of a crucial Whitehall spending review in the autumn ...

The most obvious victim of the increased requirements would be the Home Office, where a 40 per cent drop in funding would inevitably mean further cuts to the police service, which accounts for two-thirds of the £9.4bn budget this year.

The department is already mulling cuts of up to 35,000 officers, but civilian staff would also be hit, along with other bodies such as the UK Border Agency ...

Independent  04 July 2010    Small State - Big Society

Treasury orders cabinet ministers to brace themselves for 40% cuts

Ministers ordered to find 40 per cent cuts

Get the message, David Cameron

Shrinking the State

Multinationals to advise on British taxes

Senior executives from a dozen multinationals are set to advise on the competitiveness of the business tax system, the Treasury will announce on Friday as it underlines its belief that lighter taxes will encourage the private sector to spearhead the recovery.

Lowering the rate of “inefficient and growth-damaging” corporation tax will encourage investment to support the recovery according to David Gauke, exchequer secretary to the Treasury ...

FT  02 July 2010        

Clarke to slash £4bn prisons budget

Ken Clarke, justice secretary, will lay out the grounds on Wednesday for big cuts in the £4bn prisons budget, raising the prospect of a sharply reduced jail building programme after years of expansion in inmate numbers.

Mr Clarke’s announcement will put him at the forefront of ministers ordered to find 25 per cent spending cuts but also risks adding to tensions within the Con-Lib coalition ...

... many Tory MPs are furious that the coalition is protecting health budgets while planning to curb spending on law and order.

“Cutting prisons, cutting police officers, cutting sentences – that is not why people voted for us,” said one.

Private contractors expect Mr Clarke to cancel most of the five new prisons planned by the previous Labour government ...

FT  29 June 2010    Punishment or Rehab?

Justice Secretary plans 'radical' prison policy change

Budget will cost 1.3m jobs - Treasury

In pursuit of an export led recovery ... ?

Unpublished estimates of the impact of the biggest squeeze on public spending since the second world war show that the government is expecting between 500,000 and 600,000 jobs to go in the public sector and between 600,000 and 700,000 to disappear in the private sector by 2015 ...

A slide from the final version of a presentation for last week's budget, seen by the Guardian, says: "100-120,000 public sector jobs and 120-140,000 private sector jobs assumed to be lost per annum for five years through cuts."

The job losses in the public sector will result from the 25% inflation-adjusted reduction in Whitehall spending over the next five years, while the private sector will be affected both through the loss of government contracts and from the knock-on impact of lower public spending ...

texaspete82
29 Jun 2010, 9:14PM

Step 1 - Make the dole queues 2 million longer, justified by a highly uncertain and pessimistic assumption about the structual deficit driven by unrealistically pessimistic assumptions about the size of the output gap

Step 2 - Wage war on "welfare scroungers" with aim of denying benefits to newly unemployed and disabled

Step 3 - Use mass unemployment as excuse to abolish minimum wage and push wages downwards

Step 4 - Use poor quality public services resulting from cash-strapped public services and loss of best staff due to severe pay cuts and 35% staff cuts as justification for privatisation to trim state down to 20% GDP

Step 5 - Use smaller state to cut taxes for the 10% of the population earning more than £40k

This is brilliant strategy from the Tories to achieve what they have always wanted to.

WellWell
30 Jun 2010, 6:53AM

In yesterday's FT (Companies and Markets p31) a quote from Steve Barrow of Standard Bank: "...it is the financial markets that have the power to restrain governments and so bring about change, NOT the unions and the electorate."

So there you have it, a clear statement from the financiers that there is no democracy. The people don't matter, it is the financial markets that dictate policy (see also the Walter lippman quote in a post above).

Barrow subsequently qualifies his remark, "However, when the economic climate gets this bad it may well be the social aspects of policymakers' actions that count, not the reactions of financial markets." Barrow is referring to the tens of thousands demonstrating across Europe in Berlin, Paris, Rome, Madrid, Lisbon and Athens (Not forgetting the strikes in China). The only time ordinary people enter the thoughts of the financial controllers is when they rise up on the streets and challenge the hegemony of the markets.

The question arises - are the people of Britain (and i would add Ireland) going to rise up in solidarity? Or are we going to do nothing more than grumble as what remains of the social fabric is slashed and shredded to tatters?

After thirty years of Thatcherism/monetarism/neoliberalism - whatever you want to call it - we get a cabinet of 22 pampered millionaires cotton-wooled from the concerns and worries of ordinary people who are smugly implementing policies that stamp on the poorest and toss them into penury like rubbish on a skip; moreover policies that will throw hundred of thousands more onto the dole queues. And all to retain the spending power of the very wealthy, which allows them to escape the world they've destroyed for the rest of us taking flight to their luxury yachts like the Haywards of the world, or to their private jets, or their lavish holiday homes or overpriced select restaurants...

It took a CIA backed military coup to implement austerity measures in Chile similar to this, and operation Condor in the Southern Cone. We mustn't accept this. The Tories (with the aid of the Tory trojan Clegg) are going to complete the Thatcherite project and undo 100 years of struggle for ordinary people. If we do nothing, we will all be at the mercy of charity and private interests. And what then when the next crash comes as it surely will. Will we let them erode our living standards even further?

Enough. Enough discarding entire communities and shoving them away in ghettos, enough exploitation of the poorest, enough destruction of the planet. And why such madness? For the profit of a few. Enough of their geopolitical wars and their indoctrination. Rogue capitalism needs to be brought to an end - NOW

AnOwl
30 Jun 2010, 8:08AM

@Gilday - I'm far from confident about your reading comprehension skills.

The entire article clearly casts enormous doubt on the ability of the private sector to create 500,000 jobs per annum (which it has never done in this country, even in the longest boom periods).

Where do you imagine the majority of private sector growth has been over the last 20-odd years? It is in public service procurement of private sector services. This is likely to be redcued to the point of non-existence during the coming Parliament. In nascent industries where there may be some prospect of major growth (renewable energy; the digital sector; life sciences) the current government is already scrapping several crucial financial stream necessary for their successful incubation into fully-fledged national industries. Still, corporation tax is going down by 4%. That'll sort matters out...

Outside the rarefied and increasingly closed-off world of global finance, the economy shows every sign of stagnating for years to come. A second soverign debt crisis, anywhere in the world, would pull the global economy back to the precipice. Chinese growth is faltering, its property sector vastly overheated and due for "market correction".

I think we are heading squarely into the heart of a second Great Depression.

Guardian  29 June 2010    'Reserve Army'

Budget office's forecasts of 2m jobs questioned

Vince Cable's 'department for growth' is first to face job cuts

In Ireland, a Picture of the High Cost of Austerity

Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations. Rather than being rewarded for its actions, though, Ireland is being penalized ...

NYT  28 June 2010    IMF    'Reserve Army'    The Euro

It's 'negflation' that Britain really needs to worry about

There were two ... important stories from the weekend press to digest ...

One was a warning from John Bason, finance director of Associated British Foods, the owner of the discount clothing chain, Primark, that the cost of clothing in the UK could rise by as much as 5pc over the next year because of increased transport costs, the weakness of sterling, and the increase in VAT.

According to Mr Bason, this will be more than just a temporary blip.

Strongly rising wage pressures in formerly low-cost manufacturing countries such as China, mean that the era of ultra-cheap clothing – prices have been falling pretty much uninterrupted for nearly twenty years now – is well and truly over.

The other was the warning from Philip Hammond, the Transport Secretary, that swingeing public spending cuts are likely to cause steep increases in rail fares next year.

Conventional wisdom, echoed by the Bank of England in its last Inflation Report, is that recession induced excess capacity in the economy will push down on inflation for some time to come.

These two warnings may suggest otherwise.

Inflationary pressures have remained surprisingly strong right through the downturn, and there is as yet little sign of a let-up ...

[These pressures] ... come either from external sources, or as in the case of rail fares, as a result of the removal of state subsidy from public services.

This is "cost push inflation", rather than "demand pull", but no less damaging to disposable incomes and business confidence for it ...

Rising domestic demand from the big developing economies of Asia and Latin America are good reason to believe these elevated levels of inflation are more than just temporary.

These countries now compete aggressively with the West for all forms of resource, from labour to energy and food ...

The idea, as expounded by the G20, that with a little bit of deficit reduction and financial market reform, we'll soon be back to "normal", looks sadly deluded.

The world's changed. It will be a while before we understand precisely how.

Telegraph  28 June 2010    Crackdown on Benefit Scroungers    The Third Depression

[US] Recovery Slows With Weak Job Creation in June

In Ireland, a Picture of the High Cost of Austerity

Whisper it softly: Was Brown right after all?

Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations ...

Rather than being rewarded for its actions, though, Ireland is being penalized.

Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those out of work for a year or more — have more than doubled, to 5.3 percent ...

Despite its strenuous efforts, Ireland has been thrust into the same ignominious category as Portugal, Italy, Greece and Spain.

It now pays a hefty three percentage points more than Germany on its benchmark bonds, in part because investors fear that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to pay its bills rather than easier ...

Politicians here have raised taxes and cut salaries for nurses, professors and other public workers by up to 20 percent.

About 30 billion euros ($37 billion) is being poured into zombie banks like Anglo Irish, which was nationalized after lavishing loans on developers.

The budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last year — worse than Greece.

It continues to deteriorate. Drained of cash after an American-style housing boom went bust, Ireland has had to borrow billions; its once ultralow debt could rise to 77 percent of G.D.P. this year.

“Everybody’s feeling quite sick at what happened because things were going so well for Ireland,” said Patrick Honohan, the Irish central bank governor. “But we don’t have the flexibility to do a spending stimulus now. There’s no one who is even arguing for it.” ...

NYT  28 June 2010    IMF    The Euro    'Reserve Army'

The Third Depression

We are now, I fear, in the early stages of a third depression ...

... the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy.

Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history.

Unlike their predecessors ... today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer ...

... unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

... the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence ...

... there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors.

On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain ...

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs.

It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy?

The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

NYT  27 June 2010    Crackdown on Welfare    G20    'Negflation'    'Reserve Army'

It's 'negflation' that Britain really needs to worry about

[US] Recovery Slows With Weak Job Creation in June

Leaders divided over tackling national deficits

Signs of deep rifts over how quickly to cut national deficits were emerging as world leaders gathered in Toronto for summits of the G8 and G20 groups of rich nations today ...

The US, led by Treasury secretary Tim Geithner, is resisting moves to cut deficits early, with Geithner warning that growth and confidence are paramount.

There are increasing fears of the risk of a double-dip recession in the US ...

At a news conference in Toronto, Barroso said Europe could no longer afford to borrow and spend and must repair its budgets ...

" ... there is no more room for deficit spending," he said.

The European central bank president, Jean-Claude Trichet, also dismissed the idea that budget cuts could undo the fragile economic recovery.

"The idea that austerity measures could trigger stagnation is incorrect," he told the Italian La Repubblica newspaper, describing the German budget plans as "good" ...

The British deficit reduction plan is one of the most intense inside the G20 group of countries.

Guardian  25 June 2010    G20

Economic crisis has created unlikely alliances for Cameron

Cameron defends cuts despite US warning

Germany Warns US Not to Become 'Addicted to Borrowing'

Why NHS spending cannot be cut

Much comment since the Budget on how David Cameron and his Chancellor, George Osborne, have missed a trick in ring fencing spending on the National Health Service from the coming cuts.

If they had spread the planned departmental cuts across all departments, including health, they could have limited the real terms squeeze over the next five years to an average 14 per cent ...

But it is not just the politics of the situation that demands health spending is protected; there is actually a very good practical reason for it too, which is that try as some post war governments have to shave money off the health budget, no-one has ever succeeded in doing it ...

Why is this? ... it is because public expectations of health care rises at a far faster rate than other public services, including education.

For every treatment which gets more cost effective over time, there are loads of new life enhancing and extending ones coming up in the wings.

Patients reasonably demand the latest and the best ...

... UK expenditure on health, including private, trails other advanced European economies as a percentage of GDP by a considerable margin ...

The Government could help matters enormously by establishing some form of state sponsored private health insurance scheme, such as exists in France.

Most private health insurance in Britain is a waste of money, with the costs of treatment scandalously recouped through higher premiums in subsequent years ...

Telegraph  25 June 2010    Alcohol, Nicotine & Cannabis

How do you cut the state by a quarter?

A useful analysis of cuts, and costs, which demonstrates - as blogger bnightside242 points out - a lack of any in-depth analysis of consequences. The coalition lacks any vision of what might come after these cuts, for example, the way in which a 'Big Society' program might help to run local public services by using the millions of inactive as benefit-funded 'volunteers' within the context of a local democracy.

nightside242
I think we can all agree that it looks very savage indeed.

My only worry is that there seems to be not much secondary analysis here; the initial savings can be calculated, but what about the knock-on effects?

Sure, cutting thousand of civil servant staff will save a tonne of money, but then you have to pay JSA for them all and the other benefits that come with it, as well as, in some cases, even homelessness.

Cutting grants for home insulation and boilers means more people requiring treatment for influenza, pneumonia and hypothermia every winter.

Cutting back train and bus services will fill the roads on their own, which would force more road expansions and improvements, which negates the cost of cutting that in the first place.

This is a far from complex analysis, and you could write an entire book on this, but I've made a start just in the last few sentences, so you've got to wonder at the enormity of the knock-on effects of all these cuts.

Independent  24 June 2010    Towards the Good Society

Tories seek further cuts

Budget crises, health, and social welfare programmes

The recession of 2008 has had profound economic consequences for many countries.

How and when to reduce budget deficits was a major focus in the recent general election in the United Kingdom and continues to make headlines around the world.

The new government has already begun to make large cuts in public expenditure, even though the UK’s projected underlying debt, as a share of gross domestic product, is less than that of other industrialised countries, it has longer than many other countries before it is required to refinance loans (table 1), and the actual deficit in 2009-10 was considerably less than expected.

Leading economists have widely divergent views about whether the cuts will aid or hinder economic recovery, but have paid scant attention to the potential effects of reductions in health and social expenditure on population health/

We examine historical data for insights into how lower levels of public spending might affect health ...

Sir Michael Marmot’s recent review on health inequalities in the United Kingdom concluded that "Austerity need not lead to retrenchment in the welfare state.

Indeed, the opposite may be necessary."

The current economic difficulties could be viewed as an opportunity to reorganise provision of services to those in need, creating a broader set of services that reflect the increasingly complex needs of a society facing health challenges as varied as fast food and dementia.

It would be unfortunate if this opportunity were wasted.

If the first priority of a government is to protect the lives of its people, a statement often made in response to the perceived threat from terrorism, then it should take account of the implications of its economic policies for health.

BMJ  24 June 2010    Inequality    No such thing as society

Cutting welfare budgets could cost lives

Ring-fence social care like the NHS

Outcry over plans not to extend free school meals

Banks set to gain from Osborne's tax regime

Britain's banks have emerged as major beneficiaries of the Budget, with the City warning that the coalition Government's proposed levy will fail to reach its target of generating £2bn revenues a year ...

Groups such as the City of London Corporation and the British Bankers' Association have been critical of the levy and warned that it could push business away from Britain.

But both UBS and Citigroup said the impact on banks' earnings would be relatively small and more than offset by the cuts to corporation tax, also promised in the Budget ...

Independent  24 June 2010    Banking Commission

Bank tax is toothless, say number-crunchers

Budget will hit poor harder than rich

Noting that Britain was facing the "longest, deepest, sustained cuts in public spending since the second world war, Robert Chote, the IFS director, said:

"Osborne and Clegg have been keen to describe yesterday's measures as progressive in the sense that the rich will feel more pain than the poor. That is a debatable claim. The budget looks less progressive – indeed somewhat regressive – when you take out the effect of measures that were inherited from the previous government, when you look further into the future than 2012-13, and when you include some other measures that the Treasury has chosen not to model."

The IFS estimates that the squeeze on poorer families would increase in the second half of the parliament as welfare cuts kicked in and the two-year increase in child tax credit ended ...

The IFS found that the richest 10% would be 7.5% worse off by 2014-15 because of measures coming into force during the current parliament but that almost seven percentage points of that was due to Labour changes.

The poorest 10% were left almost untouched by Labour's plans but would see their incomes cut by more than 2.5% over the next five years.

With the IFS estimating that some government departments could face cuts, in real spending, of up to a third during this parliament, Chote added:

"Perhaps the most important omission in any distributional analysis of this sort is the impact of the looming cuts to public services, which are likely to hit poorer households significantly harder than richer households." ...

Guardian  23 June 2010    Inequality

Pain now, more pain later in austerity plan

In his debut budget speech, Osborne pleased the ratings agencies and the Organisation for Economic Co-operation and Development by intensifying the £73bn squeeze already planned by the last Labour government ...

The need to placate the markets after the sovereign debt crisis in the euro area last month meant the pace of deficit reduction had to be accelerated, the chancellor added ...

Tonight, the ratings agency Fitch said the budget would "materially strengthen confidence" in the country's public finances, while the Organisation for Economic Co-operation and Development, the Paris-based thinktank for developed country governments, praised Osborne for his "courage" ...

Guardian  22 June 2010    

Housing benefit warning

Today’s budget announcements on housing benefit could push households over the edge, Shelter chief executive Campbell Robb has warned ...

‘Shelter has been calling for housing benefit reform for years, but this debate must not be muddied by the use of an extreme example from one area in the country.

‘The vast majority of housing benefit claimants are either pensioners, those with disabilities, people caring for a relative or hardworking people on low incomes, and only 1 in 8 people who receive housing benefit is unemployed.

‘We are really concerned that even at current levels, nearly half of local housing allowance claimants are already making up a shortfall of almost £100 a month to meet their rent.

If this support is ripped out suddenly from under their feet it will push many households over the edge, triggering a spiral of debt, eviction and homelessness.

‘The underlying issue which this budget has failed to address is the critical shortage of affordable housing, which means more and more people are being housed in the private rented sector where rents are almost double those in social housing.

‘If we are to reduce the housing benefit bill in the long term we must continue to build more affordable housing.’ ...

£104,000 is the current rate for a 5 bedroom property in Central London BRMA.

An example of the households eligible for this amount would be a family of two adults living with an elderly relative and six children under the age of 16 (if paired with same sex over 10).

Shelter  22 June 2010    Ponzi Housing Market

Shelter

Era of austerity to see savage cuts ...

Banks hit by new £2bn levy

The FT fails to point out that the reduction in corporation tax may counterbalance the levy

Peter Maybrey, financial services tax partner at PwC, said the risks to the UK’s competitiveness were high if Britain imposes the levy in advance of other major territories such as the US.

"We are concerned that the proposed bank levy may have an adverse impact on the competitiveness of the UK as a financial services centre," said Mr Maybery. "This could lead to a migration of business activity from the UK to such other territories which either do not impose a levy or impose one at a lower rate than the UK." ...

FT  22 June 2010

Banks to pay balance sheet tax

Relief at lower-than-expected rise in capital gains tax

News that capital gains tax (CGT) is being increased to 28% for higher earners was met with relief ...

But you can't please everybody:

... David Kilshaw, head of private client at KPMG, said:

"A 28% rate sounds relatively good in the circumstances - but only because people were fearing a 50% rate. It still gives the UK one of the highest rates in Europe."

Holla Tester

... a completely pointless move - as the TUC have shown in their research '60% of all capital gains tax bills are paid by people with little or no income'

Don't they realise that, for instance, the higher rate tax payers are clever enought to transfer gains to non-working spouses? the CGT loophole has been left wide open.

Independent  22 June 2010

TUC

Property investors welcome CGT move

VAT rise and benefits cuts to tackle Britain's deficit

IVB, ICB, and DLA claimants have been facing draconian medical tests since Peter Lilley introduced them in 1992.

The Work Capability Assessment was transferred to a private contractor - Atos - by New Labour.

It seems the coalition is trying to make claiming even more difficult because - as the Mail and Express tell us as frequently as possible - the latest example of benefit fraud is typical of every claimant

From this year, all benefits will rise in line with the CPI measure of inflation instead of the RPI measure, which is higher.

That will save £6 billion a year by the end of the Parliament he said.

The move will mean real-terms cuts in benefits payments, but Mr Osborne said it was “fairer” than a simple benefits freeze.

Tax credits will be taken away from families earning over £40,000. Changes in thresholds will cut payments to those on lower incomes.

Child Benefit will be frozen for the next three years. Mr Osborne said he had considered means-testing the benefit but rejected the plan.

Existing claimants of Disability Living Allowance will face new medical tests.

Housing benefits payments will be cut by £1.8 billion, 7 per cent overall, by capping payments.

Telegraph  22 June 2010    Alternatives to Welfare

George Osborne facing budget backlash

Osborne 'punishing the virtuous' according to David Davis

... 110 entrepreneurs have published an open letter to the chancellor condemning "a unilateral blanket increase in CGT, which would mean start-ups, talent, investment, jobs and tax revenues will head elsewhere over coming years".

According to Treasury calculations, a single percentage point rise in capital gains tax would raise just £10m this year, rising to £130m the following year.

The apparent hardening in the chancellor's language will raise many Conservatives' hackles, though a spokesman insisted Osborne had meant to say "avoidance" rather than "evasion" of the tax.

Senior political figures, including David Davis and John Redwood, have already expressed deep concerns over draconian action planned by Osborne.

Davis said: "These are the people, not the rich, who will pay the lion's share of the increased capital gains tax. When they reach retirement age they will not be able to defer selling their share portfolio, holiday cottage or buy-to-let flat. They will need the money. So if we are not very careful, we will be punishing the virtuous." ...

Guardian  21 June 2010

Osborne set for hardest Budget in a generation

'Enhance competitiveness' - there's a euphemism for a demand for a nice hefty tax cut.

And note the implied threat which the corporate sector - and their cheerleaders at the Adam Smith Institute - always make at Budget time: do as we say or we're off to the Cayman Islands, or some other remnant of the Empire which acts as a tax haven because no government has had the 'cajones' to close them.

Qui bono?

Ahead of the Budget the traditional lobbying process from a range of bodies was in full flow.

The Association of British Insurers urged the Chancellor to enhance Britain's competitiveness or risk seeing more firms quit London for foreign jurisdictions.

"The Government must encourage insurers to stay, as well as make the UK attractive to companies looking to relocate from abroad," warned Kerrie Kelly, the recently installed director general of the ABI.

"Having a more transparent and predictable tax system would greatly enhance the UK's competitiveness. Insurance firms are a major source of employment and contributor of corporation tax to the UK Exchequer." ...

The Independent  20 June 2010    Adam Smith

Austerity isn't enough, Mr Osborne

30bn taxes and cuts package

Osborne to axe benefits in race to slash deficit

Pain, yes. But no to unfair cuts

Government warned over CGT rise

Raising the rate of capital gains tax (CGT) could result in a fall in tax revenues, a think tank has warned ...

... the Adam Smith Institute said the move could cost the government up to £2.48bn in lost revenues by discouraging individuals from selling assets such as property and shares.

A group of 110 entrepreneurs has also warned the Chancellor that raising CGT could drive investment overseas ...

The aim of the move is to raise money to help cut Britain's deficit but Peter Young, from the Adam Smith Institute, told the BBC it could actually have the opposite effect.

"It seems that for every 1% rise in the capital gains tax rate above a certain fairly low level of around 10 %, you get a 2% drop in revenue," he said ...

BBC NEWS  19 June 2010    Adam Smith

Adam Smith Institute

UK budget deficit lower than feared

But debt is highest ever ...

• Government borrowed £16bn in May, when £18bn expected ...

Excluding bank bailouts, borrowing for the whole of last year was £154.7bn, which is better than the £156.1bn predicted by the Office for Budget Responsibility on Monday. The government expects borrowing to hit £155bn for this year, down from the £163bn forecast by Labour.

However, the nation's debt has now reached £903bn – equivalent to 62.2% of GDP, the highest since records began in 1993, underlining the task faced by the coalition government in cutting the debt burden ...

Guardian  18 June 2010

Public borrowing at a peak, says ONS

Government spends £18,000 topping up wine cellar

Backbenchers' revolt succeeds in watering down reforms to CGT

Cameron trying to face both ways - a coalition dilemma - he wants to both raise tax thresholds (LibDem) and avoid 'punishing savers' - code for keeping CGT low. Expect a fudge in the budget.

A controversial rise in capital gains tax to pay for an increase in the income tax threshold will be announced in next week's Budget, David Cameron confirmed yesterday ...

"We are finding a lot of people turn income into capital in order to evade the tax system and we're losing over £1bn by that. So there's a problem we have to address," he told BBC Radio 2's Jeremy Vine show. "But I do not want to do anything that actually unfairly punishes savers – I don't want to go back to very high rates of marginal tax."

Independent  17 June 2010    Inequality

Government warned over CGT rise

Osborne must be more radical

Fiscal conservatism may be good for one nation, but threatens collective disaster

"Appeasing the markets is like trying to reason with a crazy man ... "

What is unambiguously clear about the European economies, including that of the UK, is that if they all decide to cut their borrowing, slash spending and raise taxes, and do so at the same time, growth will be lower than it otherwise would have been ...

It a classic Keynesian paradox; what is good for one nation can be disastrous for all ...

What I detect as being especially dangerous in Europe right now are the cuts in the wages of public sector workers.

This so-called "internal devaluation" is based on the idea that prices and wages can both move down together.

Whether that happens or not, what will not move down is the value of the debts incurred by households ...

So, with a lower salary and the same mortgage and consumer debts, many families will, I fear, default ...

In these already highly indebted states, that could place much more stress on the banking system, and make the banks even more cautious and unwilling to extend credit, which would add another twist to the downward spiral ... the case for more cuts is weak.

Appeasing the markets is like trying to reason with a crazy man ...

Better to follow the right policy: supporting growth through higher spending on public investment and infrastructure, which will help the economy grow faster in the long term.

Independent  15 June 2010    Reserve Army

OBR report: Difficult decisions ahead

The Chancellor is overplaying the scale of the black hole ...

Are the books really ... as bad ... as the coalition says?

Osborne will have to look elsewhere for austerity affirmation

The lunatics are back in charge of the economy and they want cuts, cuts, cuts

As things stand, a second Great Depression has been averted, but growth has ranged from the weak in Europe to the unspectacular in the United States.

Banks are not lending. Unemployment is running at near double-digit levels in the US and the eurozone.

The determination to cut budget deficits in these circumstances does not show that policymakers of probity and integrity have replaced the irresponsible spendthrifts of 2008 and 2009. It shows that the lunatics are back in charge of the asylum ...

The budget hawks like to cite Geoffrey Howe's draconian 1981 budget as evidence that fiscal tightening is perfectly consistent with economic growth. So it is, providing there is scope for an over-valued pound to depreciate and for excessively high interest rates to be cut.

So it is, provided that tumbling oil prices raise the real incomes of consumers and cut costs for businesses.

All these things happened in the early 1980s; none of them are likely to occur now.

The pound has already fallen by 25%, interest rates are at 0.5% and oil prices show no sign of falling much below $70 (£48) a barrel ...

... we now have the bizarre spectacle of China, Japan, the eurozone and Britain all set on reducing budget deficits while simultaneously pursuing export-led growth.

This is a logical absurdity because somebody, somewhere has to be importing all the exports.

If the rest of the world assumes that the US is once again going to become the world's spender of last resort it is seriously mistaken ...

Guardian  14 June 2010    Sir Alan Budd's Reserve Army

OBR UK growth forecast downgraded

OBR cuts forecasts for economy

The UK economy will grow slower than the Labour Government predicted in the last Budget ...

... the forecast for borrowing was £155 billion in the current financial year - below the £163 billion forecast in the Budget - with total net borrowing over the next five years £23 billion lower than expected in March ...

The body predicts that the financial crisis "will have a persistent effect on trend growth over the medium term" and expects growth of 2.8 per cent in 2012 and 2013, below the previous government's 3.5 per cent forecast.

The OBR said there were "major uncertainties" over its predictions, including the ability of a fragile banking system to support the recovery with credit as well as the extent to which private sector spending and employment can fill the gap left by looming public spending cuts.

There are also worries over demand in Europe, a major export market for the UK, due to the current sovereign debt woes ...

Telegraph  14 June 2010

UK official growth forecasts are slashed

Growth forecast is cut but borrowing improves

OBR UK growth forecast downgraded

OBR publishes its pre-Budget forecast

The Big Question: should Britain cut its deficit so fast and so deep?

In which seven "experts" put forward their views on the cuts. The opposing views of Ruth Lea and David Blanchflower sum up the problem most of us have in knowing what, or who to believe.

RUTH LEA
Economic adviser to the Arbuthnot Banking Group

The British government is on probation. The financial markets expect the coalition to tame the yawning public sector deficit without wrecking the recovery.

If the government does not deliver, interest rates will rise, borrowing will become more expensive and growth will be undermined.

This year's £6bn of cuts is relatively modest, but more needs to be done if the government is to eliminate most of the structural budget deficit and keep our creditors happy.

Next year the cuts will have to be accelerated. Deep cuts are not just right – they are essential.

DAVID BLANCHFLOWER
Economics professor, Dartmouth College, New Hampshire andexternal member of the Bank of England's Monetary Policy Committee (MPC) from 2006-2009.

It is the height of irresponsibility to cut in the depths of the most severe financial crisis in a hundred years.

A similar view was taken yesterday by Federal Reserve chairman Ben Bernanke in testimony to the House Banking Committee.

It is appropriate to establish a long-run plan to deal with the deficit that should be implemented once growth has been established. But growth is anaemic and there is every prospect of more quarters of negative growth this year.

Public stimulus is driving most activity in the economy. The private sector is neither hiring nor investing and the banks are not lending.

Cutting now will certainly push us into double dip recession and hugely increases the prospect that we will enter a second great depression.

Cutting the deficit is ideology and not sound economics. It may be good for investors but is certainly not good for the British people, who are likely to see unemployment rise inexorably. And the young would be especially hard hit.

As Nobel prizewinner Paul Krugman wrote on his blog last week, such policies are "utter folly posing as wisdom".

Observer  13 June 2010    

Fears for UK economy as Osborne sharpens axe

Further warning signals emerged yesterday over the parlous position of the UK's economic recovery ...

The Office for National Statistics said the manufacturing sector, until now one of the biggest contributors to the recovery, had slipped back in April, with a 0.4 per cent fall in industrial production ...

The Bank of England added to the concerns with its monthly survey of expectations of inflation, which showed that people think price rises will average 3.3 per cent over the next 12 months, the highest level for almost two years.

That could add to pressure on the Bank's Monetary Policy Committee to raise interest rates sooner than expected, with the OECD having said last month that the cost of borrowing would have to be increased before the end of the year ...

The Treasury has been working on the basis that the UK economy will grow by 3.25 per cent in 2011, but the OBR could cut that projection as low as 2.2 per cent, the consensus prediction amongst independent forecasters.

Roger Bootle, managing director of Capital Economics, said that if so, the government borrowing requirement would rise by £20bn by 2015, suggesting even more drastic spending cuts would be needed to address the shortfall ...

Nervousness about the state of the UK economy was also heightened yesterday by warnings from other countries around the world, which suggest continued doubts about the sustainability of the global recovery ...

The Independent  12 June 2010

CBI calls for reduced taxes on rich and big spending cuts

Richard Lambert, the CBI's director-general urged the chancellor to bring the top rate of income tax back down from 50% to 40% ...

In its budget submission that drew accusations of special pleading from the TUC, the employers' organisation called on George Osborne to water down plans to raise revenue from the better-off through tougher CGT rules and by restricting tax relief on pensions. The CBI also said it wanted the chancellor to bring the top rate of income tax back down from 50% to 40% as quickly as possible.

Richard Lambert, the CBI's director-general said it was vital for the government to restore financial market confidence in the public finances by bringing Britain's record peacetime deficit rapidly under control.

The submission said there should be four pounds of spending cuts for every pound of tax increase, but said infrastructure spending should not be cut excessively.

Lambert set out a three-point plan for making savings in the public sector:

• controlling workforce costs through curbs on pay and hiring;
• eliminating waste and duplication through sharing back-office functions, outsourcing and more efficient procurement;
• re-engineering public service delivery, including treating more patients at home ...

Guardian  10 June 2010    Inequality

Chancellor declares war on middle-class welfare

Big cuts in the £170bn-a-year social security budget will be sought by the Government as it launches a fundamental review of all public spending to reduce Britain's £156bn deficit ...

In the line of fire

Social security benefits: £170bn

By far the largest area of government spending, and forecast to go above £200bn in 2010.

Around £85bn goes to those out of work, although some of that includes tax credits.

Around 3.2 million working-age households claim housing benefits.

Almost 2.5 million people have claimed income support or incapacity benefits for more than two years.

Tax credits: £23.6bn

It is thought the amount lost in the tax system amounts to £1.7bn.

Child tax credits or working tax credits can be claimed by people employed or self-employed and work at least 16 hours a week.

A £4-a-week rise was due to come into effect in 2012.

Public-sector pensions: £4.4bn

Regarded as a time bomb.

The National Audit Office has revealed that unfunded public-sector schemes would be paying out £79bn by 2060, compared with £25bn in 2010 ...

Independent  09 June 2010

'Formidable' challenge facing Osborne ...

Ministries face cuts of over 20%

Welfare, tax credits and pensions among areas to be included in fundamental spending review, warns chancellor ...

Osborne won surprise support for his strategy from the former Labour city minister Lord Myners, who said that there was considerable waste in public expenditure.

"There is nothing progressive about a government that consistently spends more than it can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred with respect to the current generation," Myners said, accusing the previous government of flawed thinking on employment.

"The government can create the environment conducive to the creation of jobs, but it cannot create jobs, and we mislead ourselves if we believe it can." ...

Osborne insisted he now had the support of the IMF, Bank of England, and other industrialised nations for his cuts.

He revealed that, after the next budget, departmental ministers would get a month or so to submit initial plans for delivering their priorities before the summer recess.

Ministers would be asked to consider, among other aspects, whether their activities could be "provided by a non-state provider or by citizens, wholly, or in partnership" ....

Guardian  08 June 2010

Benefits and pensions targeted

Osborne warns cabinet of cuts of up to 20%

Osborne outlines 20% cuts for a parliament

Fitch warning hits sterling and equities

Lord Myners attacks Labour's economic record

Cameron: 'Years of pain ahead'

With the budget of the Department for Work and Pensions set to face cuts of up to 20% over the next five years, ministers are hoping for large savings from schemes to force claimants off incapacity benefit and into work.

More draconian measures are also on the table.

Freezing all benefits for 12 months next year would raise £4.1 billion. Executing a Liberal Democrat pledge to axe child credits for couples on a joint income of more than £26,000 could save more than £1 billion a year. It is understood that ministers have ruled out means-testing child benefits and winter fuel payments.

All public sector workers earning more than £18,000 a year already face a pay freeze next year, but it is understood that curbs in wage rises beyond 2011 are likely to be unveiled in the budget on June 22.

Cameron said he had not seen the report being prepared by Sir Alan Budd, the head of the government’s new budget watchdog. MPs expect that Budd will scale down the current growth forecasts to somewhere nearer the average predictions of independent economists, who believe next year’s growth will be a sluggish 2%.

The prime minister insisted the figures that the coalition had inherited were wildly over-optimistic.

“There were two levels of optimism in what the [Labour] government was forecasting,” Cameron said. “One was trampoline growth of 3% and above, and the second theory was that interest rates would always stay low.

“One of the most shocking things is the extent of the interest we are paying on our debt. If we don’t do anything about it, it is going to be £50, £60, £70 billion ... " ...

Times  06 June 2010    Blog

George Osborne set to cut headline corporation tax

Zygmunt Bauman called it "Standortkonkurrenz" - competing with other countries, in a race
to the bottom, to lure footless corporate capital to invest in your country rather than someone else's.

Corporation tax was expected to raise £42bn in 2010-11, according to the Budget Red Book produced during Labour's last Budget.

The proposed tax cut would lower the figure to around £37.5bn leaving a £4.5bn shortfall that the Chancellor would seek to make up elsewhere.

The manifesto said the tax cut would be funded by "reducing complex reliefs and allowances" but the Tories have offered no further details. Experts say areas that could be targeted could be R&D tax credits and some capital allowances.

Vince Cable, the Business Secretary, is reported to be pressurizing Mr Osborne to consider the possible negative impact of severe cuts to investment allowances.

The British Chambers of Commerce has also urged the Chancellor to make sure the corporation tax reforms does not come with adverse side effects. David Frost, director general of the BCC, has suggested lowering the rate in phases so that the reliefs can also be changed gradually.

Separately, the CBI on Tuesday said that establishing competitive business taxes is essential for delivering economic growth. The influential trade body published a list of priorities for the Government to cut costs, including the freezing the public wage bill for two years which it said could save £18bn over two years.

The CBI also called for a "re-engineering" of public services to make them more efficient.

Telegraph  19 May 2010    Economic Democracy

Thinktank attacks parties over spending cuts

Max Hastings' 'greedy obese ten year old' doesn't want to hear that the sweet jar will soon be empty

"Over the next four years starting next year (2011-12), Labour and the Liberal Democrats would need to deliver the deepest sustained cuts to spending on public services since the late 1970s", said Robert Chote, the IFS director ...

The IFS said after taking into account pledges to ring-fence parts of public spending such as the NHS and overseas aid, the Conservatives would need to axe the budgets of unprotected Whitehall departments by £63.7bn in inflation-adjusted terms by 2014-15. Of these, only 17.7% had so far been specified.

Similarly, Labour had announced measures totalling just 13.3% of what it would need to slash spending by £50.8bn and the Liberal Democrats 25.9% of the £46.5bn they would need to save in order to meet their deficit reduction goals.

"Repairing the public finances will be the defining domestic policy task of the next government," Chote said.

"For the voters to make an informed choice in this election, the parties need to explain clearly how they would go about achieving it. Unfortunately, they have not.

"The opposition parties have not even set out their fiscal targets clearly. And all three are particularly vague on their plans for public spending.

"The blame for that lies primarily with the government for refusing to hold a spending review before the election."

Guardian  27 Apr 2010

Shrinking the State