As the Tories become the party of tax and spend it’s noticeable that Starmer’s essay references a newfound emphasis on keeping taxes low for workers and being careful when spending taxpayers’ money. Here’s a flavour of some extracts:
Why when government departments are funded by taxpayer money are we so lax about ensuring that money is spent appropriately? …
There can surely be no greater example of the misplaced priorities and hubris of this government than the fact it is currently spending hundreds of millions of pounds of taxpayer money on a vanity yacht when that money could be spent on tackling anti-social behaviour.
The government should treat taxpayer money as if it were its own. The current levels of waste are unacceptable.
Starmer seems to have even come to appreciate capitalism:
The role of government is to be a partner to private enterprise, not stifle it.
All very encouraging. Guido asked the wonks at the Taxpayers’ Alliance to have a read of Starmer’s 12,300 word-long Fabian essay and tell him what they thought:
Looking at the report, the comments on waste, transparency and efficiency in the public sector through technology are welcome. One line also mentions that Labour wants the low-paid to keep more of the money they earn.
On the other hand:
Our concerns would include the commitment to increasing the minimum wage, emphasis on significantly more public spending to tackle climate change and increased role of the government in business. He also promises to buy, make and sell in Britain – a fundamentally a protectionist policy and means taxpayers don’t get best value for money.
They have, however, decided that on balance Starmer’s newfound commitment to low taxes means he would be welcome to join the thousands of members of the Taxpayers’ Alliance. Starmer can register his support here!
The Adam Smith Institute has today published a paper on how to implement an Israeli-style deployment to deliver vaccines at a greater pace. The paper notes that every additional week of the pandemic costs the taxpayer £6 billion, while reducing economic activity by £5 billion. In order to end it, the paper insists Government has to fully utilise the private sector, armed forces, and volunteers. Israel is currently vaccinating ten times faster than the UK.
From drive-in vaccine centres and 24/7 sites, to immediate approval of the Moderna vaccine, prizes for best employees and centres, and home delivery kits for diabetics who already self-inject – there is a lot here for policy makers to take up. The paper recommends boosting jab targets to six million doses per week, and to go even higher once that target is reached. Guido’s own suggestion is to turn now available empty schools and pubs into local vaccination centres.
Read how below:
The government released new details today of a study on their impending bonkers ad ban, which, despite all previous evidence that such illiberal clampdowns don’t work, they hoped would justify the move. The government’s own research suggests an ad ban will reduce children’s calories consumption by just 2.8 calories per day.
2.8 calories per day per child would – assuming no exercise – add 1 pound per three and a half years – and all for the destruction of thousands of small and medium businesses, and depressing the advertising industry. Not only is a 2.8 calorie reduction pathetic, the ASI’s Matthew Lesh points out even this is likely to be an exaggeration:
“The review that the Government’s calculations are based on – Viner et. al (2019) – does not contain any studies that simulate a realistic environment in which children are exposed to ‘junk food’ advertisements. In all of the 11 studies included, children were allowed to consume an unlimited quantity of food at no cost and none featured parental supervision.”
The government’s figures also calculate the advertising market – for what Whitehall refers to as “high fat, sugar and salt (HFSS)” – is £438 million (59% of the total online food and drink advertising market) with a hit to online platforms of £271 million per year.
With around 11 million children from 5–18, the UK government is set to sacrifice £813 million of online advertising revenue in return for one pound lost per child. Turns out this weight loss malarkey isn’t as easy as just taking candy from a baby…
Away from the glossy spin now expected from team Rishi, there is a distinctly nervous reaction from the right’s ideological bastions. Delving into the details of the Chancellor’s spending review announcement, think tank responses range from at best unease to at worst some disdain for the government’s decision to double down on further increasing record levels of public spending. Is this the start of a growing gulf between wonk world and Number 10?
The Centre for Policy Studies are the warmest, claiming credit for the two most obvious examples of fiscal restraint within the announcement: the cut to international aid and the so-called public sector pay freeze. It’s clear however that the organisation, which was heavily involved in constructing the Tories’ successful 2019 manifesto, wants the government to more clearly return to the traditional Tory ground of letting the private sector drive the post-Covid recovery:
“But ultimately it will be the private sector, not the public, which digs us out of this economic hole – so as the pandemic recedes we urge the Chancellor to embrace pro-growth, pro-enterprise stimulus measures, such as tax incentives to encourage businesses to hire and invest.”
The ASI doesn’t hold back, accusing the government of a “public sector splurge” in spite of the ‘pay freeze’; and singling out the rise in the minimum wage as an “unforgivable”:
“This public sector spending splurge fails to put the United Kingdom onto a strong fiscal footing for the recovery. Rishi Sunak cannot tax our way out of debt or spend our way out of a recession”
“Increasing departmental budgets as the economy shrinks is just spending money we don’t have.”
“For the party of business, the lack of thought about their needs and the increase in costs they’re facing coming from the government, this is a massive and unforgivable oversight.”
Unfortunately for Rishi, the IEA goes in even harder, arguing that while the chancellor’s diagnosis of doom was correct, his pledges to boost departmental funding are “vague” and his support for apprentices, and extra work coaches are “retro policies drawn from dusty files last seen in the 1980s.”:
“Recovery from the recessions of the 1980s and 90s was not the result of extra government spending, but was rather associated with deregulation and freeing up markets. There was no sign of this in today’s announcement. Government intervention, however justified by health concerns, has created the current economic situation; the answer is not yet more intervention, but rather to allow businesses maximum freedom to reorient and rebuild.”
The Taxpayers’ Alliance adds to the voiced concerns about Rishi’s fiscal splurge:
“The lack of focus on value for money in today’s spending review will no doubt disappoint taxpayers.
“Coronavirus has undeniably left a large hole in the nation’s finances. But instead of forever dipping back into taxpayers’ pockets, the government should prioritise policies to get the economy going.”
The Centre for Social Justice welcomed the focus on jobs but wants “warm words” on families and communities to be followed by action.
“as the Chancellor said, a job is the best route to personal prosperity – an identity, purpose, and reason to get up each morning. Various investments in housing, city growth deals, and a very welcome community levelling-up fund will all help to enable this.
“support for the most vulnerable such as rough sleepers, and our prisons was welcome, but warm words on families and communities, where many find their greatest support, must be followed by action.”
It’s clear a great many Tories – whether sitting quietly on the back benches or orbiting in wonk world – want a private sector-led recovery, and a definitive end to the endless splurge of taxpayer cash with little thought to the consequences. The question is whether Boris or Rishi will be brave enough to lead their new voters from the front, or surrender the battle of ideas entirely…
The Centre for Policy Studies has a paper out revealing that a public sector pay freeze could save up to £23 billion by 2023. They argue that:
Since the start of the pandemic, private sector workers have suffered far more than those in the public sector, which strengthens the case for public sector pay restraint over the next three years to ensure the labour market isn’t unfairly weighted towards the public sector. MPs are scheduled to get another inflation-busting 4% pay rise, they should set an example by legislating to freeze their own pay.
Robert Colvile, of the CPS, says:
“The economic impact of the Covid-19 pandemic has been severe, but the pain has not been shared equally. Some businesses are folding under the strain, public finances have been decimated, while the public sector has escaped relatively unscathed. Healthcare workers aside, it is difficult to justify generous pay rises in the public sector when private sector wages are actually falling.
At the same time, there is a need to control public spending and reduce the structural deficit which the pandemic is likely to have opened up. The Chancellor should redress this imbalance by showing restraint when it comes to pay and pensions in the public sector.”
The Chancellor and the rest of the MPs should not be getting a 4% pay rise.
Download ‘Public Sector Pay: The Case for Restraint’ here.
The Centre for Policy Studies has a paper out arguing for low deposit, fixed-rate, long-term mortgages. The “no deposit” aspect of the headline reports triggered a bit of concern among those of us old enough to remember that the 2008 global financial crisis was triggered by defaulting sub-prime mortgages in the US housing market. Prima facie it sounded insane to go down this path…
The CPS’s chief wonk, Robert Colvile, has put out a lengthy rebuttal this morning which he summarises as
“This policy is designed to make mortgages accessible to those who can afford mortgages but not deposits – or at least not the current sky-high deposits.”
Mortgages are usually for terms of 25 years to pay off the borrowing over the borrower’s working life. A hangover from when working lives were only 25 years or so. 25 year fixed-rate mortgages in an era of ultra low rates sound like a great idea, giving certainty to borrowers over the lifetime of the mortgage. Guido and the CPS are at one on this, they could be welcome innovation in the mortgage market.
There are a few snags, a quick Google search has not turned up any 25 year fixed-rate mortgages being offered by mainstream high street lenders, yet. What will it take to encourage them? Well judging by the 15 year fixed-rate mortgage offered by Virgin – fat profits. With base rates at 0.1%, Virgin want 3.0% for their 15 year fixed-rate mortgage.* What does this cost borrowers?
Over the term of their loan, assuming not unreasonably that lenders like Virgin would look to maintain a 200 basis point spread on their financing costs, the borrower of £250,000 would risk having to repay £125,000 more than a floating rate borrower, if rates were to remain static for the term. There is no such thing as a free lunch, the fixed rate certainty generally comes at a higher cost to borrowers. If you can’t raise a deposit, the total cost of borrowing inevitably will be higher, a lot higher.
The fat interest rate margin Virgin are demanding might be driven down by more competition, though wholesale lenders might in turn be wary of backing loans to institutions lending on thin margins to consumers who can’t raise a deposit. A property downturn, say because rates rise precisely as feared, might see borrowers in negative equity sending their keys back to lenders. Paradoxically making fixed rate mortgages with little deposit cushion much more risky for lenders.
Rates could rise quite dramatically over the next 25 years, given that central bankers are thinking about inflation more kindly of late. That is why deposits give banks a margin of safety, given politicians will support banks with bailouts, those deposits also give wider society protection. Making mortgages deposit free for a few could be quite expensive for the rest of us in a housing downturn.
The irony of our situation is that quantitative easing and the ultra low interest rate policies that fixed the banking crisis caused by the housing loan crisis, have subsequently caused a housing price inflation crisis. The Bank of England now believes that the increase in house prices is now almost entirely due to low interest rates. Be careful of clever financial fixes…
