Tough On Big Ticket Items. Not.

Since Mad King Gordo reeled off his latest shopping list of new public spending commitments, we've been treated to a succession of Labour politicos thrashing around trying to explain how it will all be paid for.

The much-hyped Millipede (Ed) was particularly ludicrous on Newsnight, coming across as an earnest 16 year old Young Socialist who doesn't have the faintest idea how the real world works. Most ludicrously of all, he's the one in charge of Labour's election manifesto.

All we've been given is the tedious mantra that Labour will not shy away from "tough decisions".

But what decisions?

The only specific we got yesterday was that ID cards will not be compulsory. But we already knew that, and anyway it will save virtually nothing (we estimated £55m in 2010-11 - see this blog).

Tinkering around with ID cards and the like simply won't do it. If you're going to make real tough decisions, they have to involve Big Ticket Items.

And as it happens, we've recently had useful reports on three of the very items we have in mind - public sector pensions, the Trident replacement, and our planned new aircraft carriers.

On public sector pensions, Corin Taylor of the Institute of Directors has written a note (see here) responding to the TUC's entirely spurious claim that the pensions ticket isn't really all that big at all. And while the TUC claims they only cost taxpayers £4bn pa, in reality:

"... the cost of public sector pensions to taxpayers in 2009-10 is the sum of the employer contributions to the unfunded schemes (£12.961 billion), the Treasury top-up to the unfunded schemes (£4.118 billion), and the employer contributions to the funded Local Government Pension Scheme (£4.506 billion), which gives a total of £21.585 billion."

Now, £22bn pa is big ticket by any standard - getting on for £1000 pa for every single household. And it is an obvious area for tough decisions because, as we've blogged many times, the final salary pensions provided in the public sector are now way more generous than those available to the bulk of private sector employees.

True, we couldn't save the whole £22bn pa anytime soon, because most of it is going to pay pensions accrued long ago. But there's nothing to stop a tough decision-maker cutting the employers' contributions by several bill and increasing the employees' contributions by the same amount right away.

Except that's a tough decision we know Labour will never take: their reliance on public sector union funding rules it out entirely.

Turning to Trident, we've been reading the paper published earlier this month by Greenpeace. Yes, we know - Greenpeace. But setting aside the propaganda, the paper is actually a rather good overview of just how big Trident's ticket is likely to be:

"The government gives two figures for replacing Trident. The first is the cost of designing and building new submarines, warheads and ‘infrastructure’. This was said in 2006 to be £15–20bn and to take up 3% of the defence budget every year between 2012–27.

On top of that are the running costs, which will take up around 5–6% of the defence budget (approximately £1.9–2.3bn) every year.

This gives a total of £72.9–89.5bn for building and operating a replacement for Trident."

So that's a range up to £90bn. But we all know about MOD budgets, so that will certainly be an underestimate.

Greenpeace reckons the true costs are closer to £100bn, once you take account of hidden items like the cost of upgrading the Atomic Weapons Establishment, and securing the nukes from terrorists and other wellwishers. And the MOD's dire record on cost overruns might suggest an even higher figure.

And then there are the carriers:

"The lifetime costs of the two supercarriers and their aircraft were estimated by government in 2005 to be £31bn, broken down as a £12bn procurement cost and £19bn running costs. Separate estimates of £10bn and £18bn have been given for buying and running the F35 planes."

So as per, confusion over what's actually included in the £31bn. But in any event, Greenpeace says the official numbers are serious underestimates, given that the cost of both ships and planes are known have spiralled since these numbers were published earlier in the decade.

So two more Very Big Ticket Items here.

And these at least are items you'd think Labour might be much happier to cut.

Except of course, these big naval construction jobs pay the wages for thousands of Labour voters up north.

In truth, Labour is pretty certain to announce defence cuts. But they won't be anything like the kind of clean cuts suggested by the term "tough decisions".

Instead, they will be a grubby compromise that keeps the maximum number of constituency jobs, but only at the cost of downsizing and despeccing both Trident and the carriers to the point of uselessness and probable danger (see comments here for the way that the new Type-45 destroyers are being fitted with decades old salvaged kit to save cash). Which will be the worst of both worlds.

So there we have it - three major spending areas where "tough decisions" won't even get a look in.

Hopeless and helpless.

Surely, Mr Cam must do better than that.



PS If you haven't read today's Sun editorial explaining why they've dumped Labour, you should. It's an excellent pocket catalogue of Labour failure: failed on law and order, failed on schools, failed on health, failed on immigration, failed our children, and failed our troops. No wonder poor Lord Kinnockio got so emotional on the wireless this morning.

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www.gudanggrosiran.com Categories: defence, mod, pensions

Head And Heart

Socialists have always speechified from the heart... even in March 1945

"The Conservative Party want people to believe that the ballot paper has an option marked change without consequence... But the financial crisis forced them to show their hand and they showed they had no hearts."
Brown to the Labour Conference today.

No hearts.

You see that's the thing about socialists - they somehow imagine that anyone who isn't a socialist doesn't have a heart.

They are the Good Guys, and on that basis they feel able to order your world, to relieve you of your freedoms and your cash, to subject you to substandard services, and to denigrate the whole concept of personal responsibility. It's a worldview that undermines prosperity, limits personal achievement, and corrodes the social fabric. But at least their hearts are in the right place.

I was going to blog Brown's speech, but frankly I can't be bothered.

On a day when we're all horrified by the latest catastrophic failure of Labour's PC police force to protect ordinary people in their own homes, who cares what Brown has to say about new flavours of ASBO? Who cares about his promises to set up re-education camps for teenage mums, or his new control orders for 50,000 problem families? Who cares about his U-turn on 24-hour drinking?

Who cares about the dozens of random new spending pledges he made? Or the fact that he doesn't actually have the money to deliver any of them?

And who cares that he's still telling the same old lies about how he saved 500,000 jobs, and how the Evil Tories would have let the financial system collapse, and how the ETs want ordinary hard-working people to live in ditches?

That's the funny thing about your heart ruling your head. It excuses not just wholesale incompetence, but it also lets you tell the most monstrous porkies. When your heart is big and you're the good guy, it seems you can do what the eff you like.

PS At least Andrew Neil got a grip on the slimey Liam Byrne and the slippery Mandy this pm as they attempted to spin Labour's record of lies and evasion on the economy. "Where did that figure of half a million saved jobs actually come from, given that the Treasury have disowned it? How can you claim you saved the economy when your fiscal package was so small (see this blog)? Why should anyone trust Brown on cuts when until this month he denied there'd even be any - even though they were already assumed in his spending plans?"

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www.gudanggrosiran.com Categories: Gordo

Fifty Off The Wrist

His Lordship's speech seemed somehow familiar

Tyler missed Mandy's high camp performance yesterday, but within seconds he was emailed by a rattled member of the recently rediscovered middle class. OMG, it said, OMG - did you see that?! Mand has turned things around! A few deft strokes from the Master and their resistance is visibly stiffened... Gord somehow sneaks back in... within 12 months His Lordship takes the controls... we're going west!

His Lordship obviously went down well, and the morning after Poll is still panting:

"Yesterday came Peter Mandelson's kiss of life... For the first time he took his party off the back foot on debt, hammering out thundering threats that the Tories would choke off recovery before it has even begun. The economy is the battleground as never before. Who could trust David Cameron and George Osborne with the delicate recovery?

...Mandelson's attack on Tory plans to demolish economic investment had a crocodile's bite: you could feel Cameron and Osborne wince and summon their speechwriters for an instant re-write. His pro-manufacturing, pro-R&D, pro-skills and low-carbon investment began to look like a "white heat of technology" winning theme."

OMG indeed.

Although it must be said, fellow lefty Hoggart was somewhat less enraptured:

"The business secretary was by turns coy, kittenish, camp and crazed. Occasionally his voice rose to a squeak, his facial expressions were frankly weird, and now and again he slowed alarmingly as if his carburettor had cut out. Half the time he was like one of those people who shout at strangers on buses; the other half he resembled a slightly creepy uncle reading a bedtime story. Sometimes he ranted; at other times his voice descended to a sinister murmur."

Sounds more like it, but Hoggart was in a minority. For most of the faithful, Mandy clearly hit the spot.

And who are we to stand in judgement? They are facing annihilation. They were crying out for relief, and it's been so long since they were pleasured by a seasoned professional.

Out here in the normal world, somehow we don't think housewives' choice Mr Cam has anything to worry about.

PS Fifty off the wrist? Tyler once had a student holiday job in a factory, where the boss was always wandering round asking if anyone fancied giving him said fifty. Ah, the golden days of British manufacturing (apparently still alive and well on the railways).

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www.gudanggrosiran.com Categories: politicos

Law Facing Yet More Disrepute

What we really need is a law against vacuous speeches

No time for a proper blog today, but I've just taken a quick skim through Darling's conference speech. I wanted to find the detail on his two pre-announced Big Announcements, ie Labour's new laws to "crack down on bankers' bonuses", and to ensure "fiscal responsibility".

Here's what he told us:

1. Bankers bonuses

"... in the next few weeks we will introduce legislation to end the reckless culture that puts short-term profits over long-term success. It will mean an end to automatic bank bonuses year after year. It will mean an end to immediate pay-outs for top management. Any bonuses will have to be paid over years, so they can be clawed-back if not warranted by long-term performance."

Riigghht... but how exactly?

How will Labour's long-term bonus arrangements differ from the long-term bonus arrangements already in place for top management in all real world city firms? Doesn't Darling know that top management's principal bonuses are almost always geared to long-term (ie 3-5 year) targets?

And how will the claw-back work exactly? And if short-term profits turn bad in the long-term, will companies be able to claw back the corporation tax they initially paid? If not, why not?

In reality, using the law to control bankers' bonuses doesn't have a prayer of working. At best, it will simply provide a boost to the off-piste remuneration industry. At worst, it will drive the bankers abroad (remembering that pre-Crash the City was contributing nearly £70bn pa to the Treasury's tax coffers - or more than the whole of VAT receipts this year).

An unambigous lesson from the 70s is that incomes policy does not work. Bringing the law into wage setting merely brings the law itself into disrepute*.


2. Fiscal Responsibility Act

"We must keep the public finances on a sustainable path. The long-term health of our economy depends on it. That is why we will introduce a new Fiscal Responsibility Act to require that the Government reduces the budget deficit year on year, ensuring that the national debt remains sustainable in the medium term. But we need to do that rationally, in a way that is right for the economy, not driven by dogma."

Ah well, rationality vs dogma. A big welcome back to the strawman.

But a Fiscal Responsibility Act? Given our long-standing enthusiasm for fiscal rules, surely we should welcome that?

No. We certainly want a stated medium term fiscal strategy, complete with rules (including the Third Fiscal Rule eg see here). But bringing the law in would muddy the waters catastrophically.

What would happen if the government failed to hit its legislated fiscal targets? Would the Chancellor go to jail? Would there be a big fine? Who'd pay it? More to the point, who'd pay the lawyers to conduct the five years' worth of hearings?

No, the consequences of failure should continue to be financial (via the market reaction), and of course, political.

Once again, bringing in the law would inevitably bring it into disrepute.

What is it with Labour? Do they really believe the answer to everything is more laws? Do they really believe you can legislate away child poverty, "irresponsible" bankers bonuses, and profligate politicos?

Somehow, you'd think that a government whose Attorney-General has been busted for breaking her own law would be rather more circumpect.

Thank God they're finished.

*Footnote - What would we do about banker bonuses? Nothing. We have no idea what bankers should be paid. But we would break up the megabanks into their high street and investment banking components, and make it crystal clear that our taxpayer guarantee only applies to high street bank deposits. And the high street banks would be heavily constrained in terms of the risks they could run.

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www.gudanggrosiran.com Categories: bankers, fiscal policy, politicos

Losing The Will To Live

The set for next year's Labour conference

Listening to a sweaty Gordo blustering his way through this morning's session with Andy, it was easy to understand why Labour has lost the will to live. It would have been bad enough getting bludgeoned by Gord when they were all still on the winning side, but now they can hear the guns a few streets away it must be intolerable.

In fairness to Marr, he did have a go at asking a few questions. But as per, he wasn't much good at pinning down the answers. In particular, we could have done with a whole lot more clarity on the great question of the age - spending cuts.

As we understood it, Gord's argument goes like this:

• because of his epoch-shaping prudence while at No 11, the UK entered the recession (which was incidentally caused entirely by those idiotic yanks) much better equipped than other countries;
• compared to our profligate competitors, UK government debt was low, allowing him plenty of scope to support the economy via fiscal reflation - ie a package of tax cuts and more spending financed by borrowing;
• every other government in the world has since followed his glorious reflationary lead;
• only the Evil Tories would not have reflated as he did;
• the Evil Ts want to slash spending - they will relish the opportunity to destroy frontline services and execute expensive old people;
• in contrast, he will make the necessary Tough Choices via greater efficency
• everything will come right - you'll see

Marr did have a go at parrying some of this guff, but he left a lot out. And since it's important to have the complete picture, for future reference here are the Key Facts (all blogged previously):

1. While we entered the recession with relatively low official debt (47% of GDP compared to an OECD average of 74%), our massive current borrowing means that by the end of next year the gap will have virtually disappeared; moreover, our official debt excludes all those unfunded public sector pension liabilities (about 70% of GDP), and the bulk of our PFI debt (another 7-8%)
2. According to the OECD, both this year and next, the UK government will be borrowing more (as a percentage of GDP) than any other government among the OECD's 30 member states. When it comes to government borrowing, the OECD's basket case is not Ireland or Iceland or Italy or Greece, but us.
3. Brown's much hyped fiscal reflation package (mainly the temporary VAT cut) wasn't nearly as big as he likes to boast; indeed, it was actually one of the smallest among all the major economies; according to the definitive OECD analysis, for the period 2008-2010, it amounted to less than 1.5% of GDP, compared to an average 3.7% (the US package was worth 5.6% of GDP)
4. By far the bulk of fiscal support in the UK has come not from Brown's discretionary policy measures, but from the operation of the so-called automatic stabilisers (ie lower tax revenues and higher unemployment benefits); Here's the OECD's picture:


5. The fundamental reason our fiscal deficit is shot to buggery is not the recession, or Brown's reflationary package, but his reckless overspending while he was Chancellor; public sending was allowed to soar on the back of temporary and unsustainable tax revenues from the financial and property bubbles; which is why the OECD reckons our structural deficit (ie the bit that won't automatically disappear when the recession ends) is now in excess of 10% of GDP - a very scary position which implies public spending needs to be cut (or taxes increased) by a bowel-rending £140bn pa
6. Hoping to save that kind of dosh through greater efficiency is entirely delusional: as we've blogged many times, even the famous multi-year Gershon programme only seems to have saved aroung £5bn, at most.

Those, I'm afraid, are the grim facts.

And those same facts must be painfully clear to Darling's boys as they count off their final hours huddled round the map tables down in the bunker.

Maybe they haven't plucked up courage to tell the Führer to his face.

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www.gudanggrosiran.com Categories: cuts, Gordo

Grandstand Governance

You're paying for this

Does anything useful ever come out of these global grandstanding opportunities?

This week's G20fest was billed as the moment when "world leaders" would agree a new governance regime for the international financial system. This was the moment when the banks would be brought to heel, and when the big surplus nations (especially the Chinese, but also the Germans and the Japanese) would be bound into a new economic settlement in which they would spend and import more.

In practice of course, we'll get none of the above. Instead, we're going to get an agreement to have even more G20fests. Whoopeee!

The real purpose of these meetings has been highlighted all too clearly by the horrifically embarrassing sight of our unloved dead duck Prime Minister* scurrying round the UN kitchens trying to pin down St Obama for a photo-op.

As is painfully obvious, one year on from the Great Crisis, our rulers have made virtually no progress on sorting out the issues that gave rise to that crisis.

There is no agreement with the surplus nations on how they will do their bit by correcting the imbalances in their own economies. And there is no agreement on how we can protect ourselves from a future global banking collapse.

Indeed, on the latter point, as City veteran Terry Smith reminded us on BBC R4 Today this morning, our rulers are refusing even to discuss the giant elephant rampaging around their gilded conference halls.

The pachyderm in question? As we've blogged many times (eg here), we need a new Glass-Steagall to separate high street banking from investment (aka casino) banking. We can no longer afford to have the two activities co-existing in the same megabanks.

Because although we all learned from the Great Depression in the 30s that taxpayers have to guarantee high street deposits, we most certainly do not need to guarantee banks' casino activities. And it was our implicit guarantee of those activities that allowed the players to access the cheap funding, that inflated the huge bubble, that finally popped last year.

Sure, in theory we might be able to keep ourselves safe through better smarter bank regulation, rather than resorting to the crude blunderbuss of Glass-Steagall. But in practice, we just ain't that smart.

Among other things (as the now reviled Alan Greenspan always said), no regulator or central banker has ever come up with a way of definitively identifying a bubble before it pops. And even if they did, politicos riding the wave of an economic boom would never sign up for sticking in a pre-emptive pin.

And in the real world, those superbright all-seeing regulators of myth and legend don't actually exist. Indeed, our own bumbling regulators couldn't even control the relatively simple activities of the Crock.

No, to make ourselves secure, we need to split retail banking from investment banking. Just like it always used to be.

And we need to do it on an international basis, because otherwise the megabanks will simply migrate to the countries where they are not required to split.

So why hasn't the G20 tackled the elephant?

Well, because for one thing the megabanks don't want them too. And for another, the politicos are desperate to avoid anything that might smother the recovery, and breaking up the banks would inevitably restrain the future growth of credit.

Which is a problem.

Because taking a view slightly longer than the next election, a return to easy credit is the one thing we do not need. And unless we take the necessary action now - while minds are still concentrated by the crash - the will to act will simply evaporate (if it hasn't already done so).

Might we expect more from Cam and Os? Sadly not. They have already indicated they have no plans for a Glass-Steagall.

So unless St Vince somehow finds his way to the controls, it looks like taxpayers are skewered on the banking hook for the forseeable future.

Gaaaaaaaaah.

*Footnote We've already blogged the BBC's mini-series the Love of Money, but last night's nearly made me swallow my false teeth. Entitled Back from the brink (click on link to watch again), it painted Brown as the saviour of the global banking system. No really. It reckoned the man who spent this week trying to get his snap taken with Obama, came up with the genius solution, which was for taxpayers to inject capital into the banks rather than simply buying/guaranteeing their toxic assets. Apparently nobody else apart from Brown and that Shitty woman had thought of that. Maybe the BBC overlooked the fact that within days of Lehman's collapse - and weeks before Brown's emergency purchase of all those bank shares - the idea of government equity injections was being openly discussed all over the place, including the FT, and even our own humble blog here. Surely even the BBC can't rewrite history this soon after the event?

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www.gudanggrosiran.com Categories: bank bailouts, central banks, humbugs

Stopped Clocks

Bob Beckman (pic) was an entertainer in the retail financial markets. He was superb. So superb that he made a fortune from writing investment books, columns, and a subscription newsletter. He even had a regular show on LBC radio.

Bob specialised in wild-eyed prophesies of financial doom. For example, in 1983 he came out with an apocalyptic tome entitled The Downwave: Surviving the Second Great Depression. Which, among other things, said “By 1987 there will be no real residential housing market in Britain for the owner occupier. Some houses will be unsaleable at any price.”

Pretty scary stuff. Except of course anyone who'd followed his advice and sold up would have missed out on one of the biggest house price booms ever.

No matter, because the book sold 500,000 copies, and helped keep Mr B in the glitzy lifesyle to which he'd become accustomed.

But the thing about Bob was that every few years - like say in 1987 -the financial markets would take a tumble, and suddenly it would seem his scary armageddon views had been born out. At which point he'd pop up on the telly and all over the press, telling us that he'd been right all along, and that those complacent establishment guys who'd laughed at him had been plumb wrong, and that this proved he was much smarter than any of them. Everyone would nod gravely, and beg him to tell us just how much more monstrously awful things were going to get over coming years.

Except of course, they never did. After every terminal crisis, the world showed an irritating ability to pick itself up, dust itself off, and start all over again.

Bob? He went right on calling the Second Great Depression, as if nothing had changed.

You will immediately recognise stopped clock syndrome: even a stopped Beckman is right twice a day (although confusingly, a clock that runs backwards is right four times a day).

Which brings us to Professor David Blanchflower.

As regular BOM readers will know, Blanchflower is the leftwing Professor of Happiness Economics chosen by Gordon Brown to sit on the Bank of England Monetary Policy Committee (MPC). He was on the Committee from 2006 to 2008.

He now writes an economics column for struggling Labour organ the New Statesman, and he's been busy bigging up his own Beckman-style prescience in calling - yes - the Second Great Depression.

He reckons he was the only member of the MPC who saw the crash coming, and the only one who had the guts to stand up to the iron fist of Governor King. The other committee members were too dim and/or too timid to challenge the complacent nonsense coming from Bank officials.

Evidence?

He points out that he was the first member of the MPC to vote for an interest rate cut, way back in October 2007. And in September 2008, just days before the Lehman collapse, he alone voted for a cut. What could be clearer? The crash happened. He was proved right, and those other idiots were proved 100% wrong.

Reading the MPC minutes, we can certainly see that he was always the one arguing for lower interest rates, sometimes literally in a minority of one. But given that the Bank is charged with hitting a 2% inflation target, and given that for most of 2008, inflation was well above that target, you have to ask why? What was going on in his head?

The fact is that Blanchflower only ever voted for one interest rate increase in his entire tenure on the MPC. And that was in spite of the fact that his first year coincided with the final mad inflation of our gigantic financial bubble during 2006-07.

There's a good case for saying the Bank was far too lax during that period, and higher rates then would have better contained the bubble and saved a lot of pain now. But at least Blanchflower's fellow committee members did push through an increase of 1.25% between August 2006 and July 2007, whereas he mainly sat on his hands - even voting for a cut at one point (March 2007).

In reality, Blanchflower is another stopped clock. Like the left in general, he believes that a Second Great Depression is never far away, and that all that stands between us and a return to mass unemployment is government intervention. Fundamentally, markets are not to be trusted. As for inflation, he believes that saving jobs should always take priority over saving the value of our money (Zim and Weimar apart, obviously).

Which explains his scare mongering about possible spending cuts:

"If spending cuts are made too early and the monetary and fiscal stimuli are withdrawn, unemployment could easily reach four million. If ... there are substantial cuts in public spending in 2010, as proposed by some in the Conservative Party, five million unemployed or more is not inconceivable. Crime will inevitably rise and there will be widespread social unrest if this happens...

Mr Osborne, I really don't know which economists are advising you on this brilliant strategy to increase unemployment, but feel free to give me a call. Unemployment makes voters unhappy."

Ah yes, happiness, happiness... the greatest gift that I possess.

So do you reckon George should give him a ring?

Hmm. How would Blanch tackle the ticklish issue of funding our ballooning deficit? He is silent, but his attitude to interest rates and inflation while on the MPC probably gives us a clue.

He's also silent on the question of how we're going to put our economy back together again. It's all very well borrowing to prop up employment, but at some stage we have to earn our way back to sustainable prosperity. Given that we've lost 4-6% of our GDP pretty well permanently.

Unless, of course, George secretly plans to construct a Bennite fortress Britain.

Either way, when it comes to entertainment, I'm afraid Blanchflower is not exactly in Mr B's league - check out this NS vid (total views so far... 33):

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www.gudanggrosiran.com Categories: cuts, happiness, humbugs, inflation

A Surfeit Of Grads

BA in Hat Studies (First Class Hons)

Following comments on Monday's uni post, we've taken a closer look at the graduate employment stats. Is it true that increasing numbers of grads are unable to find full-time employment in graduate jobs? And what exactly gets counted as a "graduate job"?

The latest official stats are contained in the Higher Education Statistics Authority (HESA) report Destinations of Leavers from Higher Education Longitudinal Survey, 2004/05. Their survey was conducted during 2008/09 among students who completed a higher education course in 2004/05. It aimed to find out what they were doing 3.5 years after graduation.

Overall, the survey found that 76% of grads were in full-time employment of some kind. Which means of course that 24% were not.

And how many of those in full-time employment were in graduate-type jobs?

It turns out that of those who had gained full-time undergraduate degrees, and were in employment 3.5 years later, just 36.5% were in traditional grad jobs - ie the professions like law, medicine, architecture, teaching, etc etc. Which implies that of those who originally graduated, only 27% (equals 36.5% of 75%) had found full-time employment in traditional graduate jobs.

Now, that's a fairly alarming conclusion. As the Major would say, it shows we're turning out - and paying for - far too many grads.

But HESA itself doesn't say that. HESA - and indeed the entire Higher Education industry - says that the world has moved on a long way since we measured a graduate job by whether it is in the traditional professions. These days, there are all kinds of other jobs - like company manager, or software programmer, or derivatives salesman - that require a degree.

So HESA uses a new classification of grad jobs which goes by the snappy title of SOC(HE). It includes three additional job categories beyond the traditional professions: "modern professions" such as IT and journalism; "new graduate occupations" such as management accountancy and therapy; and "niche graduate occupations" such as nursing and graphic design, where a degree is not essential but might conceivably come in handy.

And when you count graduate jobs on that basis, you come up with some much healthier looking results. In fact, the proportion of full-time undergrad degree holders now in full-time graduate type jobs more than doubles, from 36.5% to 76.8%. And right across all the categories of HE qualification the picture now looks approximately respectable (click on image to enlarge):

Fine.

Except there are one or two slight problemettes with HESA's numbers.

First, their data is entirely survey based. And of the 400,000 or so students who graduated in 2004/05, HESA only got data from about 10%. Moreover, since the response rate from their initial sample was so low, they had to top it up with a subsequent sample drawn from graduates for whom they happened to have an email address. All respondents were self-selecting, and we should probably assume grads who'd become Thai beach bums did not bother to reply. The survey is almost certainly biased towards post-uni success.

Second, it isn't at all clear that HESA's new categories of graduate jobs actually require a degree to do them. Jobs like nursing, physiotherapy, and retail management all used to manage perfectly well without requiring degree level qualifications.

Which brings us back to the issue of educational qualifications as a signalling device: the idea that the economic value of a degree lies not in its content, but in its ability to signal to potential employers that you are bright and hard-working. While at one time you might not have needed a degree to become a Tesco store manager, runs the argument, these days you won't even get the chance to apply unless you have said degree.

But while an ambitious 18 year old might consider that a good reason to do a degree, from the perspective of taxpayers, spending £12bn pa on a personal signalling system isn't at all attractive.

Moreover, there's also a real question mark over whether a degree in one of the "new subjects" from a "new university" is actually worth anything either in terms of content, or as a signalling device.

Take a couple of Britain's new industries - computer games and video animation. You'd think that these would be precisely the kind of sunrise industries that our non-traditional degrees would equip people for. And indeed, there are many specialist degree courses in both animation and computer games.

Yet in the last couple of days Tyler has heard independently from senior participants in both industries that even first class honours grads from such courses are next to useless. They may have the piece of paper, but in general they lack the drive, imagination, and... er... yes, intelligence, to be attractive recruits.

Which is why such employers rarely even mention degree qualifications among their requirements when they advertise jobs (eg see the current vacancies at leading UK games producer Lionhead Studios).

So do we have a surfeit of grads?

The long and the short of it is there are no definitive stats - it's certainly not something the government wants to own up to.

But a couple of years back, the OECD published this interesting international comparison of "overqualification" in employment. It was done in the context of a migrant labour study, but if you just focus on overqualification among native-born workers, you will see that the UK's are the most overqualified, bar Spain, Austrailia, and Ireland:

So if 15% of Britain's native employees are already overqualified for the jobs they do, and if the new degrees from the new unis are not valued by our new employers, and if our kids are clocking up humongous amounts of debt on degrees that will never pay back, and if it's all costing us taxpayers £12bn pa, you may be wondering WTF we're doing?

To which I can only reply, I don't know.

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www.gudanggrosiran.com Categories: universities

Well Dodgy

Crooks or idiots - either way we lose

Dodgy building contractors have always enjoyed a fruitful relationship with our local councils. Sometimes it's been out-and-out T Dan Smith (pic) corruption*, but more generally the problem has been our old friend the Simple Shopper.

Today, the Office of Fair Trading (OFT) announced the outcome of its long-running enquiry into bid rigging among contractors supplying councils and other public sector customers. It has fined "a total of 103 firms £129.5m for colluding with competitors on building contracts", mainly via a practice known as "cover pricing".

The fined companies include some very well known plc names, with big public sector contracts elsewhere - Balfour Beatty, Carillion, Kier, and a host of others (full list here). But despite the guilty verdicts, the fines are quite small, and none of the contractors has been blacklisted for future contracts.

We've blogged this enquiry before. As the OFT explained it then, cover pricing is:

"...where one or more bidders collude with a competitor during a tender process to obtain a price or prices which are intended to be too high to win the contract. The tendering authority, for example a local council or other customer, is not made aware of the contacts between bidders, leaving it with a false impression of the level of competition and this may result in it paying inflated prices."

It has long been a widespread practice, known to all in the industry. Indeed, when the Chartered Institute of Building asked over 1,000 insiders for their views on industry corruption, it got the following response on cover pricing:

In other words, the practice is so widespread that nearly four in ten insiders reckon it's perfectly OK.

Now, if you're Tescos wanting to build a new store, you know all about this. So you employ guys who've been round the loops a few times, and who know pretty well what the work ought to cost. And when you send out your tender invitations you only send them to contractors that you trust to give you kosher bids. And just to make sure, you might phone them up and say "on no account should you quote if you do not want the work, and if you take the piss you will never get a crack at another contract with us ever again; plus, we will dock you 50,000 points from your Tesco Clubcard, and we will break your legs".

But in publicsectorland it doesn't work like that. In publicsectorland the emphasis is on ticking boxes, not getting good value. And the Simple Shopper in charge of tenders knows he can tick the required boxes simply by publishing an RFP in the European Journal, ensuring he receives and files at least three tenders, and stopping himself accepting too many douceurs. Job done.

So although these contractors have been very naughty - and they certainly deserve more than their pretty derisory punishments - once again, the real culprit is the Shopper. As we've blogged so often, the Shopper is simply not up to being trusted with our money.

And how much have we taxpayers lost?

As per, we don't know. All we do know is that the OFT enquiry was looking at £3bn's worth of contracts. So you'd have to guess our losses run into hundreds of millions.

*Footnote Not everyone thinks T Dan Smith was A Very Bad Man, a man who not only brought disgrace to his native Newcastle, but also inflicted a concrete brutalist hell on its citizens. Oh, no. Even today, the BBC clearly admires the cut of Big Dan's Big Government jib and tells us: "Smith's legacy still lives on in the streets of Newcastle. Today T. Dan is as much admired for his vision as for his concrete achievements. Smith remains an old-style 'city father' whose visions are now being reclaimed by a younger generation." Hmm, yes... and while we're back on the BBC, you should check out Newsnight's Classic Interviews. They reckon they've got six classics, four with media celebs, and two with politicos. And the two with politicos? Yup, you guessed it - the Paxo repeated question "interviews" with Michael Howard (1997) and William Hague (2007?). Not that Pax has never subjected Labour or LibDem politicos to such treatment. Oh no, no, no... there was that time when he... er... ummm... well, there was definitely that other time when... ahhh... well, last night he did humiliate poor old Vince over his half-baked "mansion tax". But then again, now that the entire world has started to scrutinise Vince's pronouncements properly and found them wanting, the poor chap has suddenly aged 20 years. Last night he looked like a confused old man at a bus stop being terrorised by a yob.

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www.gudanggrosiran.com Categories: simple shopper

The University Of Real Life

M Mouse 101

We've blogged Labour's appalling record on higher education many times (see all posts gathered here). In summary:

• Taxpayers now spend £12bn pa on higher education, up around 50% in real terms since 1997; the students themselves spend a whole lot more


• There are 2.3m students, or 4% of the entire population (including 27,000 doing the Major's favourite, the degree in media studies)
  
• The 50% participation target is "aspirational" - ie entirely arbitrary (admitted to the PAC by the Chief Executive of the Higher Education Funding Council for England - see this blog)


• The average HE participation rate across the OECD is 35%: ours is already 40% and heading for 50%


• Courses have been dumbed down and grading standards slashed - the proportion gaining first class degrees has nearly doubled under Labour


• Thousands of graduates now do non-graduate jobs, and that number is growing rapidly- their M Mouse degrees have simply not equipped them to do anything else (according to HESA, 75% - yes, 75% - of 2002-3 graduates were still in non-graduate jobs four years after graduation; what's more, 26% weren't in full-time jobs of any kind


• The average financial return to a degree is plummeting - according to PWC, the gross return to an Arts degree is now only about £30 grand, and that takes no account of the costs of study and the earnings foregone - net net an average Arts degree almost certainly reduces lifetime wealth.

A madness like this could never continue, and now the money has run out. Reality has finally intruded.

So what to do? How is higher education going to take its share of the pain?

One obvious step is to charge students the full cost of their government funded loans. That has already been proposed in the TPA/IOD cuts paper and the earlier cuts paper from Reform. It would save taxpayers £1.2bn pa.

Now the CBI is recommending the same thing, only it would increase university fees at the same time. If fees were increased to say £5,000 pa (from the current maximum of £3k), university funding could be bolstered without costing taxpayers a bean. Everybody's happy... well, everybody except the students, that is.

Naturally, there's been a huge outcry from students and the lower tier unis, who reckon it would put a lot of people off university altogether. To which taxpayers might say a good thing too.

But when you read the CBI report, you realise its concerns run far deeper than simply the current waste of taxpayers money.

For one thing, they are very concerned about the dearth of so-called STEM graduates - ie people who've chosen to do the "hard" subjects in Science, Technology, Engineering, and Maths. It seems the CBI does not value media studies any more than the Major.

Second, the CBI worry that the present cap on fees is starving our top unis of the resources they need to remain world leaders. World leaders? Sure. As things stand, the UK has a disproportionate number of the world's top unis - at least according to the Times Higher Education - QS World University rankings:

The names of the 17 UK unis in the world top 100? You don't really need to ask, but they are (in order) Cambridge, Oxford, Imperial, UCL, King's, Edinburgh, Manchester, Bristol, LSE, Warwick, Glasgow, Birmingham, Sheffield, York, St Andrews, Nottingham, Southampton. (Hmm... you say... where's Leeds? 104th. And Durham? 122nd. Hmm...). None of our former Polys make the top 500.

The CBI reckons it is far more important to sustain our top unis, than to continue the mad pursuit of Labour's arbitrary 50% participation target. Indeed, it goes further. It:

"...does not believe that the push to increase participation in higher education to 50 per cent of 18-30 year olds in England and Wales should continue to be a target in the current economic environment. The priority should be to ensure that those who go to university continue to receive a quality education. This should go hand-in-hand with greater efforts to deal with educational disadvantage at the secondary school level, and to support young people through apprentice and other vocational training programmes."

Which could easily be Tyler talking. Or Tyler senior. Or indeed, virtually anyone you meet out here in the real world.

The overwhelming educational priority is not more M Mouse degrees, but to fix the dire state of secondary education for low achieving kids and to help them into the real world of real work.

To summarise, real universities are academically elitist, and we should value and support them for precisely that quality. They should charge realistically high fees, and the students who attend them should be expected to pay the full cost of their funding: after all, they're the ones who'll reap the bulk of the benefits.

Meanwhile, we need a radical improvement in secondary education for less able kids, something we can achieve via real parental choice (ie school vouchers) and awarding higher value vouchers for lower ability pupils.

Footnote warning from HypocrisyWatch - Yes, it's true, Tyler did receive full taxpayer funding for his degrees from not one, but two, of the unis listed above. And yes, he undoubtedly benefited hugely. And yes, he does feel a tad uneasy about that, even though he has since paid humongously sick-making amounts of tax. So yes, he is making some financial contribution back to his old unis, albeit not exactly on a JP Getty scale.

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www.gudanggrosiran.com Categories: universities

Cosmetic Surgery Won't Cut It

It's gonna take more than a shot of Botox

We're all cutters now.

Even Mr Balls has flipped a back somersault since his appearance in that unconvincing parallel universe play back in June. Back then, he told us: "I think with tough choices we can see real rises in the schools budget in future years". But three months is an eternity in Balls years, and now he says he'll axe 5% off the schools budget.

Apparently he's suddenly discovered he can run our state schools just as well with 3,000 fewer heads and senior teachers. He says:

"You might have a head teacher and a team of deputy heads working across the different schools."

Simple. Being an acknowledged expert on school organisation, Balls knows far better than the heads themselves how to run schools cost effectively. If he thinks our headteachers can each run a group of schools, he must be right. Why, he'll even solve the problem of not enough state school heads to go round on account of nobody wanting to take this particular job from hell (see many previous posts eg here).

But however crazy Balls's frontline cuts proposal is, at least it's a real £2bn cut. Which is more than can be said for some of the government's other cuts ideas now being spun into the media.

Take the imminent scrapping of ID cards. Many of us have long argued for it, so it's welcome. But sadly, it won't save that much dosh, because the planned biometric ID cards are a joint project with the new biometric passports, and (apparently) we have to go on with them. In the TPA/IOD cuts paper we estimated the saving at £55m in 2010-11.

But the relatively modest size of the saving has certainly not stopped the government briefing the cut widely to the press. “It may just be a gesture but it’s exactly the sort of gesture we need,” was how one "senior figure" put it.

Except of course, it was precisely such gesture politics that landed us with so much useless public expenditure in the first place. And cosmetic surgery designed to avoid facing the real issues is exactly the sort of gesture we don't need.

And what about those £20bn NHS cuts the government got McKinsey to work up (see this blog)? Although Health Secretary Burnham told us they are "savings", his spokesperson immediately issued this clarification:

"The £15-20 billion is not being cut from the NHS, it will be taken away from areas where it is not needed and reallocated into areas where it will be most effective."

ie the "saving" is purely cosmetic, and will not reduce overall spending one jot.

Frankly, there isn't a cat's chance these bankrupt derelict buffoons will come up with any real cuts between now and their imminent annihilation. And frankly, nobody - including the financial markets - ever expected them to. So that's fine.

Much more important is that Cam and George come up with the real deal. We simply can't afford cosmetics from them.

And just to ram home the magnitude of their task, here are a couple of charts from the latest very useful IFS paper.

The first shows what happens to government debt as a percentage of GDP over the next three decades without any fiscal tightening.

As we can see, debt goes above 100% well within the next decade, and reaches arround 170% of GDP by the end of the period.

The second chart shows public sector debt interest, again, as a percentage of GDP. It shows the interest burden beginning to spike up alarmingly as soon as next year:


Scary enough.

But the IFS numbers are very much a best case. They are based on HM Treasury's own projections, and in particular, on HMT's belief that our "structural deficit" (ie the deficit that will not disappear automatically as the recession ends) is "only" some 6% of GDP.

If instead, the OECD's estimate of c 10% is right (see this blog), our debt grows very much more rapidly than in the IFS's chart. Indeed, on the OECD's figures, we reckon it shoots above 100% of GDP within the next 2 years.

And if that happens, another critical HMT assumption will almost certainly fall. There is no way the interest rate on government debt will remain at or around current levels, because the markets will take fright. And as we've blogged many times, that would mean a big hike in the cost of borrowing, and a big hike in debt interest costs.

We simply cannot afford to settle for cosmetic surgery.

However painful, Cam has to get a grip on the real problem - the flab within.

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www.gudanggrosiran.com Categories: cuts

Still Heading Down

Up is good - down is bad

Today's public finance stats revealed by far the highest August borrowing ever - £16bn. It takes the total for the financial year so far to £65bn, nearly £40bn above the corresponding figure last year. And public sector net debt is now at 57.5% of GDP.

It's sobering to look at the longer-term perspective.

The chart above shows annual borrowing on a rolling 12 month basis from December 1993 up to August 2009. And as we can see, we are way beyond the historic range, apparently in freefall. Annual borrowing is already running at £127bn, and by the end of the financial year HMT forecasts it will reach £175bn (with many other forecasts even higher).

The damage is being done both by lower tax revenues (down £23bn financial year-to-date), and higher spending (up £12bn - although interestingly, only £6bn of that is extra spending on social benefits).

As we've blogged before, this rate of borrowing means we are currently at the very top of the OECD's borrowing league. Which means we can ignore that false comfort about how France, Japan, and Italy are all worse than us in terms of debt outstanding - we are closing the gap with frightening speed.

And on that very subject, BOM reader Chris H urges us to check out the Economist's interactive global debt map.

It's well worth spending a few minutes exploring it, especially the way that our relative debt position deteriorates between 1999 (the first year they show) and 2011 (the last).

Because in terms of public debt as a percentage of GDP, we go from being one of the least indebted major nations (lime green on the map) to being one of the most indebted (black). A truly shocking testimony to Labour's economic mismanagement.

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www.gudanggrosiran.com Categories: debt

We're Mad As Hell...

Here we are again

As we've blogged many times, back during the 2005 election you couldn't sell the proposition that public spending needed to be cut. You couldn't even give it away - and Tyler knows because he tried.

How the world has changed. According to the latest polls, there is now a huge majority for cutting - by three-to-one in the Sunday Times poll.

And as the political wind has shifted, so have all three major parties. All now promise cuts, even if - like St Vince* - they have so far been rather better at arm waving than spelling out precisely where all their cuts would actually fall.

Which is where the Big Government left now see their salvation. As we blogged here, the left believe that once voters see what cuts would mean in terms of actual public services, they will recoil in horror. In other words, the cuts can still be stopped via the left's traditional "babies dying in the gutter" scare tactics.

Well, that theory is now being tested. Because although the main parties have been reluctant to come out with specific cuts, others have been less reticent.

In particular, last week's joint report by the TaxPayers' Alliance and the IOD (see this blog) proposed 34 specific spending cuts, many of them contentious. And the report has attracted some very interesting public responses.

Take this item from the Scunthorpe Telegraph. It approvingly reports the unanimous rejection of the plan by Labour, Tory, and LibDem councillors, quoting the Deputy Leader of North Lincolnshire Council (NLC) as saying:

"The proposals are a nasty, savage attack on the elderly, disabled and the young. Vulnerable members of society would be worst hit under these vicious plans. On top of that, 600 council staff would lose their jobs in an instant, increasing hardship on local families... these vicious cuts would affect the most hard-pressed residents."

But judging from the comments posted under the article, local residents have a very different view:

"So councillor Foster, when are NLC going to give us value for money!!!!!!!!!!!!!!!!! Why not start by getting rid of the high paid deadwood at the top." bartonion, barton

"Good riddance... I really hope it happens... START AT THE VERY TOP AND WORK DOWNWARDS... Let's see how the powermad jobsworths survive in the real world next to the very same people they use to offend despise and treat with utter contempt... can't wait"
wiggy, scunny

"Cut back on staff. Hope they sack these planners with their silly ideas for bus lanes and road closures. Bet the ones at the top dont take cut in wages - if they stopped wasting money there would be no problem." englander, scunthorpe

"This is fantastic news, really made my morning when I read it in the paper. Do hope its true." Simon, Mendip Rd

Etc etc

Or what about the reader comments posted under this article in the Grun which sought to defend Sure Start against the TPA/IOD's proposal to scrap it (saving £1.5bn pa). The clear majority are highly critical of Sure Start, including this from someone called tangerinedream who, unlike the politicos and the commentariat, has actually worked on the programme:

"I spent over a year working as a temp at a sure start centre. Whilst I can't speak for any other centres, there were a host of issues at mine [this is just a summary - see here for full version]:
1. Massive overspend on building costs... £500,000 over budget and several months late...
2. Complete bureaucratic confusion.
3. Utterly ridiculous private public partnership... local social services department was tied into a £12,000 a year contract for nursery places even though these were never used.
4. Massive top-heavy management structure without investment in front-line services... the total spend on people who would actually come face-to-face with members of the public was less than £10,000 per year.
5. A confusion of aims... comfortably well off middle-class women [were] our most frequent users.
6. A Council mentality of building buildings rather than investing in them.
7. The needless waste of resources... a £50,000 shopping binge at the end of March in order to clear the budget surplus.
8. The obsession with data collection and targets."

It sounds all too real, and entirely accords with what BOM readers will have heard before (eg see this post). Other comments are blunter:

"... SureStart is somewhere between an expensive failure and an outright fraud and ought to be shut down forthwith. I'm sorry to be brutal but the most effective way to reduce the number of 'disadvantaged' kids isn't to throw taxpayers' money at them but to prevent their parents breeding."

And that's in the Grun.

As are these comments under an article written by Ann Robinson, a practicing GP, which attempts to explain why Andy Burnham's plan to extend patients' choice of GP is wrong (HTP HJ). As far as Robinson is concerned, GPs, the GMC, and the NHS Primary Care Trusts are already doing a splendid job of delivering great services, and allowing ignorant patients more choice will only screw things up. Here are one or two of the comments:

"So rather than sorting out the incompetence and poor professional standards of some GPs... you blame the patients for making poor choices!" toonbasedmanc

"More arrogant nonsense from an overpaid and underworked profession. I realise that doctors have a good union but they are still there for the benefit of their patients... Not only are doctors taking the mickey with the salaries and the opening hours and the refusal to visit patients but they want to control us like serf of their particular manor." likedthe 80s

"In any other country it would be taken as completely normal that you could choose which doctor to go to, but somehow Ann Robinson says that people here aren't competent to choose and that the decision should be made for them... If people agree with her arguments for using the GP nearest to their home, then fine, let them. But if they don't who the hell is she to say that they shouldn't have a choice?" HJHJ

What all of these various comments say is that we've had enough. We've had enough of paying through the nose for "public services" where serving the public comes a poor second to serving the producers.

And it's no longer any good the politicos and public sector promoters spinning us the same old line about how cutting spending will necessarily entail cutting vital services. And how the experts know best. And how, apart from the odd few pence here and there, we get jolly good value for our taxes.

Because the fat years are over. And unlike in 2005, our minds have been throughly concentrated. We can now see - yes - a bloated public sector that costs a fortune to run, but serves up a whole raft of stuff that is of no use to us whatsoever.

*Footnote Interestingly, this morning's BBC R4 Today prog picked up St Vince on his cuts - ie that he talks boldly about needing £80bn of cuts, but has only come out and specified £14bn's worth (see this blog). Vince sounded highly uncomfortable, and could only mumble about "first steps" and "timing". Shame really, because as Britain's most trusted politician he could do us all a huge service by plucking up a bit more courage.

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www.gudanggrosiran.com Categories: cuts

Tanks Back On The Lawn

What happened to the lawn last time

All Labour governments end up in serious difficulty over their union paymasters. They spend their first years pandering to union demands, and their final ghastly Götterdämmerung months impotently trying to explain away the resulting inferno (and see Mr Dale's post yesterday with an update on the disgraceful issue of union Danegeld).

In the late 60s, Wislon famously ordered one union leader "get your tanks off my lawn" - just before Wislon himself abjectly capitulated on promised legislation to rein in their destructive antics, thus setting the scene for the dire strike-ridden 70s (In Place of Strife).

In the 70s, union man Uncle Jim Callaghan dragged us into a wintery nightmare of public sector strikes and unburied bodies lining the streets.

And now, the tanks are massing again. Bruvvers and sisters in the Post Office are already there, and their union is busy balloting for national strike action. Leeds refuse collectors are out, and rubbish is piling up on the Council Leader's doorstep. The Fire Brigade Union is threatening unspecified industrial action "of the like which they have never seen".

Thanks to the Iron Lady's reform of union law, and crucially the realism born of global competition, union power in the private sector is now properly limited.

But in the public sector there is generally no competition to concentrate minds. And union power is still a major block to necessary reform (a block that stands even where there is a clear and present danger from competition - eg with the Post Office).

As BOM readers will know, there is a huge difference in the unionisation rates of public and private sectors. As we blogged here, the public sector is four times more heavily unionised than the private sector, with a near 60% membership rate. Which means the unions have far more power in the public sector. Here are the latest official stats:

And public sector workers are far more likely to strike (see this post): even in the relative industrial calm of the last five years, they have been 30 times more likely to go out.

The result is that the public sector loses many more days to industrial action than the private sector, even though it employs only a quarter as many people:


The outlook is pretty grim. Public sector pay, public sector pensions, and public sector employment are all going to come under the knife over the next couple of years. And with 60% sector unionisation we must expect a lot of strikes.

Will Cam be any better than Labour at facing them down?

It must be said patrician toffs don't have a great record in that regard - unlike a Thatcher or a Tebbit, they suffer from too much Jimmy Carter-style plantation guilt. But if Cam is serious about cutting spending, he has no choice. Wages and pensions constitute around a quarter of public spending, and will have to be cut (as everyone, including St Vince, now recognises).

Cam will have to face the tanks head on.

PS The union leader ordered by Wislon to remove his tanks was of course Hugh Hughie Scanlon, the Marxist president of the Amalgamated Engineering Union from 1968 until 1978. "For most of his career he was the wild man of the Far Left, bogeyman of the Right and a vociferous critic of ermine-clad politicians, particularly the Socialist variety. Indeed, he had called the Upper House a "bastion of privilege". Naturally enough, on his retirement Callaghan offered him a peerage - for services to a grateful nation. And naturally enough, he accepted. Just like our old friend my Lord Kinnockio. Why do we put up with this again?

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www.gudanggrosiran.com Categories: cuts, strikes, unions

Brown's Secret File

Only watch if you want to scream

Aside from confirming the bleedin' obvious - that we are currently ruled by a barefaced liar - what else does the leaked HM Treasury file tell us? In particular, what does it say about the extent and shape of Brown's planned spending cuts?

Here's the critical spreadsheet, dated 21 April and fully consistent with the less detailed projections published with the Budget. Which is a crucial point. These figures are not some blue-sky scenario doodling - they reflect the Budget decisions actually made by Brown's government (click on image to enlarge):

Key points:

• Cuts - Just as the IFS worked out months ago, the budget incorporated big cuts in Departmental Expenditure Limits (DEL). DEL constitutes well over half our total public spending, including most of what we spend on the NHS, education, defence, and law and order. From 2009-10 to 2013-14, the Budget imposed a total cut across these programmes of 9.3% in real (inflation adjusted) terms. Not that you'd have guessed that from the lies spun by Brown and his wicked gang.
• Social security - after a projected 8.3% real increase this year, the Budget assumed further growth of just 6.3% over the whole of the next four years. With unemployment already up by 1 million since the downturn began, that is implausibly low... unless of course, the spending projection incorporates some undeclared cut in benefit rates.
• Debt interest - projected to more than double in real terms by 2013-14, reaching £64bn (this year's figure is put at "just" £27bn). As a percentage of GDP, it soars from just under 2% this year to 3.5% in two years time. Even so, the projection looks optimistic because not only will debt increase faster than the budget assumed, but also the average interest rate on that debt is most unlikely to decline, as we now know the Budget assumed (an assumed decline from 5% in 2008-9 to 4.6% in 2013-14).

So what should we conclude?

First, we've been lied to. Again.

Second, cutting departmental spending budgets by 9.3% will not be enough. We reckon spending on social security and debt interest will significantly overrun the HMT projections, implying the need for further cuts in departmental spending limits. Moreover, the Budget target to halve the deficit is insufficiently ambitious - the financial markets will not allow us to persist with a structural deficit of 5% of GDP indefinitely.

As St Vince told us only yesterday, a more realistic cuts target would be £80bn pa. Which, if it came entirely from departmental spending limits, would imply a cut of more like - gulp - 20%, more than double what Brown has been planning. Of course, departmental budgets could be spared some of that, but only if social security benefit rates got cut instead (hence the gathering pressure to cut "middle class welfare" such as Child Benefit).

But there is some good news: at least now we are starting to have a public debate about what to cut, rather than a yes/no slanging match about who's going to cut and who isn't.

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www.gudanggrosiran.com Categories: cuts, Gordo

Cuts? That's Not A Cut

So Gordo has done a complete U-turn (see here for excellent ConHome vid). He always promised Labour investment, but now he's delivering Labour cuts.

Except that all he actually said was:

"Labour will cut costs, cut inefficiencies, cut unnecessary programmes and cut lower priority budgets. But when our plans are published in the coming months people will see that Labour will not support cuts in the vital frontline services on which people depend."

Hmm.

Costs, inefficencies, and unnecessary programmes - they don't sound much like the kind of the cuts the rest of us are talking about. And they don't sound much like the kind of cuts that would eliminate our £80-£150bn fiscal black hole (eg see this blog).

As all the serious cuts proposals tell us, squeezing the public sector pay bill will be absolutely central to any meaningful programme. But union-funded Labour absolutely cannot undertake such a squeeze. Period.

We are right back to 1979. Labour cannot confront the public sector unions, and the public sector unions - entirely understandably- will not accept a serious squeeze on their members.

At least we only have another 260 days to go.

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www.gudanggrosiran.com Categories: cuts, Gordo, new labour

Mouth Foaming News

St Vince hasn't yet tried it

Last April Reform called for cuts of £30bn pa (see here).

Then last week, the TaxPayers' Alliance and the Institute of Directors called for cuts of £50bn pa (see here).

Now, no less a figure than St Vincent da Cable is calling for cuts of £80bn pa.

£80 bn.

Yea, verily, I say unto you, who can now doubt the absolute necessity for drastic action? St Vince is known to all as the solemn yet humane voice of financial righteousness. He neither foams at mouth, nor froths, nor yet breathes heavy panting for spending cuts. True, the godless clueless left have taken to denying him, but we must expect that. We know him still.

St Vince has worked with the very excellent Reform to produce his paper. It's a splendid read, and as he emphasised when presenting it, it focuses on cutting spending rather than increasing tax. As far as he's concerned, it's spending that has to bear the brunt of the tough decisions, not tax.

He proposes the following headline spending cuts:

• Zero growth overall for public sector pay (save £2.4 billion a year) - 25% reduction in the total pay bill of staff earning over £100,000 - salary freeze and end of bonuses for the civil service (save £200 million a year)
• Taper family tax credit – save £1.35 billion
• Radical review of public sector pensions - higher employee contributions and later retirement ages
• Scrap major IT systems - ID cards, NPfIT, Contactpoint, and proposed “super database”
• Curb “industrial policy” - scrap Regional Development Agencies (£2.3bn pa) and EGCD subsidies (£100m pa) and reducing (by at least half) the Train to Gain and Skills Councils budgets (£990m pa)
• NHS - scrap Strategic Health Authorities (£200m pa) – save £2bn through tariff reform
• Education - scrap quangos and cut national strategies and scrapping quangos - saves £0.6bn pa.
• Defence prucurement- scrap Eurofighter upgrade and Tranche 3 (£5bn over 6 years), A400M (£22 billion), Nimrod MRA4, Defence Training Review contract (£13bn), and the Trident submarine successor (£70 billion over 25 years).

He also wants more asset sales.

It all looks entirely sensible, and while many of the measures have been proposed before, they must gain authority coming from a non-frothing, non-foaming, non-heavy breathing voice of reason like Vincent.

There is just one small fly in the jolly old ointment. In terms of annual savings in the near-term, the specific measures he proposes don't deliver savings of anything like the £80bn pa promised. In fact, according to the Grun they only add up to £14bn pa, less than one-fifth of the suggested total.

Moreover, when you read the paper, there's no actual mention of £80bn at all. So where did Tyler get that figure from?

Well, actually, from the man himself. Tyler asked him outright at this morning's sermon presentation how much we needed to cut. And Vince said while he didn't have his calculator with him, it was about £80bn.

In reaching that number, he starts from the estimates of our so-called "structural deficit" . As the paper explains:

"From a policy point of view, we need to know how much of the borrowing and deficit is “structural”; that is, will not correct itself with economic recovery... It is now clear (or clearer) that spending plans and revenue assumptions made several years ago were based on an optimistic view of the sustainability of the boom in both financial services and in the housing market. That is why government and independent forecasters now assess the “structural” deficit, retrospectively, as being much bigger than when they assessed the numbers before the recent crisis."

It is this structural deficit we really have to worry about because as Vince says, that's the element of the government's borrowing that will not correct itself*. However, since we can't actually see it, the structural deficit has to be estimated, and the estimates vary from around 6% of GDP (HMG's figure), to around 10% (the OECD's figure -see this blog).

This morning, Vince told us he reckoned 8% was about the right number. But even taking the government's lower 6% figure it would mean cuts of around £80bn - "the sort of figure we need to be thinking about".

In which case, Vince does need to get his thinking cap back on. £16bn is a good start, but he needs a further £64bn from somewhere.

And unless he wishes to join us sinners in the outer darkness, he needs to find it without too much foaming or frothing or heavy breathing. (We'll ignore the Major's extraordinarily twisted view that St Vince is trying to have it both ways - grandstanding with the fiscal angels out here in the cold, while still carousing with the Big Government spendaholics back in the snug).

*Footnote. When we say the structural deficit will not correct itself, and will require spending cuts or tax increases, we should add that's not quite the whole story. Because if you believe our economy will eventually return to some longterm "trend"growth (as we do), it will over time deliver higher tax revenues on unchanged tax rates. So in theory, the government could simply freeze, rather than cut, departmental spending budgets and wait for revenues to "catch up". However, while that might sound the easier course, in practice, it's not so easy. For one thing, with a future trend growth rate of say 2% pa (and some think it will be lower), it would still take a decade or more to close our structural deficit. During that period, government borrowing would have to make up the difference, driving up debt servicing costs, which in turn would drive up the structural deficit itself. Moreover, freezing public spending for a decade is itself a very difficult task - as the 70s and 80s showed only too clearly. And all the while, the financial markets would remain extremely nervous, rushing for the exit at any sign that the government was about to renege on its commitments (eg default via inflation). Interest rates on government debt would undoubtedly rack up, exacerbating the structural deficit problem. So at the end of the day, there is no alternative - we must have a credible plan for eliminating the deficit in no more than the course of a single Parliament.

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