Posts Tagged ‘George Osborne’

The Thin Controller

March 21, 2016

Osborne weight loss

George Osborne, who I used to call The Fat Controller, has become the Thin Controller after eating less and running more. But he is still Sir Topham Hat, insensitive nemesis of poor Thomas the Tank Engine (and all other members of the working classes).

In case you missed the Thin Controller’s latest, last week he decided to reduce taxes for the rich and the middle classes at the same time as chopping a further £4.4 billion over five years from the budget to support disabled people. The Institute for Fiscal Studies estimated that 370,000 people with a disability would lose an average of £3,500 a year. This comes on the back of an already-implemented big squeeze on various direct and indirect forms of welfare support for the disabled.

Most of the groundswell of anger at the Thin Controller — he has already abandoned the disability benefit cut in a standard ‘oh my god, what have I done this time?’ volte-face  — focused on his increase to the level at which higher earners begin to pay the 40 percent income tax rate. However this change has at least the merit of rewarding middle class work.

What gob-smacked me in the Thin Controller’s budget was the decision to make big cuts to already ridiculously low rates (compared to income tax rates on work) of Capital Gains Tax (CGT). Britain is fast becoming a rentier society, but the Thin Controller’s determination to turn us into some proto-feudal squirearchy seems to know no bounds. He cut the lower band of CGT from 18 percent to 10 percent, and the higher rate from 28 percent to 20 percent.

The old rates do remain in force for profits on one’s second, third, fourth and fifth, etc homes (i.e. for non-primary real estate). However the adjustment is a huge bung to the share- and bond-owning leisure class, of which I regard myself as an aspiring member. Thinking today about whether I should not perhaps take the next three months off and go on safari, I decided to check the HM Revenue and Customs web site and learn more about the Thin Controller’s commendable policy to encourage my indolence. Here is what I found:

<Policy objective>

<The government wants to create a strong enterprise and investment culture. Cutting the rates of CGT for most assets is intended to support companies to access the capital they need to expand and create jobs. Retaining the 28% and 18% rates for residential property is intended to provide an incentive for individuals to invest in companies over property.>

This statement has three great qualities. First, it is pure gibberish. Companies (the supposed subject of the second sentence) do not pay CGT, they pay Corporation Tax. Second, it is dishonest. Following from 1., what the Thin Controller really means is that he wants to support the stock-owning rentier class, who don’t need to work because tax rates on passive capital invested in shares and bonds were already low, and are now even lower. Annoyingly, he can’t actually say this, but we know who we are. Third, the statement is misguided. This is because no British rentier with half a brain is going to invest much of their unearned capital in British companies when the Thin Controller has created such an anaemic growth environment. One gives one’s capital to American companies like Apple, Amazon, Skyworks, Gilead, Amtrust Financial Services, American Express, American Tower, Verisk Analytics, and so on. (Disclaimer: oh yes, I own them all.) And then one pays sod all tax to the Thin Controller on the profits. Of course, in the final analysis this doesn’t matter because the Thin Controller doesn’t need the tax because he’s dismantling the welfare state.

Got it?

 

Dieting Fat Controller still loves a pork pie

November 8, 2014

 

 


osborne 2014 vs 2013

 

 

Britain’s Chancellor George Osborne has lost an impressive amount of weight in the past year. So much so that I was thinking I might have to stop calling him The Fat Controller.

Fat Controller in front of trains

It turns out, however, that George still loves a pork pie.

Witness the recent furore over Britain’s increased European Commission bill to reflect an upward revision to the estimated size of the British economy. The bill is linked to the size of the economy, then Britain gets a rebate (negotiated back in the 1980s) to reflect Britain’s relatively lower receipts of EU agricultural subsidies.

Anyhow, first Brave Dave Cameroon said he wasn’t going to pay the £1.7 billion extra charge. Then people slightly less dim than Cameron realised that Britain has to pay the bill, because there is nothing unusual or exceptional about it. It is just the regular bill, amended on the basis of statistical revisions that occur periodically in all statistical systems.

So now the Fat Controller is claiming in the press to have ‘halved’ the £1.7 billion bill. What he means is that because there is an automatic rebate, the bill is really only about £850 million. But George wants to pretend this represents him having ‘negotiated a deal’ with the EU on a trip to Brussels this week.

He has done no such thing. George’s trip secured some very marginal fiddling around with payment due dates, doubtless because EU officials just wanted to get him out of the building as fast as possible. But he hasn’t ‘negotiated’ anything of any substance. Whatsoever.

Instead, George is just telling bare-faced Porky Pies. Like some fantasist kid in a school playground.

And that is why I am going to continue to call him the Fat Controller. No matter how much weight he loses.

 

More:

The Guardian explains pretty clearly.

Singaporean takeaway

October 27, 2014

I failed to write anything the week ending 18 October despite an interesting trip to participate in the 10th anniversary of the Lee Kwan Yew School of Public Policy at the National University of Singapore. (They invited you, you’re thinking. Yes, they did. As Saul Bellow once wrote: ‘There is nothing too rum to be true.’)

I also had a wonderful side-visit that week across the causeway to Johor Bahru, about which I will say nothing more than that if you have never read Han Suyin’s classic novel And The Rain My Drink, you should get on and do so. The book is particularly recommended for Chinese, Indians, Malays, Japanese and assorted gweilos, all of whom feature amid the chaos of the Emergency in Malaya/Singapore. What is more, there is a new edition, published by Monsoon Books that contains two, new short forewords; one is by Han’s former ‘liberal’ Special Branch husband; and one is by a well-known Malaysian human rights lawyer. The forewords unlock a few secrets about the writing of and background to the book. The copy I picked up in Singapore has the cover contained in the previous link; the copy available on Amazon has a different cover but an online review indicates it has (at least) the additional foreword by Han Suyin’s second husband. The book is not a bad gift.

Aside from the trip to JB (the treatment of hundreds of thousands of Malaysians who cross the border for work each day is pretty shocking on both sides; waiting time is frequently hours), the week in Singapore gave me a chance to speak with a bunch of policy people and a couple of ministers, and so here are a few thoughts about a place I don’t often talk about:

 

Singapore menu du jour:

1. The Great Unwashed are becoming the Great Ungrateful. In the 2011 election, Harry Lee’s People’s Action Party (PAP) got, by Singapore standards, a kicking, hit by a negative vote swing of almost 7 percentage points which took it down to 60 percent of votes cast. More and more people have had enough of the PAP’s arrogance, its brutal elitism and its lack of the common touch. On top of this there is Singapore’s hideous inequality (Gini of income inequality at a record 0.54), the out-of-control immigration (including horrific numbers of dumb, fat gweilos), and the apparently congenital inability of PAP politicians to think in terms of the population’s interests as a whole. Back in the UK, the PAP makes me think of David Cameron and George Osborne on a really bad day.

2. Never underestimate Harry, or indeed Little Harry. The PAP remains a formidable machine when it comes to co-opting Singapore’s best and brightest. A reasonable example is chipper Minister for Culture, Community and Youth, Lawrence Wong, whom I had the pleasure to chat to. He is a big supporter of new PAP measures to curb real estate speculation and increase welfare transfers to the poor. It is not fundamental change, however it is change at the margin. The PAP’s logo may have been inspired by that of Oswald Mosley’s British Union of Fascists, but the PAP has enjoyed considerably more success and longevity.

Oswald

Oswald

 

 

 

Harry

Harry

 

 

 

 

 

 

 

 

3. So the big PAP trope just now is that the party is becoming much more touchy-feely and getting down with the labouring masses. At a public forum, many-times minister — most recently Foreign Minister — George Yeo, who became the most senior PAP figure since the 1960s to lose his seat in 2011 (‘arrogance’, said one of my taxi drivers), summed up the required shift in elegant philosophical terms. He said that Singapore must move on from ‘utilitarianism’ and seek policies that work for as many people as possible. In other words, the crude majority (assuming there even is one in the next election, in 2015) should no longer ride rough shod over the interests of minority groups, be they the very poor, Malays, whomever. He didn’t use the second philosophical designation, but what he meant is that Singapore needs to shift from utilitarianism to something more Pareto efficient, where policy gains for the majority do not come at the expense of other people.

4. Unfortunately I am a sceptic and I don’t believe the PAP will change its stripes – at least not fast enough to prevent even more trouble at the next election. At the same forum I commended George Yeo for calling for a move to a more mature, thoughtful policy framework. Then I asked him when he thinks Singapore will stop hanging people. (Singapore releases poor and patchy data, but in some years has had the highest per capita state execution rate in the world.) The response was interesting: no more new George/new PAP. He simply said that killing people has a deterrent effect and that most Singaporeans are in favour of it. This is the old PAP we know and love: not letting facts or logic get in the way of what it wants to do. First, there is no statistically robust evidence – and there are many studies – that capital punishment has a deterrent effect, so the claim to the contrary is disingenuous. Second, the logical case against capital punishment doesn’t hinge on the debate about deterrence anyway. Instead — at least for me — the sledgehammer argument against capital punishment is that you cannot guarantee in any legal system not to make mistakes; and when you do make a mistake, you cannot bring wrongly-hanged people back from the dead. I have looked in detail at miscarriage of justice cases in both the UK and the US, each of which has a better, more transparent legal system than Singapore. So when George offered the sop that he is open to looking for better ways to kill people, I wasn’t overly impressed. In reality of course, the PAP is sufficiently embarrassed at some level about its barbarism that the number of killings has fallen sharply as its political support has waned in the 2000s and 2010s; in 2012, the number of convictions subject to mandatory capital punishment was reduced.

Actually Dave, you are still rubbish

October 1, 2014

This feels cruel. But I have read Cameron’s ‘greatest ever’ speech to today’s party conference, and it is not very good.

Here is a late-night attempt to parse it and to translate it into plain English (pace Boris, who I don’t much like either).

 

Cameron puffycameron on housing estatecameron hague osborne

 

 

The full text is here.

1. ‘William Hague…greatest living Yorkshireman.’ Obviously not true. I plump lazily for David Hockney. Does he vote Tory?

2. ‘I am not a complicated man.’ This is the problem, Dave.

3. ‘I believe in some simple things.’ You mean simplistic things. File under ‘Farage’.

4. ‘It’s pretty simple really.’ No it is not. See above.

5. ‘The highest employment rate of any major economy.’ Try: the lowest productivity gains of any major economy.

6. ‘£25 billion is actually just 3% of what government spends each year.’ He is talking about proposed new welfare savings. The truth: yes, but you have already backloaded the cuts you promised in this parliament into the next parliament so you would need cut at least double what you are saying. It is undoable short of civil war.

7. We have a new new policy called ‘Starter Homes’. Dave, you are already providing this subsidy. It is growth by asset inflation. It is not sustainable in the absence of productivity gains. Ask George, at least he took a 101 economics course.

8. Some stuff about ‘My 3 young kids go to prole school, we are all in it together.’ Yes, Dave, but not for long. You will move them out of the National Education System at 13 and do your bit in undermining the Big Society you claim to represent.

9. The £41,900 tax-free plus lower-rate threshold will rise to £50,000. Already dealt with in today’s earlier blog post. As I said in the update it is somewhat devious/sloppy accounting. But the main point is that it is undeliverable in combination with a rise in the tax-free rate to £12,500 and all the other stuff that you and George have promised/are promising. George has already reneged on his deficit cutting plan so many times I cannot count and is now running the original Alastair Darling plan. It begins to seem as if all you care about is power, Dave, not honesty.

10. Ed Balls is… ‘a mistake’. This is in fact true.

11. Tristram Hunt, the shadow education secretary, went to a private school but does not agree with the existence of private schools in an optimal education system. That makes him — here is the key term — a ‘hypocrite’. No it doesn’t, Dave. It makes you either a retard or a liar. At least George has the dignity to send his kids to private school the whole way through and publicly not give a fuck.

12. ‘I’ll tell you who we represent.’ No, I will. The ignorant, the angry, the greedy, and people who are having a nice time and don’t notice the world around them.

13. ‘From the country that unravelled DNA…’ DNA was unravelled in Cambridge, not Oxford, Dave, and nobody here votes Tory.

14. ‘It’s about getting people fit to work.’ Exercise for poor, fat cleaners, Dave. Exercise for poor, fat cleaners.

15. ‘Our crime-busting Home Secretary, Theresa May.’ Imagine any Tory Home Secretary as your next-door neighbour. I fucking dare you.

16. ‘I know you want this sorted out so I will go to Brussels.’ Why not just say it: ‘I can’t speak a foreign language — bit like Farage — and I don’t understand history. Even if I like holidays in Italy, they are still wogs.’

17. ‘Our parliament… the British parliament.’ It was created to curtail the antics of inbreds like you. Best not mentioned.

18. ‘If you want those things, vote for me.’ You are going to lose, Dave. You will then spend the next 10 years wishing you had had bigger balls, and ideally a bigger brain too. George will visit you.

19. ‘Our exports to China are doubling.’ Dave, I am losing the will to live. Look at the baseline.

20. ‘I don’t claim to be a perfect leader.’ Ok, all is forgiven. Emigrate.

 

Amazing that it should be 20 things.

I am going to bed and not reading this through, so apologies for typos.

 

Later:

A pretty funny video of Brave Dave following his speech has been posted to Youtube. Here it is. 1.2 million hits already. It contains profanity.

Brave Dave gets his mojo back

October 1, 2014

Cameron 1014

 

Dave Cameroon just gave his Tory party speech. After his imperial weights moment, he is back on form. Cometh the hour, cometh the Etonian.

* £12,500 zero income tax threshold (up from £10,000 in fiscal year 2014-15).

* £50,000 40% income tax threshold (up from £31,866 plus £10,000 tax-free in fiscal year 2014-15). [See update on this.]

Both ‘in the next parliament’.

Just one problem.

It is totally and utterly unaffordable by any rational analysis of the numbers. If you are vaguely economically literate, work your way through these slides from the Office of Budgetary Responsibility. Note that this was a personal presentation by Chairman Chote, and does not reflect any OBR ‘line’. But the numbers and the trend lines are the hardest ones we have. I guess that Brave Dave hasn’t seen them.

Off the top of my head, Brave Dave’s election-pitch cocktail would require GDP growth over 4%, no increase in the cost of borrowing, and further massive cuts to welfare in order to meet the Fat Controller’s debt load targets.

Now breathe in and savour the moment.

Pure Tory Bullshit.

You have got to love it.

But will you vote for it?

 

CHOTE SLIDES1  (pdf. Should open up)

CHOTE SLIDES2  (powerpoint. Should come to you as a download)

 

Update:

I hadn’t read Cameron’s speech directly, relying on Guardian coverage. After a couple of emails I now realise that part of Cameron’s putative higher rate threshold increase is spin. Unlike HMRC, which states tax bands separately (for good reason because there is no single tax-free band at the bottom, it varies slightly for different groups) Cameron’s promise of a £50,000 threshold for the 40% rate is actually a two-band sandwich — the main tax-free band, plus the up-to-40% band. So it has to be compared with fiscal 2014-15’s £10,000 tax free (the standard exemption) plus the current £31,866 40% threshold.

Still, I am not changing the text above. The cuts are undeliverable without completely fanciful assumptions about growth, interest rates and how much more welfare can be cut without widespread civil unrest. And, yes, that is even if Cameron were to wait until the final year of the next parliament, 2020, to deliver the cuts.

What is truly revolting about the Tories is that you could, just about, begin to get towards reasonable assumptions for these cuts — which millions of people would welcome and benefit from — if you increased the two rates of capital gains tax (currently 18% and 28%), and introduced some level of capital gains tax on sales of first homes. But this government, just like the Blair one, is committed to taxing capital less heavily than work. What kind of message does that send to society?

More:

Well I wrote this on 1 October and on 9 October the FT runs a column saying exactly the same thing, also citing OBR numbers. Here it is, but you will need a sub. Of course, the FT is more polite than me, merely accusing Cameron of ‘arrogance’, ‘deceit’, and ‘cooking the books’.

More on 10 November 2014:

The FT has now run a deeper analysis of the OBR numbers, plus latest Treasury receipts, and concludes that to meet Osborne’s austerity targets welfare cuts will have to be massively increased from 2015. This contrasts with recent comments by Brave Dave Cameron — who is either very stupid or a brazen liar — that the worst of austerity is over. In reality, only half of the cuts promised by Osborne have been made. It is all here in the FT, but you will need a subscription. Cameron and the Fat Controller were also told in July by the International Monetary Fund that the UK has no apparent choice but to raise taxes from 2015. And Cameron and the Fat Controller have more recently been severely criticised by the Institute for Fiscal Studies (FT sub needed) over their constant efforts to diddle the numbers.

South-east England, offshore financial centre

June 9, 2014

I should try to start posting to this blog again. Here is a story about the latest chapter in the re-modelling of south-east England as Singapore. Osborne should get on with those mega-casinos that New Labour promised. Too busy checking his house price and portfolio, no doubt.

sing casino


parliament

english garden party

Britain becomes haven for U.S. companies keen to cut tax bills

LONDON (Reuters) – Nothing about the narrow cream-coloured lobby at 160 Aldersgate Street in the City of London financial district gives a hint of its role at the centre of the offshore oil industry.

That’s because the building is occupied by a law firm. Yet, on paper at least, it is also home to Rowan Companies, one of the largest operators of drilling rigs in the world.

In 2012, Rowan, which has a market value of $4 billion (2.38 billion pounds), shifted its legal and tax base from the United States to Britain. But not much else.

“We changed our corporate structure and we’re legally domiciled in the UK but our headquarters and our management team remain in the U.S.,” Suzanne Spera, Rowan’s Investor Relations Director said in a telephone interview from Houston.

“It has been positive. We take advantage of trying to be competitive with our effective tax rate.”

Indeed, Rowan filings say the shift helped cut the company’s effective tax rate to 3.3 percent in 2013 from 34.6 percent in 2008. Spera said Rowan complies with all UK tax rules.

A government spokeswoman for the Treasury said recent changes to the tax rules were aimed at supporting “genuine business investment”.

“The UK is not a tax haven. In 2015, our main rate of corporation tax will be 20 percent, well above the levels seen in tax havens,” she said in an emailed statement.

In the last year around a dozen major U.S. companies including media group Liberty Global, banana group Chiquita and drug maker Pfizer unveiled plans to shift their tax bases overseas outside the United States.

Historically, when U.S. companies wanted to cut their tax bill they usually reincorporated in Caribbean Islands or Switzerland.

However, following recent legal changes whereby Britain largely stopped seeking to tax corporate profits reported in other countries, including tax havens, companies are increasingly choosing the UK as a corporate base.

President Barack Obama and Congressional Democrats have proposed measures to stem the flow of so-called “inversions”, although Congressional gridlock on tax reform means new barriers to overseas moves are unlikely anytime soon.

There is no official list of companies which have moved their tax base to Britain but government officials, tax advisors and lawyers said at least seven had re-based to London — Aon Plc, CNH Global N.V., Delphi Automotive Plc, Ensco Plc, Liberty Global Plc, Noble Corp. Plc.

Drugs group Pfizer and Omnicom had planned to transfer their tax domicile to Britain, while retaining U.S. headquarters, but the takeover deals which were meant to facilitate this recently failed.

U.S. and UK filings and other company statements from the seven that relocated showed that while redomiciling to London can cut a company’s tax bill, it usually involves relocating just a handful of senior executives — and sometimes not even that many.

“The UK has made a very clear policy decision to engage in tax competition for multinationals. It’s fair to say it’s rivalling Ireland,” said Stephen Shay Professor of Law at Harvard University who has testified to Congressional investigations into corporate tax reform.

“When I go to tax conferences now, I hear people talk about the UK as a tax haven.”

Bernhard Gilbey, tax partner at law firm Squires Sanders said tax competition was common across countries and that companies were within the law and indeed faced competitive pressure to structure themselves in response to such governmental incentives.

The companies said that while tax was a consideration in their moves, commercial reasons such as the desire to be closer to customers was also a factor.

 

PAPER MOVES

British finance minister George Osborne has welcomed the trend of U.S. companies such as insurance group Aon redomiciling to Britain, saying it reflects how the government has made the country a more attractive place to do business.

In November, Ernst & Young, one of a number of tax advisors which advocated the tax changes that made Britain a magnet for U.S. corporations, published a survey saying that 60 multinational companies were eyeing a move to the UK.

EY said this could create over 5,000 jobs and bring in over 1 billion pounds a year in additional corporation tax, the UK’s corporate income tax.

However, a Reuters review of company filings and other statements from the seven companies, news reports and interviews with tax advisors and company executives, suggested corporate moves may not mean so many new jobs.

Ensco and Noble said they had each created around 30 positions between them, including moving their chief executives to London. Aon declined to say how many UK jobs it created, but filings showed its CEO moved to London and that the newly incorporated London-based parent company employed 16 people last year.

None of the most senior officers of Delphi, as listed in its annual report, are based in Britain, the company confirmed. A spokeswoman declined to say if any less senior roles had been shifted to Britain.

A spokesman for CNH, which shifted its tax base to London last year, said the company was currently scouting for a London office where some senior managers would be based. He declined to say how many or which roles would be based there.

Liberty declined to say if it created new jobs in Britain connected with its re-incorporation. Filings at the UK companies register say CEO Michael Fries resides in the United States while media reports cited the company as saying Liberty’s takeover of Virgin Media, which was cited as part of the reason for re-basing to Britain, would lead to 600 job cuts.

All the companies said they continued to employ large numbers of staff at and invest in long-established operating subsidiaries in Britain. They declined to identify any new investments tied to their corporate relocation.

Lawyers said the small number of new jobs reflected how Britain would give companies the benefits of its tax regime in return for a less substantial investment than was required by some other countries — including countries previously accused by U.S. and European lawmakers of facilitating tax avoidance.

“In terms of governance and presence, it requires actual substance if you want to set up in the Netherlands, whereas you can achieve a UK residence just by having board meetings in the UK,” said Isaac Zailer, global head of tax at law firm Herbert Smith.

The seven companies Reuters examined had a combined 73 directors. Only 14 percent reside in Britain, up from 4 percent before the companies moved, company filings, records at the UK companies register and other company statements show.

For the six previously U.S.-incorporated companies which shifted to Britain, 80 percent of directors continued to reside in the United States after the move.

 

NO TAX WINDFALL

Accounts for the companies also show little benefit to the UK exchequer from the corporate relocations.

Aon and Liberty Global – the only two companies which published figures for group UK tax payments – reported UK corporation tax credits for 2013.

Ensco had a UK tax charge of $200,000 last year. That included tax on profits from its UK operating subsidiaries which have revenues of around $300 million a year.

Delphi Automotive’s most senior UK corporate entity is a partnership, which does not have to pay tax. The company declined to say if other British units paid any corporation tax but said in its annual report that it had UK tax assets which could be used to offset future taxable profits.

CNH does not publish UK tax payments. Its main UK operating unit reported a tax credit in 2012, the last period for which accounts were available.

Rowan and Noble declined to say if they paid any UK tax in relation to their UK head office activities. Rowan, Ensco and Noble’s North Sea rig leasing businesses have combined revenues of $1 billion a year but have paid almost no tax over the past 20 years, a separate Reuters investigation showed last month.

What attracts companies like Rowan to Britain is not a headline tax rate that is half the U.S. level but the way the UK has effectively stopped taxing profits reported by UK companies’ overseas subsidiaries.

The government introduced the measures in the 2012 budget to “better reflect the way that businesses operate in a global economy” and encourage investment in Britain.

This means companies can shift profits out of the countries where their employees and customers are based, into tax havens, and then bring the money back to Britain and pay it out to shareholders without paying any tax – something that would not be possible under U.S. or German tax law.

“For offshore profits, the UK can literally be a nil tax jurisdiction, which obviously compares very well with traditional tax havens,” Kevin Phillips, International Tax Partner, Baker Tilly said.

The UK is also unusual in not charging withholding tax on dividend payments and, for now at least, offers an air of respectability.

“Over the last couple of years, companies that have used jurisdictions like Ireland, the Netherlands or Luxemburg have found themselves at the wrong end of some poor publicity for their attitude to tax,” said Gilbey.

“It looks less likely that that would be the case if they put themselves in the UK because we’re not generally considered a tax haven.”

 

Infrastructure to-do list No.1

April 25, 2013

The UK has, for now, avoided a third recession. According to data released today, the economy grew 0.3% in Q1. However, as the Labour Party was quick to point out, cumulative growth since George Osborne’s epochal 2010 Spending Review has been 1.1%, when he promised it would amount to 6% over the period. And the construction sector shrank 2.5% in Q1, offset only by strong growth in services (related, one wonders, to booming stock markets and The City?). In reality, the British economy remains weak.

When aggregate demand in an economy falls because private sector investment has collapsed, government is the only spender that can step in to make up the difference until confidence returns.

When governments decide whether to spend money in these circumstances, the critical issue is whether they can find capital expenditures which will contribute to long-run productivity gains. In other words, can you spend to create demand today by buying something that will have ongoing value in the future. The most obvious target investments are in infrastructure, because construction creates lots of jobs and has big economic ‘multipliers’ by creating demand for all sorts of goods and service inputs into construction.

So let’s start making a list.

On Monday I have to go from Cambridge, the fastest-growing urban centre in the UK, to Warwick University, near Coventry, to give a talk. The distance is just 80 miles. But if I go by train, I have to go via London and it will take over 2.5 hours to get to Coventry, and nearly 3 hours to get back.

Write that down on a piece of paper, George.

 

Martin Wolf can make us feel dumb, but George Osborne makes us all feel clever…

February 27, 2013

Martin Wolf has a nice review of policies of economic austerity employed in different states since the start of the global financial crisis. (You will need an FT sub.) Although he doesn’t articulate it as strongly as I would like, his basic point is simple: the crisis is not a macro-economic problem soluble by austerity. It is a micro-economic problem, or rather two different micro-economic problems.

The first problem, in the ‘Anglo-Saxon’ countries, is the need to re-regulate finance in order to stop bankers taking unreasonable risks with other people’s money. This is sort of being dealt with (including in the UK by the Vickers Commission on which Wolf sat), albeit for me in a somewhat ham-fisted, messy way that will eventually bring us more problems.

The second micro-economic problem is that a bunch of states that developed fast after the Second World War by means of close government control in order to foster industrialisation (Japan, Italy, France are the main ones) need micro-economic deregulation, especially of their labour markets and government and legal institutions, in order to return to growth and pay off the large debts they built up while becoming rich countries.

So the crisis (or two distinct crises), as Wolf writes today, has very little to do with macro-economics and is, in general, made worse by austerity. If it has taken you a while to wake up to this, however, do not fear. For in Britain we have the person who will perhaps be the last in the entire world to understand what is going on around him: George Osborne.

George Osborne fixes cufflink

I haven’t written anything about George since the UK’s loss of its AAA credit rating, because there is nothing to add. Here is what I said about George in January 2011. And here is an update from November 2011. What happened since? Looks to me like four out of the past five quarters showed negative growth. The graph below is from the Office of National Statistics…

UK Quarterly GDP to Q4 2012 inc

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten days later:

Martin Wolf follows up with another attack on Osborne’s policy (FT sub needed), which Brave Dave has come out to endorse without reservation. Meanwhile, latest data suggest the chances of a triple dip recession are now as high as 50:50. All I would add to what Wolf says is that the contrast with the early 80s recession turns on the fact there are no major structural adjustments to the labour market that can be made in this crisis to get the economy moving. Unlike in the early 80s, Britain already has a very flexible labour market. This is why (as in the United States and unlike in continental Europe) unemployment has been lower than the scale of economic contraction would suggest. But it also means that monetary policy alone cannot solve the problem and actually discourages many people from undertaking the deleveraging their finances require. Back in 2010 I thought Osborne would realise this within a couple of years and listen to Vince Cable. Ho, ho, ho…

 

What I meant was more tank engines

November 29, 2011

As I stop for a tuna sandwich, the Fat Controller has left the Treasury and is heading for parliament. Here is what I predicted in January. Let’s see how Osborne’s admissions today measure up.

Next day:

1. Osborne changed his growth forecast for 2012 from 2.5% to 0.8%, so at this point he was out at the start of the year by a fact of just over three.

2. There will be a few more tank engines, but any real impact from the Fat Controller’s plan depends on the private sector coming in to leverage about £5 billion of public money. HM Treasury explication of its ‘clear’ infrastructure plan is here.

3. It is very small beer from Osborne, less than I expected. Outlook has to be that growth will fall even further than he now says and there will be some additional capex stimulus in the first half of 2012. He is going to follow the curve rather than influencing it throughout this crisis.

4. Politically the FC is taking the low road of a blame game. It’s all the fault of the Eurozone and the previous long-lived Labour government. There is a sufficient kernel of truth in this to deflect attention from the fact that Osborne himself has no new ideas about anything.

Obama versus Osborne

January 27, 2011

If you would like a bit more compare and contrast (in the wake of Perugia versus Bristol, try Barack Obama and George Osborne in the sphere of economics. The former just gave a State of the Union speech (video or text in which he made a forthright case for America to expand fiscal expenditure in order to invest in infrastructure, in new commercial technology and in education. He grounded the case in the context of a rising geopolitical challenge from China (following the recent visit of Thunderbirds cameo Hu Jintao) and a US unemployment rate of 10 percent. He indicated the requisite funds ought to come from (in relative international terms) a less absurd fiscal subsidy for US oil companies and reduced tax breaks for the distinctly rich (following 40 years of decisions in their favour). Perhaps most important, he said all of this in the country which already has the world’s most competitive large industrial companies.

Over to Blighty. George Osborne, our to-the-manor-born Chancellor of the Exchequer, this week greeted the news that the British economy shrank in the fourth quarter with a promise not to entertain any expansion of investment. Instead, George’s plan for economic rejuvenation and job creation is to suck a boiled sweet and see what happens. Britain has fearfully few world-beating corporations outside of finance and legal and accountancy services (which largely serve the finance sector), but George can’t see a case for investment to nurture more of them. New world-beating corporations will arise from the vapours, according to the 101 neoclassical economics that George was spoon-fed at school and university. He says the Q4 shrinking economy was the result of bad weather, and one assumes he thinks the unemployment rate is the result of indolence and immobility among the lower classes.

Still, methinks it won’t much matter that George understands little about the world. The British government does need to cut recurrent expenditure after the excesses of Blair’s champagne socialism. Meanwhile, my bet is that George’s failure to make strategic investments in infrastructure and technology will be remedied later this year when Britain follows in Obama’s wake and increases capital spending. Where America leads, we follow. When was the last time that Britain influenced US policy? Keynes?

Worth reading: Robert Reich makes some good points about the pieces of the puzzle that Obama did not address in his SOTU speech in the FT (subscription likely needed):  Reich, who was part of a government that as I remember did sfa, is a little too harsh: Obama did touch (lightly) on the income distribution question.

After writing this, I see that in the FT Martin Wolf seems to have reached the same conclusions about George.


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