Voters in favour of spending cuts


A Sunday Times/YouGov poll (always one of the most accurate) has found that voters are hugely in favour of spending cuts rather than tax rises to close the growing gap between what the Treasury spends and what it receives in revenue. Sixty percent of people want the government to cut spending, taxes, and borrowing. Just 21% would like to see taxes rising to cover the borrowing gap.

One of them, of course is Derek Simpson, head of the Unite trade union. In an interview with the Daily Mirror he opined, in fine Old Labour style:

If you want to go down the New Labour route it is suicide.... New Labour is dead. It's like the parrot in Monty Python. Anybody who is going to take over and lead us down that path is taking us to certain defeat. But if you could convince me there is somebody who could take over and go down the Old Labour route without hesitation I'd share the view that if Gordon [Brown] is not prepared to do it he should stand aside and let that person do it.

I'd love to be a fly on the wall on Tuesday, when the Prime Minister makes a speech to the TUC Conference in Brighton, saying that there must be 'tough choices' (ie cuts) in public spending. But I think it is Gordon who is more likely to get swatted.

Getting out of this mess


Both Ambrose and Burning Our Money have bad news for us: it isn't going to be easy to get out from underneath this debt burden. Thus endeth the period of spending like drunken sailors perhaps and here's to the new world where our taxes are subject to the purser's ever rising demands. Either one of those two, or we try to inflate the debt away and hope no one notices (for if they do we can't).

Not exactly the most appealing set of alternatives that anyone's ever been faced with. So are those the only three available? Well, actually, there's a fourth, the one that no one is talking about yet. That's to grow our way out of this mess: if we can grow the size of the economy then clearly the debt to GDP ratio becomes lower.

So what do we know about how to make an economy grow faster? No, not the Keynesian idea of simply throwing money at it, something much more sensible: it's time for the revival of the supply side approach. This isn't, as some caricatures would have it, just a matter of lowering marginal tax rates. It's all about the reform of the supply side of the economy. Our problem today isn't that too much of industry is owned and run (badly) by the State: it's that all industry, all productive activity is groaning under the weight of regulations imposed by that State. Strip some or all (according to ambition) of those away and we'll increase the growth rate.

Just as an example, the EU Commissioner responsible has told us that EU regulations cost business around €600 billion a year. The UK is around and about 10% of the EU economy (assuming £ to € parity, just for ease) so our share of that is some £60 billion, or again roughly, about 5% of our entire economy. Rip that burden away, take off the further nonsenses that we impose ourselves (11 million people are going to have to be checked so that they can take the neighbour's kids to footy practice? Seriously?) and we could pull at least 10% out of the unproductive cost base of our society and use the time, effort and resources to do something productive. And from that added value (which is, by definition, the same as a rise in GDP) we'll have a huge great chunk of tax money with which to pay off debt: without having to raise tax rates or slash those few valuable services that government does in fact offer us.

As an individual when you're up to your eyeballs in debt you can at least try to earn more money to pay it off. As an economy we can do the same and the best way to do that is to get the pencil pushers and the jobsworth's out of our way as we do so. Time to carry on with Maggie's Revolution: we need to burn more of those regulations.

Measuring poverty


Financial secretary to the Treasury, Stephen Timms, has said that both parents should work in order to lift children out of poverty.

This is in reaction to Lesley Ward, president of the Association of Teachers and Lecturers (ATL), stating that many children face levels of deprivation, which "mirror the times of Dickens". Of course, Mrs Ward’s analogy is  entirely incorrect as far as the way most people understand poverty. In fact, in the details of what she says it is clear that she in not concerned about income at all but manners and lifestyle.

As has been pointed out on this blog and elsewhere, the government has it wrong defining child poverty as children living in families earning less than 60% of the median income. They are not measuring poverty but equality, patently not the same things. Also, any fall or rise in the median income will of course influence the measurement of poverty, despite no change in the actual conditions of the poor.

Mr Timms argues his case based on the fact that children are less likely to be in a family earning less than 60% of the median wage if both parents are working. But this tells us precisely nothing about the lives of children in these households. After all, both parents working is not going to solve Mrs Ward’s claims that many children attend schools without being toilet-trained, unable to dress themselves or use a knife and fork. It could in fact make things worse.

It is hard to measure poverty and any system is open to complexities and irregularities. Yet if poverty is to be measured, the principal test of its usefulness should be that it captures poverty as an absolute condition, not as a relative one. A good place to start would be to look at the work of the philanthropist Charles Boothe, the founding father of measuring poverty. Although clearly not the last word on the issue, the maps he produced in the late 19th century were – though far from politically correct – a clear snapshot on the areas and nature of poverty at this time. Something that the current way of measuring poverty fails to do.

The council housing debate


Wednesday saw both a government promise to build 2,000 new council houses across England, and a critical report from the Audit Commission explaining that there has been too much focus on building council houses, at the cost of maintaining the existing stock.

The response from the main parties has been one of predictable point-scoring, with the Government declaring that they, “reject any claims that there is too much emphasis on new house building," while the Conservatives were sure that, “there is a powerful case for renovating rather than demolishing rundown housing stock," and the Lib Dems complained that Labour was, “denying councils the money they desperately need to improve local housing."

Bickering over how best to provide housing, no-one pointed out the obvious: that no government, however well-intentioned, well-managed and well-resourced, can possibly hope to run something so complicated as the provision of housing for two million people. The political parties don’t send out press releases telling us how they think it’s best to provide bananas, or cars, or holidays, so why do they think they know what to do with houses?

The moment that government realises the arrogance and the folly of Soviet-style central administration of low-cost housing, is the moment the lives of those stuck in council houses will start to improve. Council houses should be sold off and the government should build no more.

So what instead? In the long-term, we should abandon the failed welfare, education and economic policies that generate state dependency, but in the short-term we should look to the system of housing allowances which give the consumer the choice of where they want to live, and leave provision to the market.

The ISA: These children aren't yours


The greatest abuser of children is the left. They use them to push through any legislation that grants them more power and intrude more into our lives. From climate change, to healthcare, to (the obvious) education, all of our actions should be undertaken thinking of the next generation and protecting them from harm. When all else fails, the way to drive policy through is to fall back and drag the children into the argument. How does this government create a database that will ecentually cover the whole population: by proclaiming that children would come to harm without it.

Their latest ploy is to ensure that parents that come into any type of contact with children (paid or voluntary, public or privately) have to be vetted by the Independent Safeguarding Authority*. Be it taking your neighbours child to school with your own children, assisting reading in classes or even serving food to them in a canteen, all would mean you are in need of being vetted. The children are not ours anymore. The left have made them wards of state and finally politicized them by attempting to ensure that no harm is done to them. Soon all adults will be vetted before they can have children, currently only those who wish to adopt or undertake IVF, via the NHS, are checked.

Our natural interactions as independent adults/parents have been made irrelevant. The grand firewall that now stands in the way of normalised conversation is the left's third way. We will now only interact with the government, they will be the one to pass our messages along to others about what we can and can't do. And the message the government passes on will be one that is suffused with political correctness and directives on how to live according to what they hold dear. The destruction of society is complete: it has been nationalized.

*ISA a soft reassuring name that hides the government's true involvement in trawling for all our data. (Although the url is a give away.)

The 'Phoenix Four'


A government-commissioned report just released shows how five senior executives earned almost £42m in pay and pensions from carmaker MG Rover before its eventual collapse in 2005. The 'Phoenix Four' of John Towers, Nick Stephenson, Peter Beale and John Edwards bought the company from BMW for £10 in 2000.

MG Rover, originally part of the Leyland ran into trouble in the 1970s, and survived only on cash injections from the government. British Aerospace, a privatized planemaker, took it over but sold the ailing business on to BMW in 1994. Five years later, BMW realised it had bought a pup – losing £600m in a single year – and pulled the plug. There was much pressure on the government to bail it out and 'protect British jobs', but no deal. So the four managers stumped up £10, saying they could turn it around.

They did indeed cut its losses, but the company still collapsed, in April 2005. The withdrawal of a £100m bridging loan promised by Tony Blair's government did not exactly help. Meanwhile, the Four had paid themselves £9m each, and another £5.7m went to the Chief Executive, Kevin Howe. There were accusations that the executives asset-stripped the company to line their own pockets, rather than investing in it to save all those British jobs – 6,300 of them, plus many more in firms making components and supplying services to MG Rover.

While the executive team might have acted over-optimistically and even immorally, their actions (as owners of the company) don't exactly seem illegal. But the government has used all its power and spin, and taxpayers' money, to conceal its own shabby role in the whole affair and pass all the blame on to the executives. A lot of public money had gone into MG Rover, and governments were to say the least a bit careless in what then happened to the company – putting the fear of job-cut headlines ahead of its long-term soundness. MG Rover went bad just before the 2005 General Election, after all, which is why ministers went so headless-chicken about saving it. When it failed, they commissioned an investigation by accountants and lawyers which conveniently kicked the whole issue into the long grass, and avoid Freedom of Information requests, until well after the election. And how. Four years later, £16.3m of taxpayers' cash, and an 850-page report that naturally says nice things about the government that commissioned it. But then, do you think they would have published it, if it had criticised them?

The big picture


This week the FTSE 100 index of London's blue-chip share prices soared through the 5,000 barrier. I don't know what these people in the City are on, but I'd like some. Perhaps they're all cheered by the 'Recession Over!' headlines in the newspapers, since the latest economic figures suggest a very slight positive growth after over a year of severe falls. And of course, companies are reporting better figures these days.

There are two sorts of market analysts, those who look at the big picture, and those who look at companies themselves. The latter tend to be more optimistic, more gung-ho for the companies they track. That's natural. But company figures only look better today because their reports over the last year have been disastrous. Their descent may be slowing, but they're still in much worse shape than they were. It looks OK because they've already fired everyone so don't have big wage bills to pay. They still have customers because they're running down their stockpiles of unsold stuff. But you can't operate like that for ever.

Nor is the big picture rosy. I don't trust growth figures, which comapre two sets of already-unreliable aggregates. Sure, £175bn of new 'quantitative easing' cash has got to do something to boost things. But it may be a doubly false boost. First, it's fine to print money if the problem is a shortage of it. But stubbornly high inflation figures suggest that there's still plenty still out there, helping to bid up prices. Second, what the Bank of England is doing is simply buy up government debt in exchange for this new cash. But that makes the government look like a much better risk than it really is. Sooner or later, the Bank will have to rein in again. And then the true shakiness of the government's finances will be obvious. Which ain't gonna help the stockmarket at all.

No longer us versus them


The government’s response to the financial crisis has been a shambles. It has coddled “British" firms (such as Indian-owned Jaguar) with tax-payers’ money and restricted foreign lending of some of Britain’s biggest banks (whose UK clients work around the world). It trumpeted the G20 meeting in London, where leaders committed themselves not to indulge in protectionism, and have gone away and broken this promise, most notably through government-driven Buy Local “stimulus" packages triggered by Barack Obama’s “Buy American."

These moves illustrate how trade policy is so out of touch with the reality of 21st Century commerce.

A generation ago, the factory floor was bound by four walls and usually by national borders too. Today, a product might be designed by a team in Bristol and Bangalore, have raw materials from South Africa, Peru and Thailand, and then be assembled in Slovakia or Taiwan, from where it will then be shipped around the world. This has been made possible by dramatic reductions in trade and investment barriers, and revolutionary changes in communications and transport, which have unleashed a truly global division of labour, specialisation and exchange that would have astounded the great Adam Smith – and certainly reaffirms his insights.

Trade can no longer be characterised as a competition between national producers – or “Us" versus “Them". Instead, it is now a competition between collaborations of some of “our" producers and some of “theirs" – to our mutual benefit.

Take the iPod. It begins life in Apple’s design lab in California. Components from Singapore, Taiwan, Korea, and Japan are then assembled in China, before the finished product is shipped around the world. The biggest winner from each iPod sold is Apple because they add the most value through design and marketing. The Chinese, who manufacture almost everything, actually add the least value.

This new commercial reality demands policies that welcome imports and foreign investment and that minimise regulations or administrative obstacles – all based on misconceptions about some vague or ill-defined “national interest."

The only stimulus package that will work is removing trade barriers.

Alec van Gelder is Network Director at International Policy Network. To read IPN's latest report by Dan Ikenson, No Longer Us versus Them, click here.