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Sunday Post: A hung parliament will only worsen the economic crisis

2 May 2010

Written by Dr Madsen Pirie

Some people hope that no party will have an overall majority after Thursday's General Election. Those who want to change our voting system think that a 'hung' parliament will make it more likely to happen. Some commentators think that a hung parliament will be more interesting because it will be less predictable, and they look forward to the excitement that uncertainty will bring.

More widespread is a general feeling that the existing parties have not handled things very well, and maybe they should work together instead of attacking each other all the time.

The expenses scandal has tainted all parties, and left the country with less respect for Members of Parliament than anyone can remember.

Some people are tempted by the idea of a coalition government simply because it would mean things being done differently, making an abrupt change from the existing practices that have been so discredited.

A hung parliament is a distinct possibility. The televised debates have given us a three-way race for the first time in decades, and no-one knows how it might turn out. If either the Conservatives of Labour won most seats, but not enough for a majority, they would need support from outside to form a government.

Great Depression

The thought causes fear and uncertainty among those who look at Britain's economic prospects. They see the county facing its most serious economic crisis since the Great Depression of the 1930s, and shudder at the thought that we might have only a weak and indecisive government at the helm, trying to steer us through the storms.

The figures are certainly mind-bogglingly large. The yearly deficit, estimated this year at £170bn is merely the amount our indebtedness will increase.

That debt is officially put at £850bn, but everyone knows that this is a gross under-estimate that excludes those huge public sector pension liabilities, public commitments to bodies such as Network Rail, the private-public partnership commitments, and anything else that can be conveniently left off the books. The real figure is well over £1,000bn.

Economic analysts know that only tough decisive action can save us from following Greece down the plug-hole that country's economy is rapidly approaching.

But how, they ask, can you get tough, decisive action from a weak government patched together from parties who disagree about fundamentals? Precisely. You can't.

Imagine a new government laying out a programme to cut spending, only to find its coalition partner insisting that the real priority is changing the voting system to guarantee it more seats in future parliaments.

Imagine one party trying to get the economy moving with tax cuts calculated to get businesses investing, only to have one of its partners demanding tax increases to punish bankers and have business paying what they call "a fairer share" of the total.

These are real differences that would emerge in a hung parliament.

The Liberal-Democrats call for capital gains tax to be increased from 18 percent to 50 percent, to bring it into line with top rate income tax, whereas the Conservatives want to encourage more start-up businesses to be attracted by low tax rates on capital gains.

The Conservatives similarly want to cut back the National Insurance increases that are in the pipeline, but the other parties want that money to form part of government spending instead.

In a hung parliament, it would be difficult to get budget agreement between Conservatives backing cost-effective energy from new generation nuclear plants, and green-tinged parties committed to much more expensive generation from wind power, bio-fuels, and costly exotic alternatives.

Conservatives want to restore the tax dividend credit on pensions, whose abolition did so much to wreck the industry, whereas Liberal-Democrats want to end higher rate tax relief on pension contributions.

How could a budget ever be agreed between such opposing views?

These are not minor differences of detail; they are fundamental disagreements about how to seek economic recovery.

The businessmen and economists who sign letters to newspapers show how deep those disagreements go.

The analysts who fear a hung parliament know the importance of having a coherent programme to tackle the crisis Britain faces, and they also know that if there is no majority, the programme will be decided by horse-trading between parties, and end up as a patchwork quilt of proposals sewn together.

In place of a carefully thought-out and planned approach, we could end up with the bits and pieces of each partner's programme, none of which make sense unless they form part of an overall strategy.

Deeply in Debt

Two things are clear — Britain has been spending too much and is too deeply in debt.

It has to do what any business must do when it faces that situation. It is what any sensible household does. It cuts spending, starting with the wastage and the luxuries. It tightens its belt and starts to live within its means. It looks for ways to boost its income even as it cuts its expenditure. It is no different for a country, just on a bigger scale.

Britain has to cut the cost of government. Some of this will involve cutting out obvious fripperies, but some of it will be painful and will need resolve. That is where firm government comes in.

Britain also has to boost growth. That means clearing the space for businesses to invest and expand, and paying more attention to immediate opportunities for business than to long-term redistribution.

We have to create the wealth first, then worry about how to spend it fairly. This also calls for a government strong enough to resist the clamour of interest groups, all fighting for more spending in their corner, and none looking at the big picture of the national interest.

Hung parliaments do not produce decisive governments. They produce half-hearted deals and compromises that fall short.

Britain's problems are as big as any ever faced by this nation in peacetime. If ever we needed clear government with vision and purpose, it is now.

Let us hope that at the finish line, Thursday will give us that, instead of the muddle, drift and uncertainty of a hung parliament.


Daily Mail: We're working three more days for the taxman: It takes 149 days of earning in a year before our income is our own

1 May 2010

Britons will have to work three days longer this year before they start earning money for themselves rather than the government.

Tax Freedom Day will fall on May 30 - 149 days into 2010 - according to the free-market think tank the Adam Smith Institute.

It said the three-day increase on 2009 was largely because of the rise in VAT from 15 per cent back up to 17.5 per cent at the beginning of the year.

If the budget deficit was all funded from tax - rather than with the help of loans --then Tax Freedom Day would shift back to July 8, pointing to Britain's worst fiscal position since 1976.

Tom Clougherty, executive director of the institute, said: 'Our Government relies so much on debt to fund spending that our traditional Tax Freedom Day measure makes them look more virtuous than they actually are.'

Of the 149 days, 41 is taken up by income tax, followed by National Insurance at 27 days.

It takes a further 21 days to cover all of the VAT the average Briton will pay this year, while the various different excise duties account for 13 days.

Council tax costs the equivalent of seven days' pay, with stamp duty accounting for three days' worth, and a further 18 days to cover a range of miscellaneous taxes.

Published in the Daily Mail here.


Sunday Telegraph: Annual earnings for first five months go in tax

1 May 2010

Written by Myra Butterworth

Every penny earned by Britons during the first five months of this year will be used to pay their taxes, according to a leading think-tank.

Tax Freedom Day is the day when Britons begin working for themselves rather than the taxman and it is on May 30 this year compared to three days earlier on May 27 last year, figures compiled by the Adam Smith Institute suggested.

The institute said the date could have been weeks later on July 8 had the Government used tax receipts to pay for its spending rather than loans.

It said the gap between the tax receipts and the Government spending is the widest since 1976 when Britain had to be bailed out by the IMF and it suggested workers face “savage” tax rises unless public spending is urgently brought under control by the next government.

Tom Clougherty, executive director of the Adam Smith Institute, said: “Since all budget deficits eventually have to be financed, borrowing should be viewed as deferred taxation.

“Our government relies so much on debt to fund their spending, that our traditional Tax Freedom Day measure makes them look more virtuous than they actually are. In reality, all they are doing is piling up obligations on future taxpayers.”

The biggest part of Britain’s tax burden is income tax, which people will have to work 41 days to pay in 2010. They will work another 27 days to pay National Insurance Contributions, and 21 days to pay VAT.

Various excise duties account for 13 days, corporation tax for 12, and council tax and business rates for another seven days each.

Britons will work for three days to pay stamp duties, and 18 more days to pay a range of miscellaneous taxes. This includes inheritance tax, which takes 15 hours to pay.

Tax Freedom Day is later than last year primarily due to the rise in VAT which came into force on January 1, according to the institute.

Published in the Telegraph here.


FT: Deficit axe poised over welfare state

28 April 2010

Written by Nicholas Timmins

“Two parliaments of pain” is the phrase used by the independent Institute for Fiscal Studies to describe what is in store for Britain in the years ahead.

With the next government, of whichever stripe, needing to cut nearly £37bn a year from public expenditure by 2014 just to halve the deficit, can the welfare state survive?

“Not as we know it,” says Eamonn Butler, director of the rightwing think-tank, the Adam Smith Institute. In the 1980s at the height of Thatcherism, it promoted – with limited success – vouchers for health and education, drastic cuts to child benefit and big reductions in state pension spending, along with tax breaks to help people provide privately services that are currently publicly funded, from health to unemployment insurance.

Andew Haldenby, director of Reform, another right-of-centre think-tank, agrees the fiscal deficit will force a reappraisal of the relationship between citizen and state. “The idea that the state can do everything, or even as much as it is doing, is just not tenable,” he says.

Yet, far from using the election campaign as a forum in which to debate the hard choices ahead, politicians’ chosen battleground is the degree to which they will preserve the current entitlements – free bus passes, winter fuel payments, free TV licences and child benefit in the case of the Conservatives, in addition to the health and overseas aid spending that all parties say will be protected.

With the exception of Reform, which has outlined big cuts to middle-class welfare, the think-tanks have been almost equally silent.

Mr Butler notes: “No politician wants to talk about these things before an election. Whoever wins, however, will have to tell us about them afterwards”.

The political promises of protection are greeted with scepticism by many closest to policy and politics. Gail Adams, head of nursing at the biggest health service union, Unison, says: “We know that, despite assurances from all sides of the political divide, the NHS cannot escape from funding cuts in the very near future.”

So, aside from a future in which public services inexorably worsen year after year, what could happen?

Ruth Lister, professor of social policy at Loughborough University and a member of the government’s National Equality Panel, says key pillars of the welfare state could crumble. Child benefit could be removed from the better off. All benefits could be subject to a far greater degree of means testing so as to concentrate help on the poor. Education vouchers could provide a basic schooling that parents could top up if they had the means. New charges could be introduced for NHS services, or its spending could be frozen.

“But that would produce a radically different society,” she says. “It would be one with much higher levels of inequality and much less of the equality of opportunity that all parties say they support. In health and education it would produce a second-class service for the less well off . . . And it would risk creating a downward spiral in which the middle classes don’t get much out of the welfare state and so become ever more resentful about having to pay in.”

Back in the 1970s and 1980s, when the fiscal arithmetic was bad, though not as dire as it is now, and when the welfare state was under ideological as well as fiscal attack, “it did survive”, she says. “Somewhat ragged, but it did survive.”

Some believe the problem is overstated. Julian Le Grand, professor of social policy at the London School of Economics, says: “I am not convinced about the need for massive spending cuts. As soon as economic growth resumes, a lot of the red ink will disappear. I suspect both the political and the economic reality is that after the election, somehow the really big cuts won’t happen.”

Mr Butler sees this as “Micawberish – just hoping that something will turn up”. But focus group research undertaken for the 2020 Public Services Trust shows the public are deeply unwilling to contemplate big changes to the boundaries of the welfare state.

Even Mr Haldenby acknowledges the next parliament is unlikely to dismantle great swathes of the welfare state given the political pledges currently being made. But pressures, including that of an ageing population and the need to eventually eliminate the deficit, mean this state of affairs cannot last, he says.

Published in the FT here.


Daily Mail: Tories have exposed the scale of Government waste - now they must tackle it

28 April 2010

Written by Harry Phibbs

The Adam Smith Institute dubbed May 14 ‘Tax Freedom Day’ - but if taxes were put up to pay for the Government borrowing then we would all have to keep working until June 25 - the Cost of Government Day. It is a formula for paralysis.

Published in The Daily Mail here.


The Spectator: The British constitution is in dire need of reform

27 April 2010

Written by Dr Eamonn Butler

The UK Conservative leader David Cameron says that any Prime Minister not 'directly elected' by the public should be forced to hold a general election within six months. He has in mind his Labour opponent Gordon Brown, who in June 2007 was catapulted into the position by a secret ballot in his own party, rather than by an open election of the people. And if, after the forthcoming general election on May 6, Labour chose to ditch Brown and catapult that gap-year kid...ah, yes, David Miliband...into the top job in order to stitch up a coalition deal with Nick Clegg's Liberal Democrats, well, Cameron would give him only six months to get a public mandate too.

On the surface, this looks like a good idea. Gordon Brown is Prime Minister only because the Labour Party's constitution makes it almost impossible to unseat a leader who doesn't want to go, and since Brown was the real éminance grise behind Blair, no ministerial colleagues wanted to cross him. Those chauffer-driven limos exert a powerful discipline on ministers and would-be ministers.

Look deeper, though, and Cameron's remark reveals how unfit for purpose our constitution has become. Whom Brits elect at a general election is their local MP, not a Prime Minister. The Prime Minister is simply the leader who can then command a majority in the House of Commons. It may not even be the leader of the largest party: if there were a hung parliament, it might be whoever who can mollify different factions and stitch together a workable agreement between them.

But, as with the debates, Britain's political system has now become presidential. Millions of people honestly report that they will be voting for David Cameron, or Nick Clegg, or Gordon Brown – even though only the electors in their own particular constituencies will actually get the chance. The rest of us vote for them by proxy, by choosing one of their party colleagues as our MP. None of our Prime Ministers is 'elected' by the general public.

In the US, the public explicitly choose a President – along with Representatives and Senators. Sure, after deaths and resignations, a Vice President can step into the office, but at least the public knows who to expect. When a UK party leader resigns (or indeed dies), consulting the public is the last thing on the deal-makers' minds. The UK has become a Presidential system with a Parliamentary constitution, and it doesn't work. There is simply nothing to restrain those who take office in Downing Street – who have powers pretty much as wide as George III had.

Making a step-into-the-dead-person's-shoes Prime Minister face an election after six months does not solve the problem. The problem is that if we are to have a presidential system, with all the TV debates and all the power concentrated in Downing Street, we need a constitution designed to elect – and, much more important, to restrain – that president. What we don't want is what we have now – a stream of elected dictators who the vast majority of us don't even get to elect.

Published in the Spectator here.


CNBC: UK Economic Recovery Slows

23 April 2010

Published pn CNBC here.


The Indpendent: Mischief-makers, misfits and mums: the bloggers who'll keep us plugged in

6 April 2010

Written by Michael Bywater

It is oddly comforting, as we approach the most dismal general election in living memory (with a Government that has presided over war, sleaze and economic collapse facing an opposition which has presided over the Bullingdon Club) to know that anybody with an internet connection can read Not Proud of Britain or Slugger O'Toole, Man In A Shed or Never Trust A Hippy, as well as drop in on more established mainstream commentators such as the BBC's political editor Nick Robinson or the Adam Smith Institute.

Published in The Independent here.


Daily Mail: 50p rate is least of our worries for year ahead

5 April 2010

Written by Lucy Farndon

When the Adam Smith Institute did its calculations for 2009 it concluded that Tax Freedom Day didn't arrive until June 25 if the deficit was factored in - the worst burden since 1984.

Published in The Daily Mail here.



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