Wise men passing No. 11. What does it mean?
Guido wants to see measures that help the squeezed-middle, the tax paying voters who elected this government.
Prepare to be disappointed…
Growth is anaemic, that much of the Balls critique is true, the cause is not the government’s spending cuts, they are a mere 1% of GDP. Osborne has made mistakes, hiking VAT hit the High Street by taking money out of the real economy whereas QE at the moment only puts money into high finance money markets. Back in June the IMF issued a report recommending
“…tax cuts are faster to implement and more credibly temporary than expenditure shifts and should be targeted to investment, low-income households, or job creation to increase their multipliers… Simultaneous adoption of deeper long-run entitlement reform would be desirable to safeguard fiscal sustainability and market confidence…”
It also pointed out that
“The level of public spending as a percentage of GDP in our forecast has reduced by about half a per cent of GDP as compared to the previous fiscal year. However, it remains very far above the pre-crisis levels of spending and represents a long-term high in spending. It’s important to maintain that perspective”
Plan B, the Balls plan for bankruptcy and bond market collapse, is for higher taxes and more spending, this can be dismissed. Osborne is right when he says the international bond markets would crucify Britain if he switched to Plan B, for as Jeff Randall points out this morning
“At the moment, the Chancellor is pulling off a brilliant confidence trick: persuading the markets that Britain remains a triple-A credit, able to borrow on the same terms as Germany, while managing an economy with an inflation rate 66% higher than the eurozone’s average, and a national debt that is forecast to hit £1.32 trillion in 2015, nearly 40% greater than today.”
Tricky. Gordon Brown inherited an economy in a sweet spot and left an economy drowning in debt, Osborne believes he must bear down on the deficit to keep the confidence of the bond markets. Yet a paper produced by Dr Tim Morgan of bond brokers Tullett Prebon argues that if the government is going to miss its deficit reduction target anyway, what option would placate the bond markets more?
We’re currently in the first situation, the second situation is unpalatable to the government, the LibDems don’t have the stomach for a shock doctrine style short term austerity programme. Balls advocates stimulus in the form of higher spending, no one in government is advocating the alternative, which is to stimulate the economy by cutting taxes instead. Of course if we also rolled back government spending there would be more room for tax cuts to boost consumer confidence and the economy, without matching spending cuts the deficit will rise. Osborne is going to miss his deficit target regardless of which option he takes, it wouldn’t scare the bond market so much if cut taxes in pursuit of growth…
Halloween may have been last week, but take Danny Alexander’s proposed £40bn €uro/IMF splurge and divide it by the UK’s population: £666 per head. A foreboding premonition for George if ever there was one. As Kelvin MacKenzie said on the Daily Politics: “If they want to become the most unpopular government in history…”
Back in July the government won a vote to send £9 billion to the IMF by just 28 votes, the tightest margin yet for the Coalition government. Despite the best efforts of the whips some thirty-two Tory MPs rebelled against the government. With Osborne’s pledge today to increase British contributions to the IMF before the cash is sent on its way to Greece, an even trickier vote lies ahead:
Labour voted against the government last time and Guido can see no reason why they would change their vote next time. If you add the 81 EU rebels on the Tory benches to Labour’s vote the government will be defeated. There is some obvious panic in the Treasury as the realisation has dawned that if Ed Balls marches Labour through the no-bailout door followed by the Tory rebels, the government will lose. Excluding minor parties it will be 339 votes to 282 against more bailout cash.
There are more Tory €uro-rebels than LibDem MPs, yet it’s Clegg and the swivel-eyed Europhiles with their hands on the tiller…
With the Greek government splitting on the referendum promise last night, today’s G20 summit is going to be even messier with the prospect of a snap Greek election now not out of the question. Papandreou says the referendum is about how the bailout, and the conditions that come with it, could be fed to the Greeks.
What is clear is the European political elite wants more bailout cash…
Two weeks ago Osborne told the Commons:
“Britain chose not to join the euro and the British Prime Minister has fought hard to get Britain out of the bail-out fund to which the previous Government signed us up. I want to make it clear that whatever the Commission President says, British taxpayers will not be contributing to the eurozone’s bail-out of Greece—full stop.”
Yet overnight we learn that Britain is gearing up to give more money to the IMF in a futile effort to try to keep Greece in the Euro. Surely this is a change of tune from just last week when Osborne said:
“Britain will not be putting money into the bail out fund either directly or through the IMF… the IMF exists to support countries, it does not exist to support currencies. The IMF contributing money to the eurozone bail out fund, no; Britain contributing money to the eurozone bail out fund, no. That is Britain’s clear position.”
We’ll be sure to believe you next time you make Britain’s position clear, George.
George Osborne to Parliament two weeks ago…
“Let me be clear, whatever the Commission President says, British taxpayers will not be contributing to the €urozone’s bailout of Greece. Full stop.”
On the day the German Finance minister Wolfgang Schäuble declared war on the City of London by announcing the EU will take “a global lead in introducing a financial transaction tax to curb speculative trading”, maybe the left will finally have something to get angry about in regard to the EU’s stranglehold over the UK’s sovereignty…
Emily Nomates, formerly of this parish, has got hold of Treasury documents over at CityAM that show “UK authorities are currently locked in fractious negotiations with Brussels” over the whether the plans set out in the Vickers Review are legal under new EU capital rules. The whole story is here but essentially the Treasury suggest their plans to reform the banking sector are being blocked from above.
Maybe the occupiers should target Brussels for letting the bankers off…
On the Today programme this morning George Osborne dismissed the inflation threat “Actually the problem at the moment is too little money… That’s why the independent monetary policy committee came to its judgement” Is that really true?
The MPC has failed for 60 months in a row to meet its inflation target of 2%, inflation will probably come in at 5% next month. That clearly isn’t a deflation problem, it is an inflation problem which gives savers and pensioners on fixed incomes negative real interest rates, deliberately halving the real value of their pensions in little over a decade. That isn’t an unfortunate consequence of government policy, it is a deliberate policy aim because it also halves the government’s debts in real terms as well.
Those dangerous radicals at SAGA, the retirees organisation, are describing QE as a “Titanic Disaster“,
“QE2 will damage pensions, impoverish pensioners and ultimately risk another crash. Inflation depletes spending power. It does not create growth. This inflation has undermined confidence and caused consumers to retrench, which has actually weakened the economy. The authorities must take heed of these dangers before it’s too late.”
The Monetary Policy Committee is simply no longer even trying to contain inflation, the Federal Reserve in Washington and the Bank of England in London are, in concert with their respective treasuries, deliberately letting inflation go to solve the government debt crisis on the backs of pensioners and prudent savers. The only reason they don’t say it explicitly is because if inflation expectations were to be higher it would feed, reflexively, into even still higher inflation. That is why Mervyn King has disingenuously claimed for 5 years that inflation is “a blip”. Some blip…
This from the party of sound money will hit a key voter demographic hardest, the demographic that is most loyal in voting for the Conservative Party, affluent retirees. David Cameron’s conference speech last week was nowhere near as good as his 2008 speech:
I believe that government’s main economic duty is to ensure sound money and low taxes. Sound money means controlling inflation, keeping spending under control and getting debt down. So we will rein in private borrowing by correcting that big mistake made by Gordon Brown, and restoring the Bank of England’s power to limit debt in the economy.
In government and at the Chancellor’s behest we are seeing the printing of money on a scale never seen before, inflation is uncontrolled, spending is rising, debt is being encouraged to rise. The Chancellor plans to facilitate more private borrowing from the Treasury by poor corporate credit risks and the Bank of England now holds on its books a third of all the government debt outstanding with no credible plan to unwind the hundreds of billions in QE driven government gilt purchases. Sound money? What a joke.
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Clegg Must Fire David Ward | Sun
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Ruffley Must Go | Guardian
Political Correctness Breeds Extremism in Schools | Chris McGovern
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I Sang “Maggie Out” (When I Was 7) | Liz Truss
New Foreign Secretary Philip Hammond has big ambitions in his first meeting with Benjamin Netanyahu today:
“I came to bring this conflict to an end.”