Friday, March 15, 2013

The Budget and the Art of the Possible

At the recent National Association of Pension Funds Conference in Edinburgh I asked Tony Blair which was the greater block to the creation of change – the Political or the Bureaucratic. He said emphatically that it was the Political. This surprised me a bit – I thought he would say it was both. The answer was interesting also because Blair had three terms as PM during which the Opposition was weak and during which he had a pretty united Party behind him (Iraq the exception as always).

I suspect that if you had asked Margaret Thatcher the same question midway through her Premiership she would have said the the main block to change was bureaucratic. Not for nothing was her favourite TV programme “Yes Minister”! She never quite cracked the Civil Service but until the end of her years in power she got the Conservative Party to toe her line. She didn't bother that much about the Wets!

The above a reflection of the fact that as Bismarck said “Politics is the Art of the Possible”. So the management of the economy over the past three years has been conducted within the boundaries of what Cameron/Osborne judge to be politically possible. Working in a Coalition has been trying and has placed huge constraints on what I suspect the Tories would really have liked to have done. Where cost/benefit is less an issue, e.g. on Education, they would no doubt say that successes have been achieved. Certainly Gove is pursuing a set of policies that would not upset too many of the Tory faithful. But on the big-ticket items such as the NHS and Welfare the Government has had its hands tied  - partly through their own choice. I have no doubt that deep down the Cameron/Osborne would like a radical change to the NHS with it becoming a much reduced charge on taxation revenues. The irony is that this is what opponents of reform think is actually happening but in fact the NHS budget has not been reduced. It’s the worst of both worlds – the Government’s handling of the NHS has been roundly condemned and yet there are no real expenditure savings accruing anyway!

So in the Budget the political will inevitably dominate. The Tory Right, a huge thorn in Cameron’s flesh, will hammer away at anything that doesn't produce real falls in spending. The LibDems, with the confidence of Eastleigh behind them, will argue for a Keynesian boost (Vince Cable is well on the case). The Labour Party will play politics lambasting the economic mismanagement on the one hand and calling for a borrowing driven spending boost on the other.

I think that Osborne will try and please the Tory Right with some fiscal act such as a 1% reduction in Corporation Tax or maybe a small reduction in National Insurance contributions.He may also have an infrastructure investment surprise. As a Pension Fund Trustee (and a bit of an unreformable Keynesian!) I would welcome the creation of an attractive instrument for such investment. Maybe an “Infrastructure Bond” paying a tad over normal rates which institutional investors would find attractive. As someone concerned about Pensions I would also very much welcome a radical initiative giving substantial tax advantages to those (employers and employees) who invest in DC schemes. As a bit of a “Green” I would also welcome increases in fuel duty and other green taxes - but that won’t happen. Its the politics stupid!

Finally there is the elephant in the room which is inflation. Over history Governments have inflated their way out of economic difficulties and budget deficits. It must be tempting. I suspect Osborne has spent some time with Mr Carney already on this!

Saturday, March 02, 2013

Apathy and tease at Eastleigh

The Westminster village got all in a tizz in the run up to the Eastleigh by-election. But as Michael Deacon in the Daily Telegraph pointed out “Some in the press are calling this the most important by-election for 30 years. But important to whom? To the candidates and activists and parties, certainly. But to locals it seems more like a nuisance.”
On the day of the poll one breathless reporter said that it looked as if the “turnout could be as high as 70%”. In fact it was under 53% – down 16.5 % from the 2010 General Election. The attitude of the electors of Eastleigh seems to have been “Meh” at best. They were unexcited by all the hype and either apathy or a feeling of “None of the above” seems to have been the main winner.

If the mood of the people of Eastleigh was apathetic this doesn't mean that they weren't in the mood for a bit of a tease. They certainly weren't going to be told what to do by the Conservative machine which entered the campaign as slight favourites. And I’m sure that they saw through the hardly coincidental timing of revelations in the Right Wing press about a senior LibDem and the subsequent basket of excrement that was heaped on the hapless LibDem leader Nick Clegg. 13,342 voters plumped for the Lib Dem candidate motivated no doubt by a complex range of reasons chief among them, I suspect, was a wish not to be told what to do by Mr Cameron. Quite how many votes the Prime Minister lost his party by campaigning in the by-election I’ve no idea. But I suspect that notwithstanding all the LibDem failures in Government many voters went for them as the lesser of all the evils once they'd seen the hopeless Prime Minister bumbling platitudinously around – maybe holding their noses as they did so.

If the LibDem leader was hapless and the Conservative main man hopeless what of the leader of the United Kingdom Independence Party (UKIP) Nigel Farage who played a big part in the campaign in support of his candidate? Whilst Farage is not quite the British equivalent of Beppe Grillo he is a bit of a card. He gained the support of 9638 extra voters over and above the just under two thousand UKIP secured in 2010. How was this done – was it just a “protest vote” as Cameron would like us to believe? Well it depends what you mean by protest. It is part of the British character to know what we are against and it is rather less easy for us sometimes to know what exactly we are for. UKIP is a political party which is firmly against quite a lot – notably Europe and Immigration of course. This is  “scapegoat” politics – it appeals to a certain sense of unease in the electorate and finds someone or something to blame. So if an elector is a bit uneasy, and he has a sense that someone must be to blame (especially if that someone else is a  foreigner) the UKIP proposition is quite appealing. That the party is bereft of an intellectually rational message and is followed largely by “fruitcakes, loonies and closet racists" as David Cameron memorably called them back in 2006 can conveniently be forgotten in making the protest.

Had the Eastleigh by-election really been seen as important by the electors of Eastleigh as the Westminster Village thought it was then the second place of UKIP might be worrying. But as we have seen many of them couldn't be too bothered by it all and nearly half of them didn't even vote . Of those that did a little under a quarter thought it might be a bit of a laugh to vote for Mr Farage’s shallow and prejudiced mob of a Party. It was a tease as much as a protest and the best thing to do if somebody is teasing you is to turn the other cheek and keep your integrity. Let’s see if David Cameron, in particular, does this.