Labour still hasn’t sealed the deal


11:24 am - December 15th 2008

by Sunny Hundal    


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Thank you DarlingWhile eating on Saturday at a restaurant, I noticed this little sign on the table thanking the Chancellor for reducing VAT. I’ve been pretty sceptical of the impact and viability of this move, but a fellow blogger at a Boris watchers meet on Friday pointed out that businesses across the country were doing the Chancellor’s PR for him in mentioning these incentives.

As yet, the polls don’t point that way. Yesterday’s Comres poll in the IoS confirms an earlier view that Labour is only one point behind the Conservatives. A YouGov poll in the Sunday Times points to a Tory six-point lead, greatly reduced from double-digit leads only a few months ago (surprisingly, neither Iain Dale nor Guido Fawkes bother mentioning either poll).

Anthony Wells says what I’ve been banging about too:

The most surprising of the four statements to me was “The Conservative response to the economic crisis seems to me like a ‘do nothing’ strategy” – normally polls reveal a pretty cynical attitude towards politicians from the public, and the Conservatives hadn’t seemed to have got any obvious alternative strategy across to the public, so I’d expected majority agreement here. In fact only 45% agreed, with 45% disagreeing – suggesting Labour’s line of attack on the Conservatives hasn’t chimed as much as it might have (not that this seems to be helping the Conservatives in topline voting intentions!)


This is echoed by Andrew Rawnsley in yesterday’s Observer:

Yet Herr Steinbrück’s intervention also drew attention to their own failings. The most brutally succinct criticism of Mr Brown’s approach to the crisis has come not from the leaders of Britain’s Conservatives, but from a German social democrat.

The whole article is spot on; even the normally cynical CIF audience applauds him below it. So while Barack Obama is planning to pump money into the economy by upgrading its infrastructure and investment in education, Brown is hoping for a consumption fuelled boom, which is risky as well as short-termist.

There are a few things this government needs to do:

1) Think of some big investment plans to take Britain into a better future. This is a once-in-a-lifetime big spending opportunity you numbskulls.

2) Find someone to better communicate those plans and vision, and expose the emptiness of ‘do nothing’ Tory plans (because the supposedly left-wing newspapers aren’t doing it).

3) Let the Pound fall and make a case for that. Its good for exports and ensures we don’t spiral into deflation. Vince Cable has rightly pointed out that a falling interest rate was going to devalue the pound anyway. The strength of the economy now depends on a strong spending plan to boost our long term future, not people’s credit card bills. The middle-class holiday preparing journalists are screaming in pain but they don’t vote in large numbers.

As for some concerns, Daniel Davies quite effectively dismissed them recently:

4) What about the borrowing and the “tax bombshell” for future generations, nothing in the kitty, blah blah blah?

Nah, balls. Nobody really cares about deficits – if they did, Ronald Reagan would have killed the US economy and he didn’t (the borrowing figure of 57% of GDP in the budget projections is nearly exactly the peak of the Reagan debt burden in the USA, and other OECD countries have borrowed a hell of a lot more with no obvious long term ill effects). Related questions: “what about the golden rule?” (it was silly rule) and “shouldn’t we only borrow to finance investment?” (investment in recession insurance is one of the best investments you can make). In this piece from 2006, I introduced the concept of “the gap between where government borrowing needs to be in order to keep us out of recession and where it needs to be in order to wipe the smile off George Osborne’s face”, and I maintain that it is still a useful tool of fiscal analysis.

And lastly, this blog post by Willem Buiter at the FT (via john b) is quite good:

If I may paraphrase that great ensemble of Nobel-prize winning financial wizards, Monty Python’s Flying Circus:
“This financial system is no more! It has ceased to be! It’s expired and gone to meet its maker! It’s a stiff! Bereft of life, it rests in peace! If you hadn’t nailed it to the tax payer’s perch it’d be pushing up the daisies! Its metabolic processes are now ‘istory! It’s off the twig! It’s kicked the bucket, it’s shuffled off its mortal coil, run down the curtain and joined the bleedin’ choir invisible!! THIS IS AN EX-FINANCIAL SYSTEM!!”

Getting financial markets for illiquid assets going again will require public intervention, through the state acting as market maker of last resort, accepting illiquid assets as collateral for loans or buying them outright. It makes no fundamental difference whether this happens along the lines originally proposed for the TARP, or by the government insuring the value of illiquid assets, as the US Treasury has now agreed to do for Citi Bank. In both cases the government and the current owner of the illiquid asset have to agree on a price or a valuation.

What it implies but is not stating is that the Tories completely underestimate the extent of the financial problems. It’s only because these chumps aren’t in government they can criticise from the sidelines and get away with not having any original idea that isn’t a ‘Reaganomics’ theory (and thus bereft of reality).

If Brown can’t even stick it to the Tories in such an economic crisis he really doesn’t deserve to be PM (arguably, he doesn’t deserve it on a whole host of other issues anyway).

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Story Filed Under: Blog ,Conservative Party ,Economy ,Labour party ,Westminster

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Reader comments


Nuts and just silly

Daniel Davis – the socialist stockbroker from Credit Suisse – demands further bank bailout…shock!

But you are right – the Tories have been useless.

Even the Onion put it better:

http://www.theonion.com/content/news/recession_plagued_nation_demands

Though you are slightly selective quoting from Anthony Wells’s piece. He firstly says:

“Meanwhile ComRes also tested four more statements. Unsurprisingly a majority (55%) disagree that taxes would be lower under the Conservatives – few polls ever show many people believing that any party would actually cut taxes. 52% agree that the fall in the value of the pound shows that Gordon Brown’s economic plans probably won’t work – which again, doesn’t tell us a huge amount – people are probably pretty pessimistic about the economy anyway. As with previous polls that have shown public concern over borrowing, 67% agreed that the government was planning to borrow too much.”

As you say, though, Brown hasn’t “sealed the deal” while the Tories are struggling.
All to play for.

Unsurprisingly a majority (55%) disagree that taxes would be lower under the Conservatives

I find that highly suprising , you mean that a majority actually think taxes would be lower under Labour …Brown Labour at that ? Are they mad, the whole point of Labour is raising taxes , thats what they like doing , thats what they are , in effect doing now by borrowing . I am quietly confident

Ok its your site, but these Govt propaganda stories get more bizarre. Do you really expect us to believe a restaurant would go to the expense of designing and printing thank you posters just to promote Labour Govt initiatives? As the biggest cost to a restaurant is zero-rated food, why would they be championing the temporary VAT change? Unless, they were not passing on any savings to their customers, which is hardly a good advert for Govt policy.

You couldn’t make it up. Or are you?

It appears that your posts are all about persuading fellow lefties to come back to the New Labour fold.

“surprisingly, neither Iain Dale nor Guido Fawkes bother mentioning either poll). ”

Oh come on Sunny, you don’t expect those 2 clowns to report bad news to the brown shirts.

I always remember seeing Fawkes on a Newsnight debate. I say see, but in fact you could not see Guido at all because he had demanded that they disguise him for security reasons. So he sat in a darkened studio spouting bullshit (no change there then) I thought at the time ……What a wanker.

Do you really expect us to believe a restaurant would go to the expense of designing and printing thank you posters just to promote Labour Govt initiatives

Fantastic right-wing worldview summary! “This thing shouldn’t have happened in my opinion, therefore I refuse to believe that it has.”

“Unless, they were not passing on any savings to their customers, which is hardly a good advert for Govt policy.”

Clearly if a business passes savings on to their customers, it is good for the customers. But if they don’t, have you considered that savings might help them stay afloat, or not have to make any redundancies at a time when business might be lower than normal? The impact of the VAT cut isn’t only on the consumer.

This is rather bizarre…vote Labour because (to paraphrase the German finance minister) your £50 restaurant bill is now, erm, £48.75?

Oops – I mean £48.94.

Well, that is the Tory tactic to try and convince people that the government’s measures will have no impact.

Of course, that ignores the impact I’ve just mentioned of helping businesses keep afloat and keep people in jobs. And it ignores the fact that the VAT cut wasn’t the only measure announced; help for people struggling to make mortgage payments, a £60 bonus for pensioners, bringing forward child tax credit and pensioner credit payments and changing the tax system on national insurance and income tax to benefit low earners were all important parts of the package.

But all that aside, I don’t care what people like you say – any money saved is a help for a lot of people. Just ’cause you don’t watch the pennies doesn’t mean no-one does.

Toptable.co.uk will give you plenty of 50% off offers in even decent restaurants…the VAT cut is an expensive waste.

You do realise that we (and our children) will have to *pay it back* don’t you?

And let’s just say that businesses that can’t afford to pass the VAT on to their customers are probably in much more dire need of help than a VAT cut anyway, especially as those that can afford it can undercut at much greater than a 2.5% cut in prices.

cjcjc – yes, it will have to be paid back. I’m proud that the government altered the personal allowances for national insurance and income tax so that those who are better off will pay more of it back than those who have less income. Not the level of redistribution I would like, granted – but it’s a start. I’ll add again that the VAT cut was not the only part of the package which extended much more widely.

Toptable.co.uk will give you plenty of 50% off offers in even decent restaurants…the VAT cut is an expensive waste.

Why are you repeating this lne ad infinitum, as if that will miraculously that will change the world. I agree that the VAT cut is largely pointless, because I think the money should instead be spent on infrastructure. But if restaurants and shops across the country are displaying a sign saying ‘Thank You Darling’, then you can whine all you want but it doesn’t change reality.

chavscum – of course I made that sign up… its a vast liberal conspiracy to fool the nation and people like yourself. Come back when you’ve checked yourself out of the mental institution.

Sunny – on infrastructure, what projects would you be able to start on in time to make a difference that the government aren’t bringing forwards anyway? £1 billion is being spent on major transport projects in addition to the £800m brought forward for schools and the money for GP refurbishments, green energy projects, etc.

Eh? I’m not denying the existence of such signs or that the Tories have been useless on this front.

I assume the signs are there to reassure customers that the VAT was coming off their bill – perfectly reasonable.

Who is supplying the signs? Who is paying for them? What restaurants are they in? I’d like to see for myself.

PS assume you mean “sealed” not “dealed” in the headline

#19 – if you look closely enough at the text in the image you should be able to see the BBC logo – I assume they are funding them in the interest of public information.

tim f – oooh you know how to wind a person up!

Forgive my cynicism of Labour activists, but I think they are fair questions. I’m quite prepared to eat humble pie in Sunny’s favourite restaurant if the posters are genuinely independently produced.

What is Sunny’s favourite restauarnt?

The buffett at Millbank?

I saw the ‘Thank You Darling’ leaflet in Greggs, if that helps people who are trying to track it down.

I like the bewilderment that firms would be advertising that their prices are cheaper (in a way which suggests the savings are bigger then they in fact are), this is called ‘advertising’.

“if restaurants and shops across the country are displaying a sign saying ‘Thank You Darling’, then you can whine all you want but it doesn’t change reality.”

Speaking as someone who works in the hospitality industry, I haven’t seen any of these signs, and I’d be very suspicious as to who put them there. I’ve seen a hell of a lot of the “Darling, you’re barred” ones, though.

Not that I’m britsling at the use of the word “liberal” to mean “labour party propaganda” or anything… 😉

There are a few things this government needs to do:

1) Think of some big investment plans to take Britain into a better future. This is a once-in-a-lifetime big spending opportunity you numbskulls.

It took ten years to get planning permission to build one terminal at Heathrow. By the time these “big investman plans” have been conceived, designed, got planning permission and are actually under construction the next election, the recession and probably both Brown and Cameron will be memories.

If you want the money to be spent quickly, there is probably nothing the government can do but waste it.

The VAT scam is not a tax break its a tax con as it is unfunded except by hope and prayer. Companies get little good from it most VAT is of course reclaimed . It has a tiny effect which will then be reversed when it goes. £12 billion is simply not enough and actually it is designed to confuse the debt mountain Brown had already built up with a cunning plan it is also not to be paid back until after an election. As everyone now agrees the equally tokenist top rate will reduce revenue if anything , ordinary working saps like me are in effect being asked to take out a loan to finance Mc Liar`s election hopes .

I hope someone vomits on them

No-one apart from you thinks the top rate tax will reduce revenue. Where are people going to move? The top rate of tax is higher nearly everywhere else in Europe and in the US too.

You’ve clearly missed the fact that national insurance and income tax personal allowances have been tweaked so the rich pay more and low earners pay less.

“If you want the money to be spent quickly, there is probably nothing the government can do but waste it.”

I agree. I would love to see the Government spend on major transport infrastructure improvements outside London, however as an immediate short-term boost to the economy it’s a non-starter.

Ask restaurant, the pizza place. Of course, as tim said it is has long been BBC policy to hand these out

“After the pre-budget report last week, the Institute for Fiscal Studies gave a briefing at which it said that the decision to create a new 45% top rate of income tax would raise “approximately nothing”. Now it seems to have gone even further. It has just published its full report on the distributional effects of the PBR, and it says the new rate could even cost the Treasury money.”

I saw this on the Guardian politics blog and also quoted by Hamish Macrrae in the Independent so it may just be me but conceivably it could be other people who have the first idea what they are talking about Tim F .In previously published work the IFS calculated that maximising revenue above £100,000 that a marginal rate of 55.6% was the absolute maximum( even when taking disappearing small incremental amounts ) The real rate above £100,000 after tax NI and indirect tax is included is 53%.

In fact whatever the taxes that are set Labour have never nudge the tax take above 36% for more than one year and absolutely always overestimated revenues despite growth coming in above target . If Brown had really thought he could get any money by doing this he would have done it long ago. We have seen this week with Sterling skirting close to a full scale run that what may be possible in other countries is not here as if it were not entirely obvious anyway

You’re turning a measured and reasonable statement into propaganda. IFS, who unlike most think-tanks aren’t partisan hacks one way or the other, suggest that the new tax rate appears to be about 1% over the best estimates of revenue-maximising level in recent years – but then add that the estimates are based on 20-year-old data, changes in the economy may have affected them since, a (likely to happen) clampdown on tax havens globally will raise the rate, and the current economic crisis will restrict the opportunities of City types to flee to low-tax places.

By the time you get to the last 1% you are at “approximately nothing ” which is actually what they said . You are warping the point by pretending there is something special about these figures . .The maximum tax take has been remarkably consistent as I point out ( not withstanding ever so many changes ) so there is absolutely no reason to suppose such conclusions are not optimistic, if anything, .Tax avoidance has become a lot more sophisticated in the interim and shutting the border to any extent is an unknown . I bet they wish they could !
The reason why a high top rate was originally foresworn by New Labour was , not , in any case purely the unlikeliness of any revenue emerging ( although I suspect Brown is well aware that this is a fact even if you dispute it ). It was the disincentive effect which is likely to be more pronounced in a recession when people, are already prone to make risk averse choices. ( Same goes for loaning us our own money , pointless…?)

All in all “Just so stories “ aside ( and we can all invent them) it seems quite naieve to me to imagine that this bit of class warfare was anything to do with incrementally paying down the (obvious ) election bribe and given the performance of New Labour in prophecy the idea that it is an offset is preposterous . We have already seen see how wrong you were about the immediate effect on the currency of all this ( you recall your confidence that our debt could match counrties chosen at random with no ill effects ) . Perhaps you have begun to see how misleading that argument was and realise the parameters of the real world are very much narrower.

Its about a narrative to last until June next year at the latest and designed to distract attention to the unavoidable mountain of debt we are heading into next to which these are gnats on an elephants back. What the government should be doing is cutting back on non productive expenditure to the limited extent possible ( and it is limited) . Brown cannot because those are his people. Public Sector , Welfare and Regional clients .

We have already seen see how wrong you were about the immediate effect on the currency of all this ( you recall your confidence that our debt could match counrties chosen at random with no ill effects )

There have been no ill effects, and I was right.

A currency depreciation was needed, not least because the dominance of financial services in the economy artificially inflated the GBP against trading partners’ currencies for 25 years. The depreciation boosts exporters and safeguards jobs (and as I’ve just noted on my blog, manufacturing industry in the UK is bigger than in France or the US and only slightly behind Japan, so this is a real, positive impact. And yes, it raises import prices, but that isn’t a bad thing against the spectre of deflation.

It makes me personally, as someone with savings and in a position to go on foreign holidays, worse off, but that’s a trade-off I’m willing to accept.

Meanwhile, UK government bond yields are still tracking those in Germany.

Former Economist editor Bill Emmott has a good piece on this. Read it – you might learn something.

As other countries (notably the US) are raising their top rate also, the 1% is an incredibly conservative figure. Plus all the things John B said.

tim – you are asserting that 1% is an “incredibly conservative figure” – do you know better than the IFS?

Their figure didn’t account for the future actions of other governments, and in that context it is a conservative figure.

I don’t think the avoiders will he heading towards those countries…

But the effect is also to do with *bothering* to do stuff here, eg contributing more towards the pension fund: the higher the rate the more incentive to get round to making sure you’ve done everything possible.

The tax rise on higher earners is hardly going to make people flee the country but neither is it likely to raise much money. Not for the reasons Newmania stated but simply because it is a small rise only affecting a small number of people. ISTR that when the LibDems were pushing for a 50% tax rate for those earning over £100k it was estimated that this would raise an additional £4-5bn. Given that Brown’s tax rise is only half that and only affects people earning over £150k it is really a token gesture. My guess is that Brown brought it in hoping that the Tories would oppose it, so he could paint them as trying to protect their rich friends rather than being interested in hardworkingfamilies.

I hope JohnB is right about a crackdown on tax havens – this would raise far more revenue with or without a 45p tax rate.

Not me Andrew just the silly old Institute old Fiscal Studies. The Lib Dems tax plans are a fantasy designed to give the appearance of solving their perennial political problem. It is a Party theoretically committed to economic Liberalism but in practice a collection of meddlers socialists who criticised New Labour from the left through the period in which our debt position was built up . Good job no-one was listening then because Brown was by comparison…erm prudent Put it another way , it is a leftish Party who want to attack Conservatives seats . Squaring that circle entails lying and the idea that significant revenue can be raised by a 50 % tax rate has absolutely no evidence to support it and much to suggest it will do nothing .In fact they would have to tax the ordinary people they need votes from or make cuts .

Make a choice , take the flack and have some spine … as if !

who criticised New Labour from the left through the period in which our debt position was built up

You mean our private sector debt position, right? Because public sector debt fell from 1997-2007…

Uhh… John, I think you mean it fell from 1997-2001 while Brown stuck to supposedly Tory spending plans, then started climbing again as soon as he switched on the cash taps: http://www.statistics.gov.uk/cci/nugget.asp?id=206

You mean our private sector debt position, right? Because public sector debt fell from 1997-2007…

Debt as a percentage of GDP I assume you mean feel sharply as we came out of recesssiion and the Labour Party were committed to Conservative spending plans . In every years since it has gone up during a period which as we know all too well , we should have been getting straight . This is why Brown used to say sensible things about 40% over an economic cycle .

I am amazed you have swallowed that New Labour load of cock which is not even aimed at people like you who ought to know better

…. I understand that the pound depreciating is “Part of the solution” It is also a problem for importers who out number exporters four to one . It would have been better had we not had such a large problem in the first place which Brown is adding to with your support and encouragement .

That article told me nothing that I and every other sentient being in the Solar system did not know already.

“it is also a problem for importers who out number exporters four to one”

where the *fuck* did you get that stat from?

Perhaps he’s counting consumers in that stat?

* cough* …bloke in the pub …ok fair cop.

hang on…how big is the balance of trade imbalance these days?

3%


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