Yes, do get rid of all the centrist Labour MPs and march leftwards into electoral oblivion. I’ll be cheering you on.

How did this get here? Unedited version is at http://thoughcowardsflinch.com/2009/11/30/the-electoral-argument-for-the-deselection-of-frank-field/

Dianne Abbot (surely the stupidest MP ever elected) has been bad-mouthing the labour party for years, can we get rid of her first please.

How progressively tolerant. The command and control centralised New labour machinery has been a disaster, and yet you wish to reduce the diversity of opinions within the party, quash debate, and enforce obedience to the narrow party line?

Paul,

Interesting article, but I do think it makes the mistake that Labour is making badly at the moment – it’s doing its best to believe that public disillusion with Labour only started around the time of the recession, and that the election can be won or lost on responses to that issue. There are much bigger problems, that go much further back – it’s been a long, long time since the average Labour constituent saw clear blue water between New Labour and the Tories.
The Iraq war, privatisation of public services, various PFI disasters, the aggression of Labour-affiliated trade unions towards their own key leftwing activists – the people that working people rely on for decent representation at work – it’s those things and more that have led to Labour’s constitutents abandoning the party in droves. It doesn’t give me much pleasure to say that, because I believe that a Labour party for labour is much needed, but until Labour throws out the old guard – Gordon, Harriet, Hazel, Johnson and certainly Frank while they’re at it – and honestly address the issues that have alienated the core constituency and forced party members to leave in droves – the average punter is not going to see clear blue water between Labour and the other lot. One thing you hear all the time if you’re say, a TU activist and talking to workers is ‘why bother to vote? There is no difference between Labour and the Tories.’ The fact is that the party is no longer wedded to the workers. The workers divorced the party a while ago and it’ll take more than a nice bunch of flowers to reignite the romance.

But yeah – Frank’s an asshole. With you all the way there.

Just a hint: If you’re posting an article railing against party disloyalty, it’s probably best not to start with a quote from Shaun Woodward.

Sli @3: Is she still an MP? I’d honestly forgotten.

Alisadair @4: My main point was really about comparison – Field vs Fields and all that. Not sure the appropriate level of whimsy comes over in this edited version. Heh ho.

Kate @5: The TCF version touches on where you’re coming from, but the piece is really just about message, and (see above) about comparative levels of tolerance for ‘maverick’ views. Having said that, there is a reality (that Guido @1 prefers to ignore) that the polls are narrowing and that one reason for this is a sense that Labour is still the best bet, not just that the Tories ‘have not sealed the deal’. There’s an opportunity to build on that.

Multi-millionaire, butler-employing Woodward – the perfect spokesman for New Labour!

Frank Field is an elected representative and should do and say what he thinks is right. If you think MPs should just do as their told, then we may as well get rid of MPs.

If his constituents disagree then they can vote for someone else. Parliament needs more Frank Fields.

AndrewG @6: I’m clearly getting the irony thing wrong.

And just to counter the obvious attack that I’m just a right wing fanboy of Frank Field, Parliament also needs more Jeremy Corbyns, Diane Abbots, Charles Clarkes, Douglas Carswells, Bill Cashs, etc.

As Martin Wolf has pointed out, cutting the UK’s credit rating would mean that logically, the US’s credit rating would also need to be cut, and can anyone really see that happening

Wolf’s prescription for what should be done might not tally with yours quite so neatly.

When large, long-term cuts have to be made, the best approach is to set priorities and make structural changes. Obvious examples are: big changes in unaffordable and unjust public sector pension provision; big rises in pension age, to take account of higher life expectancy; long-term constraints on the remuneration bill (but not pay levels) of the government; and deep reforms in welfare spending.

Briefly, his fear of massive inflation is simply nonsense, when the by far the biggest threat is Japanese-style deflation if the economy is kick-started. Likewise, his argument that we run an imminent risk of losing our AAA+ credit status if we don’t cut now (no mention of other ways of reducing the deficit, note) is simply scare-mongering, and only likely to come true if he and his right wing friends keep the scare-mongering up.

Trouble is, economists don’t agree. Some like Liam Halligan and Albert Edwards, are convinced that we’re going back to the 70s on inflation. Faced with the options of cutting spending or printing money (which will devalue the govts debt and bear hardest on fixed-income people like those on private pensions i.e. perhaps not natural Labour voters) Labour will go for the latter every time. Weimar here we come ?

As for our credit rating, it’s only held up because the markets have priced in a Tory win. Watch sterling fall in tandem with the polls.

“Britain risks becoming the first country in the G10 bloc of major economies to risk capital flight and a full-blown debt crisis over coming months, according to a client note by Morgan Stanley… No G10 country has seen its ability to provide emergency stimulus seriously constrained by outside forces since the credit crisis began. It is unclear how markets would respond if they began to question the efficacy of state power.

Morgan Stanley said sterling may fall a further 10pc in trade-weighted terms. This would complete the steepest slide in the pound since the industrial revolution, exceeding the 30pc drop from peak to trough after Britain was driven off the Gold Standard in cataclysmic circumstances in 1931. “

@12 – it’s only the bits of Wolf with which the left agrees what get quoted!

(Of course we all do the same thing…)

Either way I don’t think that Brown’s attempt to gloss over the “no cuts” lie by turning it into the supposedly critical choice of whether the cuts he said would never happen would now start in 2010 or 2011 is going to be the key to the election result.

But it’s the only card he’s got.

Britain has spent so excessively beyond its means for so long that we are now at the point where we either cut spending savagely or face the prospect of an imminent currency and debt crisis (ala Argentina) and the collapse in living standards that will entail. We are already amongst the highest taxed countries in the world with appalling delivery of public services to show for it and further tax increases will be beyond the point of diminshing returns and likely to be slef-defeating in discouraging work, consumer spending or investment in the economy.

Money is not an infinite resource to fuel unlimited spending and we are about to confront this reality. The international markets (like them or hate them, Brown has made us dependent on them) who lend us billions on a monthly basis to fuel our welfare state and public sector spending binge, are fast growing fearful of our ability to repay this debt and may soon demand far higher interest rates on Gilts that will be a huge burden to the economy, to employment and to the housing market.

See Morgan Stanley’s report out this very morning :-

http://www.telegraph.co.uk/finance/economics/6693162/Morgan-Stanley-fears-UK-sovereign-debt-crisis-in-2010.html

And what is really behind our disastrous national finances? Well the Government’s own bleak forecasts from September show that the Treasury expects to pay out £193.4 billion on social security benefits in 2013/14. Paying interest on the Government’s outstanding debts will cost £63.4 billion.

Total Government spending in the same year will be £758.3 billion. Welfare and debt interest will be 33.8 per cent of that total.

The WELFARE BILL WILL ALSO ABSORB MORE MONEY THAN EVERY WORKER IN THE COUNTRY PAYS THE STATE IN INCOME TAX. In 2009/10, the Treasury is expecting to take in £140.5 billion in gross income tax receipts.

Already the largest single item in the budget, by 2013/14 spending on social security will dwarf every other item of Government expenditure.

For example in 2010/11, total spending on the NHS in England will be £107 billion.

Frank Field appears to be one of the few Labour Party MPs who realises the gravity of the situation we are in, has confronted the harsh reality of what simply has to be done and has the courage to say so publicly.

cjcjc,

Brown ain’t got no cards, my man. The only card Labour has got is to roll him.

I am sure the BNP would love Frank Field to be expelled from the Labour Party.
After Dubai’s poblems, It is highly likely that the markets will once again look at sovereign debt. If there are no plans to cut debt after the election , then we could have a return to the 70s. Dennis Healy, the fromer Chancellor, when Labour went to the IMF has said there should be cuts.

“Trouble is, economists don’t agree.”

Some economists are more equal than others. I mostly pay attention to the Financial Times economists, to the NIESR and to the IFS, plus a few other particular individuals. Try Sam Brittan on: A cool look at the current deficit hysteria:
http://www.samuelbrittan.co.uk/text347_p.html

As for expelling members of the Labour Party, there’s much to be said for expelling Blair after the testimony we have been hearing recently at the Chilcot inquiry.

And just to counter the obvious attack that I’m just a right wing fanboy of Frank Field, Parliament also needs more Jeremy Corbyns, Diane Abbots, Charles Clarkes, Douglas Carswells, Bill Cashs, etc.

And fewer Kerry McCarthys.

If Frank is against everything Labour stands for then he should himself re-evaluate what he truely believes in.

But I do wish a politician would stand up and say the rich have got to start paying more tax or start spending much more of their money to help the country. Why should the ordinary workers of this country pay all the time for the mess the rich have got us into? Take Zac Goldsmith, why an earth he has £200m locked away in a Tax haven is beyond me and most others. This is what Frank should be arguing against.

Steve

Change the record mate. Didnt you seen in my piece above that according to the Treasury’s own projections, the WELFARE BILL WILL ABSORB MORE MONEY THAN EVERY WORKER IN THE COUNTRY PAYS THE STATE IN INCOME TAX. Doesnt that suggest to you, in combination with the fact that we are already one of the highest taxed countries in the world, that it is spending that needs to be cut rather than taxes that need to be raised?

Take Zac Goldsmith, why an earth he has £200m locked away in a Tax haven is beyond me and most others.

It’s not that hard to understand is it? It’s a family trust fund, established by his father, of which Zac Goldsmith is one of the beneficiaries.

Andy Jarm,

Please don’t expect to be taken seriously if you suggest the UK may be heading the way of Argentina. Perhaps you might like to go away and read up on what happened there, and draw up a list of the important difference between there and here (hint: d
dollar denominated debts).

#17

Are you suggesting Field would join the BNP if he was deselected by the Labour Party? I think he’s awful, but I don’t think he’s a Nazi.

Oh, and we really do not need more Charles Clarkes, #11. A man who has virtually no political differences to the consensus amongst the Party’s leadership of the last 15 years, and whose virulent opposition to the current leader is based purely on personality politics. Surely we need less politicians like him, not more.

Luis

I dont pretend that our situation is identical to Argentina, merely that the outcome of a debt crisis might be very similar. We dont have as many foreign currency debts – however dont forget we have guaranteed several trillion of foreign currency debts across Lloyds and RBS for starters.

When Argentina had its crisis it didnt have an economy with remotely such astronomical household and consumer debt as we do – almost all floating rate.

Andy

IMO some are trying very hard to stoke up a sovereign debt crisis, preferably before the general election next year so they can have their budget shortly after the election and slash public spending.

Andy

Argentinians owed foreigners dollar debts and held dollar savings. UK citizens do not owe debts or hold savings in foreign currencies.

I don’t know what you are referring to by us having “guaranteed several trillion of foreign currency debts across Lloyds and RBS for starters”, perhaps you could provide a link. It doesn’t sound very likely to me, but I am ready to be corrected.

How are household and consumer debt relevant?

#26

Certainly. This “debt crisis” meme allows Cameron to frighten people, gives him a talking point to hide his economic illiteracy, and will help him claim a mandate for deeply unpopular cuts straight after an election. The only thing that can stop it for sure is a Labour victory (which I maintain is still possible); if that seems unlikely it’s possible a hung parliament might ameliorate some of the worst excesses because the Lib Dems won’t want to be on the unpopular side of an argument. (As the Lib Dems are the most whippable group of MPs, I don’t think it will prevent most of the cuts, although it might cause one or two left-leaning Lib Dems to defect to Labour rather than support aggressive Tory cuts.)

Neil,

it’s a bit of tangent – currency devaluation in Argentina was so devastating because households held debts in dollars but were getting paid in pesos. Devaluation of the pound wouldn’t screw us nearly so badly*.

note I made a silly mistake above – holding savings in foreign currency is obviously a good thing if the currency depreciates, duh!

* It’d hurt because we’re so reliant on imports, and once we’ve adjusted to increase domestic production, we might find ourselves worse off because we cannot produce so cheaply. But if you believe the status quo cannot continue, this has to happen anyway.

Neil

They are relevant because they are predominantly floating rate (after any short term initial fixed rate expires) and a currency crisis would mean a spike in interest rates which would quickly feed into debt problems or a severe hit in disposable income for the population.

Luis

Once again, I agree that foreign-currency exposure is not the issue here. The gigantic quantum of our debt relative to our diminished ability to pay is the issue. Maybe I have to say yet again that I am comparing the OUTCOME of a debt crisis with Argentina, not the CAUSES! UK banks benefiting from UK implicit (and very real guarantees) have £1.5trillion of foreign-currency denominated exposure
http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/02/the_cost_of_taking_over_the_ba.html

tim f

we can chatter all day about cuts or no cuts but the numbers look pretty obvious to me – we cut or we are finished

if you have some different numbers to mine (which are from the Treasury) please present them here

cheers

“We are already amongst the highest taxed countries in the world”

Been to scandanavia recently?

Income tax is still lower than it was under most of the Thatcher years, and far lower than in the 1970s. When you write things like the above, you just appear hysterical and make your claims to work in the city less and less believable.

…I still dont see any numbers from anyone……

Paul – I find Frank Field’s tedious rehashing of right wing economic arguments and his gushing praise of Cameron intensely irritating. I wonder though if throwing him out is an entirely good idea though, it would raise questions over my MP (Charles Clarke, who I do actually like) and also over the likes of campaign group members like Jeremy Corbyn and John McDonnell

Laban @13 – 70’s style deflation is seriously unlikely, Trade Unions are no longer large of powerful enough (more’s the pity) to drive the kind of pay demands that would force a wage price spiral. The big danger with tactics such as QE is not inflation, it’s that they might fuel asset bubbles.

Your talk of the Weimar Republic and your suggestion that the Tories are the sole reason for our credit rating holding up are both just silly.

Andy @15 – We have been spending beyond our means since the 80’s, the only difference is that now the debt is public rather than private. We now have the situation of rising government debt but rising domestic savings and shrinking domestic debt.

Copying talking points from a Telegraph article is neither big not clever, you also omit that a gigantic proportion of the welfare bill is the state pension. This is a transfer payment and therfore can’t really be classified as “waste”. Any time you feel like standing up in front of a room full of pensioners and pushing your accountant’s logic, feel free.

@Andy Jarm,

I’ve upscaled to an MPV.

It’s ready and waiting to take some more useless, unproductive, economy destroying bankers to the airport.

Andreas, none of your points address what needs to be done. The numbers are clear and they spell cuts or default at some point in the future (unless we attempt to print the debt away through massive inflation). Japan has managed to fund a gigantic deficit for decades by forcing banks and pension funds to buy government debt at deflationary interest rates and is expected to have debt at 230% of GDP by the end of next year – hence why Japanese bopnd yields are now spiking and half the funds in the city are betting on a Japanese sovereign default in the next 3 years.

State Pensions are a significant cost but not one that should be cut – they have been earned after all. There are vast swathes of our welfare state that are ripe for savage cuts as they do not protect the vulnerable but have become degenerative lifestyle options for the idle.

from the article you link to:

“But our banks do have significant foreign currency liabilities – around £1.5tn. And with the arrival of Lloyds and RBS a fair chunk of those are on the government’s balance sheet.

There are plenty of foreign currency assets to put against those liabilities, so the government’s net position has not changed. ”

i.e. the liabilities are foreign currency deposits, but the banks hold foreign currency assets (they are owed money in foreign currencies) to offset them.

So currency depreciation itself won’t matter; if the loans are not repaid it would make things worse (I hope they haven’t lent to Dubai).

It is still silly to argue that the outcome of currency devaluation and the UK govt having to pay higher rates on its debt will be similar to what happened Argentina. Having to role over public debt at higher rates would hurt, but it ain’t an outcome like Argentina. You don’t need to make exaggerated comparisons to make your case the debt is too high – everybody knows it is; what matters is when to start trying to reduce it: give us fiscal austerity but not quite yet

#32

We only have to pay debt back quickly if we accept the myth about the fragility of the UK’s credit rating. No-one’s disputing that it would be prudent to reduce the debt once we get to the point where doing so would not tip us into a double-dip recession. However, the choice is paying it back slowly out of the proceeds of growth (the Tories used to like that phrase: wonder why they’ve stopped using it?!) or paying it back by slashing public services.

@15: “We are already amongst the highest taxed countries in the world ”

The fact is that in 2007, before the financial crisis developed, the burden of taxation in Britain – meaning: total tax revenues as a percentage of national GDP – was lower than in most European countries. The most notable exception was Germany, where the burden was marginally lower. Try this OECD source:
http://lysander.sourceoecd.org/pdf/factbook2009/302009011e-10-04-01.pdf

Unfortunately I think the trouble here is that some of us are talking about fiscal and monetary policy, while others are talking about morals.

I still dont see any numbers. There is certainly a debate to be had on the exact timing of cuts but we need to start preparing for savage cuts. The economy is now performing far worse than Darling projected at his last budget and the public sector borrowing requirement is generally considered to be OUT OF CONTROL. October just passed was the worst since records began at £11.42bn and scared the living daylights out of the markets.

A gilts crisis and a sterling crisis would inevitably occur simultaneously given the flight of capital away from the UK and the effect on the economy and our interest rates.

Neil
Go and lecture the people in the developing world who cant afford medicines, food or the essentials of life on your morals. They would rather have solvent governments that could provide what they need.
Andy

There are two big differences between tax structures in Scandanivia and UK. VAT and Capital Gains.

The combination of income and social taxes is very similar.

Certainly CGT should go up inline with basic income tax and all of the exemptions removed (a la Lawson). But, are you all advocating 25% VAT?

The other difference, which is harder to emulate, is the localised taxes.

#41

You haven’t provided any numbers either, other than saying your analysis is based on Treasury numbers. I’m happy to use Treasury numbers as a basis, with the caveat that we acknowledge the Treasury actually underestimated the impact of the stimulus by overestimating the level unemployment would have risen to by now.

However, the choice is paying it back slowly out of the proceeds of growth (the Tories used to like that phrase: wonder why they’ve stopped using it?!) or paying it back by slashing public services.

Because UK trend growth is usually between 1.5-3% and we have a 14% budget deficit? Or because we currently have no growth at all, and a long period of very low growth is far from impossible?

The underlying point here is not the immediate crisis of our recessionary budget deficit, but the fact that the UK’s structural deficit is now so large – perhaps as much as £90bn p.a.. State spending is due to grow to 48% of GDP – way way higher than publically acceptable tax levels can afford.

Gordon Brown has treated a series of unusual windfalls (a prolonged property boom, a City boom, the 3G auction) as the basis for permanent increases in state spending.

We only have to pay debt back quickly if we accept the myth about the fragility of the UK’s credit rating.

While the ratings agencies are not looking to downgrade the UK just yet, there are serious and real problems with the UK’s continuing ability to raise debt on the international debt markets. The best way of illustrating that is by pointing out that overseas gilt holders have been net sellers of UK debt this year – despite the record amount of it issued. In other words – the only people buying our debt are the government itself and government owned banks. How sustainable does that sound?

The treasury (Darling in this case) badly overestimated the recovery in the economy – hence GDP was last at -0.3% and we are are the last major economy still in recession. This makes me very nervous that their other projections on tax revenues and spending are too optimistic if anything

We suffered lower unemployment than other major economies, creating fewer barriers to growth in the medium-term. Also, manufacturing is not currently in recession; the reason we’re still in recession (or were the last time figures were announced; we may not be right now) is because house prices have not risen as quickly as some predicted. Many would argue this is no bad thing, as we need to restructure our economy away from an over-reliance on the city & property market anyhow.

tim f
House prices have really got very little to do with what is going on other than that stamp duty revenues have declined. House prices have staged a remarkable recovery and are now only a few percent shy of the 2007 credit-fuelled crazy peak and reposessions and delinquencies are low and dropping and not a problem to the banks (so are not themselves responsible for lack of lending appetite). Not a problem here mate. Nobody doubts that we need to re-balance an economy skewed towards property and financial services but we need to do it without killing the patient. The numbers (particularly those of Tim J actually) leave no room for compromise.

We suffered lower unemployment than other major economies, creating fewer barriers to growth in the medium-term

We have had lower trend unemployment than most other major economies since the 1990s – thanks largely to the curbs on Union power and an inflation-targeted monetary policy. It is, however, still rising and is always a lagging indicator of recession.

On claims here about spending out of control and the numbers, try: The State’s Take in: The Economist of 19 November (possibly subscription barrier):
http://www.economist.com/businessfinance/displaystory.cfm?story_id=14924473

“Go and lecture the people in the developing world [...] on your morals “

Phrases like ‘degenerative lifestyle options’ suggest you’d be better qualified for that job. What was that phrase again – ‘Economics are the method; the object is to change the soul.’

Your morality is of little use to anyone when you are broke. That is what the british left will soon discover.

And still no numbers……

51 – that article is almost exclusively about tax efficiency, and on the best way of reducing runaway deficits. “…spending cuts could, and should, be the preferred route to prudence…”

#50

I’ll accept we’ve had lower unemployment since the 90s (thanks largely to Labour), but not because of curbs on union power – the US has much higher unemployment than us and unions are even more disempowered there than they are over here (note too there’s no statutory national minimum wage equivalent to the UK’s*, yet unemployment is still higher). Unemployment may be a lagging indicator on recession, but everyone accepts that the rate of unemployment has been declining for some time. Estimations of peak unemployment have been consistently revised down.

In response to your point about 14% deficits; again, no-one is expecting us to run 14% deficits year-on-year in the medium-term, so comparing it with a growth figure of 3-5% is not fair. Many of the stimulus measures were recession-targeted measures which are due for expiry (most notably the VAT cut).

* technically there is a federal minimum wage, but it’s set at an extremely low level and many sectors are exempt, so the point still stands.

tim f
without a historic and totally unexpected surge in growth (the opposite looks increasingly likely) or a savage cut in public spending the deficit will remain vast and take our debt to default levels. As pointed out elsewhere, we now have a huge structural deficit that isnt going to go away with a recovery and has to be offset with public spending cuts. In previous recessions the economy would recover at 8% – 9% post a recession which would enable balance sheets (government and household) to recovery. That isnt happening and that is why deep cuts are inevitable and essential.

55 – I was relying largely on a paper by Chris Pissarides at the LSE (I’m no economist…). It’s a good paper too:

http://cep.lse.ac.uk/pubs/download/dp0600.pdf

The argument is, basically, that it was the link between high levels of employment and inflation that led to Britain (and Europe) essentially alternating between the two during the 70s and 80s. And that it was the decision to have an inflation targeted monetary policy in 1993 (strengthened by the independent MPC in 97) coupled with the weakening of the Unions power to influence wage policy that decoupled the two.

The fact that unions did not have the power to push for wage rises when unemployment was falling in the 1990s reinforced the low-inflation credentials of the monetary policy regime, and helped sustain the fall of unemployment.

Worth reading.

And my point on the disparity between our astonishingly enormous deficit and the UK’s trend growth rate was in response to your joky ’sharing the proceeds of growth’ point. The structural deficit, as opposed to the extraordinary recessionary deficit, is running at £90bn pa. There will be substantial reductions in public spending ahead, and the only question is when and where the cuts will fall.

And the timing point is not quite as straightforward as ‘waiting for the recovery’. When QE stops (as it will have to soon) we will discover whether anyone is willing to buy UK debt – because they aren’t at the moment. The only people buying UK gilts are the government themselves.

Tim F

“the US has much higher unemployment than us and unions are even more disempowered there than they are over here”

sorry, no. OECD data here – US unemployment lower than UK (you can change years displayed by clicking on time and frequency top right)

@58: huh – unless I am reading that data you linked wrong, the US used to have lower unemployment, but that changed in 2008 to be marginally higher (5.8 vs 5.6), and 2009 to be reasonably described as much higher (9.4 vs 7.8 on latest available data pair).

I still havent seen one number from anyone that begins to show how we survive as a nation without slashing public spending

@59 – oh yes, but the Tims were discussing unemployment and the role of unions over recent decades.

@60 – what are you on about? You haven’t defined “survive as a nation” (we would survive currency devaluation and a worse-than-now fiscal position) nor “slashing” public spending. There is any number of possible combinations of forecast growth rates, interest rates, tax changes and spending paths that could be acceptable, and while most of them will include some cuts in public spending, they don’t necessarily entail any “slashing” and certainly not doing it now while we’re still mired in recession. Stop asking stupid questions and then carrying on as if its an argument clincher. If you want numbers, read the cocking IFS report.

Thats because you haven’t read the thread properly. If you had, you’d have noted that Luis Enrique at 38 made the point that it is a question of when not if to reduce public spending. You’d also notice that both Bob B and Myself made the point that British taxation is lower than european averages, which implies that one way to balance the books is to raise taxes to european levels. Several others have made the point that growth and QE will make the debt less of an issue. Therefore several have made the point that “we can survive as a nation” (nice calm choice of words that doesn’t at all make you look hysterical) without “Slashing” public spending – through a combination of tax rises, economic growth, spending cuts etc.

A large part of the deficit is due to incorrect predictions about future tax takes and welfare spending made before the recession. So logically the way to improve finances from this position would be to get employment up – which would automatically reduce welfare spending and increase tax takes. Quite how this can be achieved by “slashing” public spending at the present time- which adds lots of people to the dole queue is something the conservatives have yet to explain. Basic Keynes.

Andreas, none of your points address what needs to be done.

True, but that would take more time than I have,

The numbers are clear and they spell cuts or default at some point in the future (unless we attempt to print the debt away through massive inflation). Japan has managed to fund a gigantic deficit for decades by forcing banks and pension funds to buy government debt at deflationary interest rates and is expected to have debt at 230% of GDP by the end of next year – hence why Japanese bopnd yields are now spiking and half the funds in the city are betting on a Japanese sovereign default in the next 3 years.

No, the numbers are not clear we had a 3% in the 2008 budget and a 12% deficit in the 2009 budget (if I remember rightly). We do not know what the future holds for tax receipts just yet. Betting on a sustained fall in tax revenues based on a one off sudden drop in tax revenues that occured as the result of a singular economic event is nuts.

As far as Japan goes, that kind of debt level is not especially new to Japan. It’s only recently that fresh worries about Japan have started to emerge.

State Pensions are a significant cost but not one that should be cut – they have been earned after all. There are vast swathes of our welfare state that are ripe for savage cuts as they do not protect the vulnerable but have become degenerative lifestyle options for the idle.

A point here is that if we start ringfencing certain areas of the budget it means that whatever cuts would (supposedly) need to be made will be far harsher. As far as the “degenerative lifestyle” goes, I have a well paid rewarding job, I bet most people on the dole would quite happily go to work and do my job over living on benefits.

As a final point in response to your comments on #60, you are using the public finance figures for one year to say what we should do for the next five. Why should we?

So logically the way to improve finances from this position would be to get employment up – which would automatically reduce welfare spending and increase tax takes. Quite how this can be achieved by “slashing” public spending at the present time- which adds lots of people to the dole queue is something the conservatives have yet to explain. Basic Keynes.

Except (for the third time) that there is a significant underlying problem with the structural deficit – ie that bit of the deficit that is not cured by increasing employment and reversing the automatic stabilisers. We still have a £90bn deficit if you ignore all that. At the present time this is entirely financed by the printing of money. That is not a policy than can continue for very much longer. When it stops two things can happen: either the international money markets will buy UK debt instead at current prices; or they won’t.

If they won’t (and, to re-iterate, they aren’t at the moment – why would they start?) we’re in serious trouble.

You’d also notice that both Bob B and Myself made the point that British taxation is lower than european averages, which implies that one way to balance the books is to raise taxes to european levels.

That article that Bob B linked to set out in quite clear terms that most of the gap in tax takes between us and European countries is made up in ’social contributions’ and that these taxes inhibit job creation. How does that square with ‘we need to get employment up’ above?

24. tim f. I am suggesting MPs such as Frank Field and Anne Cryer are the type which assist to prevent the growth in support of the BNP.

Rather than talking about public spending we need to be specific. A welfare and taxation system combined with an education system which produces large numbers of unskilled people who are financially only slightly better off , if at all, if they work, is unsustainable. Much of economic immigration occurred because British people either chose not to work or did not have the skills. Public spending which greatly increased the number of skilled personnel would be an investment without which we cannot increase our industrial output: increasing the number of white collar administrative personnel on the state payroll is just increasing government expenditure.

Once again no numbers just commentary. And most of it about the style of argument rather than the substance. As I said, there is a debate to be had about when you cut (although it seems to me the markets wont allow us much more time to dither) – I dont believe there is any sensible debate to be had that savage cuts are necessary.

When the welfare budget alone is due to exceed all income tax revenues you need to slash spending. Once again, that is the Treasury’s projection not mine. Our economy is skewed towards financial services and we are now left with a PERMANENT structural deficit – estimated just last week by Mervyn King the BOE governor (whose numbers I would trust infinitely more than the government) at 5% to 10% of GDP. That is a truly colossal permanent loss of GDP and represents an enormous gap between spending and tax revenues that will not be achieved simply by waiting for the recovery – it is PERMANENT.

By survive as a nation I mean a developed nation with a reasonable standard of living, not a piss-poor 2nd world nation whose economy has been wrecked by a currency and debt crisis and caused a flight of capital and investment elsewhere

AJ

“Once again no numbers just commentary”

Don’t be an arse – I provided a link to one report, what do you want me to do, start copy numbers out of it to please you? I know what a structural deficit means, and that some combination of tax rises and spending cuts will be required to reduce it, so what are we arguing about now, your undefined adjective “savage”. Talk about substance free debate.

by the way, the ratio of welfare transfers to income tax receipts does not have the special significance you seem to imagine

Andy@66
– it is PERMANENT

How do you know? How does anyone know?

AP @68 – well, a structural deficit is that which is still there once the recession is over – you can reasonably say that forecasts are very unreliable in this area (see Stumbling & Mumbling on that) but still, forecasts being what they are, there is still a forecast “permanent” deficit, in the sense that it’s not merely cyclical.

You can’t really use the lack of predictability for comfort here, because of course things could equally be worse than predicted as well as better.

Do you really mean to argue that there is no structural deficit in the UK, or perhaps that the notion doesn’t even make sense? I think there is one, and we’ve got one, I just don’t buy AJ’s alarmist interpretation.

Luis,

This is supposed to be a discussion/debate not a bloody data librarian service where you give up on creating cogent arguments and just give people links to publications! You need to pull out the relevant numbers and make yourself an argument dear boy! By savage cuts I am talking of total government spending reduction in the area of 20% – 40%. I.e. I dont mean tinkering with 5%-10% cuts

Andreas

As they say, nothing in life is certain expect death and taxes. The permanent deficit isnt certain either – but the overwhelming evidence suggests that it is and it is what is expected by our leading economists and most importantly by the BOE governor. Are you suggesting we just ignore the facts, poke our heads in the sand and hope it isn’t true? The consequences of plowing ahead and ignoring a potential loss of 5% to 10% of your GDP really would be disastrous.

AJ:

“I am talking of total government spending reduction in the area of 20% – 40%. I.e. I don’t mean tinkering with 5%-10% cuts”

IFS:

Labour will have increased central government spending on public
services by 5.9% of potential national income between 1998–99 and 2009–10. Current plans imply that almost three-quarters of this increase will be reversed by 2013–14, returning this definition of spending to its level in 2002–03. If at least half of the tightening beyond 2013–14 was to be accomplished through spending cuts, then all Labour’s increase in spending on public services as a share of potential national income would likely be reversed.

This or a future government could choose to loosen the squeeze on public services by achieving more of the tightening through tax increases or cuts in the generosity of social security payments. We estimate that to avoid real cuts in DELs over the next Spending Review would require tax increases or benefit cuts worth £29 billion (2.1% of national income) or £930 per family in today’s terms by 2013–14.

If an incoming Government chose to achieve the tightening over four years rather than eight then it would need tax increases or benefit cuts averaging £1,400 per family or £44 billion (3.1% of national income) a year to avoid a tighter squeeze on DELs. Alternatively, it would need to cut DELs by 7% a year in real terms to avoid the need for further tax increases or cuts in benefits.

AJ,

If you were the kind of person capable of admitting when you’ve been caught talking rubbish, you’d be doing it now. Any further requests for me to expend further efforts to demonstrate your errors will be ignored. Really, if you are so concerned about the topic, go read the damn report yourself.

Luis, I havent had a chance to read this big extract properly but it seems to focus on the spending side without taking into account the permanent structural deficit or reduced tax revenues and there is also little mention of when or how we pay off the cumulative deficit that will have accumulated in the meantime

Luis
I am very concerned about the topic. But this is a rational economic debate. No need to get emotional or angry.
Andy

Andy/Luis – My comment at 68 was a glib response, I’ll concede that

It’s far too hopeful to count on a rebounding of tax revenues but ultimately I don’t think we should start planning for the worst until we can be sure that that’s whats going to happen.

Cuts will have serious social consequences, they will also have risk in terms of the consequences for the economy. We have to assume that private consumption will rise in response to smaller tax rises in future and further that increased private consumption will allow for an improved coordination of resources to more productive ends. I don’t believe that cuts will solve anything.

Ultimately I think it will be a combination of tax rises, growth and inflation that gets us out of our current situation.

Andreas

You think there is a choice on cuts? At some point you RUN OUT OF MONEY and then you either default and accept the consequences (a severely devalued currency) or you print money (do all socialists seem to have a problem accepting that money is a finite resource?). Whilst governments can get away with printing money to avoid a severe deflationary onset (as is the case with QE in US and UK recently) any attempt to monetise and escape debt by printing money would be likely to result in extreme inflation, capital flight and a very weak currency. If you try to cashflow model the UK finances it becomes hard to see how we can ever repay our debts without signficant cuts to public spending.

The UK is not an exporter (Japan’s huge surplus has kpet it afloat) and has a small manufacturing base. It also has no real natural resources following the depletion of North Sea oil reserves. We import almost everything we need and so are extremely exposed to COST inflation through a weak currency. At the same time nobody can seem to explain how wage inflation is likely to occur in the UK economy given the massive excess capacity in the economy (again much of it permanent). Consequently inflation is likely to be severely damaging to the UK. And this is not to begin to consider the effect of the resulting high interest rates on our consumer and household debt mountain (again, inflation only erodes your debt by inflating your wages).

All of this assumes, as mentioned by Tim, that the markets retain faith in our creditworthiness and start buying Gilts again at very low rates post the expiry of QE. A very big IF there. With £1 Trillion of debt soon on the way a 1% increase in the Gilt yield would mean £10bn per year of extra interest cost – and we have to refinance most of our debt over the next few years and expose ourselves to whatever yields the market will accept.

And as for taxes, unlike the Europeans or most other countries our cash cow industries are very susceptible to emigration. The aerospace industries of the French or the auto industries of the Germans can’t relocate that fast. Our service companies can move fast – as shown by the pharmas and financials moving overseas recently. The French cant believe their luck that all the traders based in London for years have now returned to Paris to pay tax to the French. They can’t believe our governments stupidity in stabbing the only industry we still lead at and throwing punitive tax rates at it. And what entrepreneur would want to relocate to Labour Britain with its threatening tax-the-rich rhetoric, appalling state schools and god awful weather I dont know.

“And what entrepreneur would want to relocate to Labour Britain with its threatening tax-the-rich rhetoric, appalling state schools and god awful weather I dont know.”

As long as its only rhetoric, they won’t care. Plenty of private schools, servants are cheap, and flights somewhere warm are pretty cheap too. What’s not to like ?

The rhetoric is what scares people. They think the 50% tax rate above £150k could soon be 55% or 60%…or that there will be a new band above £300k at 70% etc etc…..Now we have the idiotic lib dems proposing mansion taxes on houses which breaks all relationship with ability to pay…..It all spells bad news down the line for hard-working high-earning people and when you are considering setting up a business or making a career move these considerations will be at the top of the list

Anyway, the flight has begun, hedge funds are moving en masse to Geneva and european bankers are relocating to their european offices away from London across most of the city banks. Everyone is quick to slag off bankers and hedgies whilst forgetting the tax take on their bonuses and salaries was immense and the same banks still pose the same risk to our economy whether the bankers are sat in London and paying tax here or not

“The rhetoric is what scares people. They think the 50% tax rate above £150k could soon be 55% or 60%…”

55% would still be lower than pre 1987, and 60% would still be lower than 1979. Plus no doubt there would still be plenty of opportunity for avoiding tax both legally and illegally. And maintaining healthy annual donations to both political parties should suffice to avoid anything too harsh.

A sense of perspective isn’t really your strong point is it?

AJ,

You’re like a sort of reverse Richard Murphy, with opinions that are equally impervious to contrary evidence. You just plough on regardless, and show no interest in self-correction. You made a big fuss asking for numbers, you get shown them, and you don’t even look at them or pause to consider what a joke they make of your prescription of “20 to 40% cuts in public spending” – you write:

havent had a chance to read this big extract properly but it seems to focus on the spending side without taking into account the permanent structural deficit or reduced tax revenues and there is also little mention of when or how we pay off the cumulative deficit that will have accumulated in the meantime

of course rather than failing to take into account the deficit, these are the IFS’s numbers concerning what’ll be needed to erase that deficit, and the numbers on spending cuts are of course directly pertinent to your silly claims about the scale of necessary public spending cuts, and these numbers are calculated on the basis of forecast tax revenues and cost of servicing public debt. Of course you could have read the report to find this out for yourself, but you don’t want to puncture your own balloon do you.

oh, and you’re no better at inferring emotional states than you are at inference in general

Back in the 1980s the world was a vastly different place, any comparisons with today are ridiculously flawed. Back then North Sea Oil revenues were flowing in abundance for the UK, our national debt was a fraction of what it is now (as a % of GDP), public spending was under control and the Asian economies and financial centres weren’t the powerhouses of competitiveness that they are today. The world is now far more globalised and a far more competitive place where capital moves much more quickly to where it is best deployed.

It was the wisdom of the tory governments in reducing taxation that ultimately bequeathed a golden economic legacy to Brown that he has now completely pissed away.

Luis

The IFS report you hide behind simply doesnt address any of what we have been talking about. Construct a more concise argument from it and present it yourself if you disagree.

Anyway, I’m off home now after a hard days banking generating taxes to be wasted by our government. Goodnight all.

Aw. A lot of you are spoiling the fun; talking serious. Can’t we have good old fashioned orgy of hunt the heretic?

Yes, do get rid of all the centrist Labour MPs and march leftwards into electoral oblivion. I’ll be cheering you on.

That’s funny – you don’t seem to make that argument when it comes to Dan Hannan. Frank Field centrist? Yeah right. Public opinion is way to the left of him.

Although I’m in favour of diverging views – the point here is simple: you have an MP who consistently pushes right-wing talking points and narratives which are neither popular nor have a basis in reality.

Let him join the Stupid Party if he wants to keep making stupid points. Let Guido Fawkes cheer him on. That’s surely what any Labour MP should want to avoid anyway.

Anyway, I’m off home now after a hard days banking generating taxes to be wasted by our government.

I agree. Those taxes are wasted bailing your industry out.

Anyway, I’m off home now after a hard days banking

Less the time it took him to read this thread and compose a whole 24 posts. Think someone owes their bank at least an hour’s pay.

Andy

At some point you RUN OUT OF MONEY

Indeed, at some point you do but you seem to think we should start cutting at the slightest whiff of a shortage in extraordinary circumstances.

do all socialists seem to have a problem accepting that money is a finite resource?

Surely that’s the point of fiat currency, but I’m sure at this point we can talk about the market value of a currency which could be said to be related to what we produce and what we export which brings us nicely to…

The UK is not an exporter

As of 2008 our exports (goods and services) were somewhere in the region of £422bn, not exactly a small amount. Our imports around the £459bn mark. It’s also worth pointing out that £459bn is only a about a third of our GDP the rest of our economic activity is domestic. The trade gap is undoubtedly a structural problem with the economy (I thought we paid lots of incredibly talented bankers to ensure that our capital was put it to productive uses) but it’s worth viewing the state of the UK economy in proportion.

I personally believe that your fears about inflation are overblown, there is reason to believe that we may see inflation rise to higher than in the last few years but I don’t think we will see the massive inflation you’re predicting since that would require a massive increase in demand. If we do suffer inflation then I don’t think we need to worry, there is little empirical evidence that inflation in moderate quantities is a problem.

On your point about tax, I’d like to ram home the point that the universe does not revolve around the banking industry and neither does the British economy. Banking is a fraction of the overall financial services industry, I think we can take the risk of a few jumping ship.

“in general the focus is on reminding people that, in the end, it is the Labour party that is wedded to the interests of the working class”

I laughed at that so much I think I’ve actually wet myself. Tell me how many working class people benfited from the bankers bailout ?

“his argument that we run an imminent risk of losing our AAA+ credit status if we don’t cut now (no mention of other ways of reducing the deficit, note) is simply scare-mongering”

No it isn’t – if markets perceive that the the UK economy will be funded by debt long term then government paper will become less valuable, making the debt even worse. What others ways are there of cutting the deficit apart from printing money and/or raising taxes – surely you wouldn’t dream of doing either of those ?

“As Martin Wolf has pointed out, cutting the UK’s credit rating would mean that logically, the US’s credit rating would also need to be cut”

I don’t know or care who Martin Wolf is but that’s just bollocks I’m afraid. We simply aren’t that important.

“In setting out a line on economic policy which is absolutely out of the Tory mismanagement manual”

As opposed to what – the labour “an idiots guide to managing the econonomy” manual ?

“In so doing, it would send out a message of Labour being serious about having a distinctive economic policy, one which really does defend Labour ‘hard working families’ in the tough times”.

You’ve done nothing for hard working families except tax, interfere and micro manage them, I should know I’m one quarter of a hard working family.

Can I ask the modertaors why this blatant, if laughable, piece of electioneering has been allowed on this blog ?

Andreas

The UK is a gigantic NET importer. That is why we are running a monstrous current account deficit and why any weakening of sterling would cause an immediate increase in the prices of food, fuel or all the other goods (basically everything) that we import.

If you treat FIAT currency as an infinite rather than finite resource it is soon worth bugger all – just look at Zimbabwe et al. Quantitative Easing to prevent deflation is acceptable to buyers of your currency – to print for any other reason has always led to hyperinflation.

Financial Services are 31% of UK GDP (according to ONS) and that is a lot – the clients of the banks and hedge funds (in IT, advertising, recruitment etc) make up a very big part of our economy. Guess what – it isnt just banks that are leaving the UK, it is industry and pharmas also (eg Shire Pharmaceuticals just left for Ireland). Even where there arent headlines about corporate relocations, companies are moving their R&D or admin departments abroad to lower tax regimes.

We have become a very uncompetitive little country that is fast losing its main attraction of flexible labour laws and low tax. We have little else to offer relative to other countries – certainly not in terms of our labour force which has been downgraded by state-school ‘progressive’ education over the decades.

Financial services are now 31%!? I’ve never heard that figure before, the BBA says 9.4% for example. And that’s financial services, not the city; the figure that’s been bandied about for the city was 4%. As for Shire they didn’t move en masse, they moved for tax avoidance purposes (Incidently, Ireland, hows that low tax regime working for ya?). As far as I can tell the annual trade deficit of £37bn, worrying but not exactly earth shattering.

The difference between Zimbabwe is that Mugabe’s redistribution of land disrupted the coordination of economic resources vastly reducing the productivity of the economy. There is no such danger to the productivity of the UK economy with the possible exception of a collapse in demand brought on by foolhardy government cuts.

Of course if we are going to talk about solving the trade deficit there is the question as to how cutting back on public expenditure would help this situation. If there is a need to expand the nation’s production capacity specifically in export generating industries, that involves measures to lower the barriers to entry in those industries. That will not be brought about by cutting government expenditure and there is little reason to believe that your low tax/flexible labour ideas will help either.

I’m sorry but I don’t buy your “beauty contest for international capital” worldview, I don’t accept the picture you paint of the British economy and I think your views on the education are ill informed tosh.

The difference between Zimbabwe is that Mugabe’s redistribution of land disrupted the coordination of economic resources vastly reducing the productivity of the economy.

Zimbabwe’s runaway inflation dates back to 1998, when the Government printed money to meet a spending committment (a cash payout to ‘war veterans’ of varyng legitimacy). The land grabs didn’t take place until the aftermath of the 2000 elections. When I first went to Zim in 1997 a beer cost Z$3 (Z$5 in the Meikles Hotel). When I went back in 2000 (just as things were getting nasty but before everything had gone completely tits up) it cost Z$50. When I was last there in 2005 it cost something like Z$50,000.

The destruction of the productive economy obviously exacerbated the situation, but the first step taken was the debasing of the currency.

Tim J – I stand corrected on the point about the landgrab, however I won’t concede the point on monetising the deficit. A little further research would indicate the problems of Zimbabwe’s economy hark back to it’s trade liberalisation and the disruption this caused with particular reference to the dismantling of of protectionist barriers. This disruption caused serious damage to industrial output.

In addition there is a serious difference between running a deficit in a nation with already high inflation and the running of a deficit in a nation with demand side problems and low inflation. We also don’t have the problem of locational mismatch with debt since our debt is denominated in sterling.

Andreas

You just dont understand currencies. The cases of Hyperinflation in the past are all in quite different circumstances. The problem is that markets lose faith in FIAT currencies very quickly when the line is crossed in terms of monetising debt to ease the debt burden. That is the simple principle which divides the US, UK and Japan in their QE policies (up to now at least) with Weimar, Zimbabwe etc

We dont have a real problem with foreign currency denominated debt. We have a problem that no external investor has bought our debt for over a year now and they have instead been selling.

We have a problem that no external investor has bought our debt for over a year now and they have instead been selling.

From which insane world do you derive your economics news? Here is a list of UK sovereign debt auctions – note that actually, quite a lot of external investors have bought our debt.

Ah, from the same world where ten accountants and a secretary moving to Ireland to be the “GLOBAL HEAD OFFICE”, whilst all the actual management remains in the UK, actually matters. I understand now.

“From which insane world do you derive your economics news? ”

Never forget that old adage for every aspiring reporter:

Don’t let the facts get in the way of a good story line.

Thanks for your links.

I hate to be pedantic but for tax purposes all that matters is from where *control* is exercised, the physical location of the board and “head office” is irrelevant. You can be incorporated in the Maldives but if control is exercised from Wandsworth then you come under UK tax juristiction. Tax lawyers will obviously have a field day arguing about what and where “control” is.

A little further research would indicate the problems of Zimbabwe’s economy hark back to it’s trade liberalisation and the disruption this caused with particular reference to the dismantling of of protectionist barriers.

Say what? You’re seriously arguing that Zimbabwe’s economic problems were caused by its liberal economic policies? Up until the mid to late 1990s, Zimbabwe’s economy was one of the strongest in sub-Saharan Africa. There were certainly difficulties, but it’s far more credible to argue that the absence of a democratic Government and the promotion of crony capitalism were to blame. It was the currency devaluation (sparked by an unfunded gimme to ‘war veterans’) that hit the button on the economic crisis by causing mass inflation. The subsequent politically motivated destruction of the productive side of the economy completed the job.

You can throw in the criminally insane intervention in the DRC if you want, but blaming the IMF is just bizarre.

From which insane world do you derive your economics news? Here is a list of UK sovereign debt auctions – note that actually, quite a lot of external investors have bought our debt.

Of course they have. His point stands a little better when you factor in that overseas investors have been net sellers of UK debt this year.

Tim J – Yes, that’s exactly what I’m saying. In any economy economic resources are a coordinated in a particular fashion based on the patterns of supply and demand within the economy. A policy of trade liberalisation causes a rapid change in the nature of supply and demand within that economy, this leads to that coordination breaking up.

The market acts as a discovery process to find new ways to coordinate. Lefties like me have very little faith in this process.

Zimbabwe’s trade policy changed signifigantly during the 90s and I would argue that this rapid change led to serious disruption to the economy. This is the paper I’m basing my arguments on.

101 – there’s certainly an argument that the opening up of the Zimbabwean economy from the early 1990s on led to a degree of instability, and even partial economic regression (though it’s worth remembering that the protectionist model they were starting from was an unsustainable one based on the legacy of 14 years of UN sanctions).

However, the collapse of the Zimbabwean economy has gone so far beyond the analysis of that paper (which was based on a 1996 research paper after all) as to make that critique virtually pointless. Note how the increase in inflation is referred to as being up to 40%. During the dog days of 2008 portfolio calculated (based on share price differentials, given that macro economic statistics have disappeared) that the true rate of inflation in Zimbabwe was (wait for it) an annualised

430,000,000,000,000,000,000,000,000,000,000,000,000%

As the Zimbabwean economy shrank (mainly due to the politically inspired destruction of the commercial agricultural sector) and unemployment rose, the Government just kept on printing money to meet its obligations. They tried making all currency time-limited (ie by printing so-called promissory notes); they tried reprinting new numbers on old notes; they tried only printing smaller denominations (so as not to encourage inflation…). None of it worked. The only way that the new Government has found to remedy the collapse of the Z$ has been to abandon it and allow ZAR and US$ to work as legal tender.

Looking at the impact of ESAP on the Zimbabwean economy is like looking at the role played by poor traffic control in the destruction of Nagasaki.