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May 09 posts
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lgilmore | 
19 May 2009 at 12:34 | 365 views
There are some rare moments in politics which are, or which in time are seem to be, turning points of profound significance for the future.
In my lifetime, I would include amongst these Mrs. Thatcher’s election as Prime Minister in 1979, Britain’s ejection from the Exchange Rate Mechanism in 1992, and the arrival of Tony Blair as Labour Leader in 1994.
Last Wednesday’s Budget may also be seen, in retrospect, as another such turning point. It was significant not so much for the policy announcements which it contained – though these were extremely important – but for its definition of the huge economic problems which the country now faces which will help frame political debates in the years ahead.
When MPs sat down to hear the Chancellor of the Exchequer on Wednesday, we expected red ink – and lots of it. But the scale of the deficit which the Government is grappling with exceeded even the worst expectations.
A year ago, the Government expected “only” to have to borrow £38 billion in 2009/10. But so great an effect has recession had on tax receipts and government spending that this figure has now been revised up to £175 billion! Even if the economy recovers next year, the forecast is for another £172 billion deficit in 2010!
These are the sorts of numbers that would make a Latin American Dictator blush! Britain has never seen deficits like this outside of war time.
The National Debt – the size of all outstanding Government borrowing – is going to double in just a few years. And it will take over 20 years to get debt back down to former levels.
Out of the window has gone “prudence” – remember her, and the promises of financial discipline? Prudence was killed off by the end of another New Labour boast – that of “ending boom and bust”. Boom and bust are now back with a vengeance – with the economy expected to contract by almost 4% this year, and the Chancellor expecting a 3.5% bounce-back in 2011. If this strong rebound does not happen, our public finances will be in an even worse state.
No wonder the Prime Minister, Gordon Brown, looked tired and deflated; no wonder Ministers looked shell-shocked and gloomy.
But there was worse to come, not least for supporters of “New” Labour. There will now be a new upper rate of tax of 50%, breaking a Labour Manifesto commitment, and contradicting one of Mr. Blair’s long held position on tax. And some upper earners will pay a marginal tax rate of over 60% on a slice of their earnings!
It might we nice to think that this will raise some much needed cash, but this is unlikely when the Government has left open such huge loopholes for the rich – including a tax rate of just 18% on capital gains. This is a great Budget for well paid tax advisers!
For those who might think that the silver lining here is that at least the public sector will be well financed, think again.
From 2011 onwards, the Chancellor slashed his plans for total public spending, which is now set to fall in real terms for the period from 2011 to 2014 – meaning one of the tightest periods in recent history for public spending. Capital spending will fall by a mind-numbing 17.5% in real terms each year after 2011!
We are, indeed, in for a period of austerity. And even these figures leave a Government deficit which may be up to £50 billion larger than can be sustained. Further savings are likely to be needed to make the books balance.
My fear is that if we are not careful we will reverse any progress that has been made in improving the NHS, in reducing the inequalities which scar our society, and in starting to rebuild our battered pensions system. We must be careful that recovering our financial position does not undermine the steps needed to ensure social recovery in Britain too.
All of this seems to signal the end of the present Government, and a new political and economic era. But all parties now need to be clear and honest about how they would chart a way out of the present mess.
lgilmore | 19 May 2009 at 12:31 | 264 views
By the time you read this article, you will have heard the details of Alastair Darling’s Budget.
Although I am writing this before the Budget, I think I can make a fair guess at its contents – there will be a big upward revision to the short-term forecasts of Government borrowing, and more gloomy forecasts for the British economy this year than were made last November.
But it is also likely that the Chancellor will be cautiously upbeat about the prospects of a return to growth in 2010. There have certainly been a number of recent signs that the worst of the economic contraction is over, and that the financial sector of the economy is stabilising.
However, we should be cautious about getting too optimistic too soon.
I think I can also be fairly certain that the Budget will signal a much tougher environment for Britain’s public sector after 2011. To get the Government’s budget back in balance, the growth of public spending is being hacked back to levels last seen under Mrs. Thatcher. This means that after 2011 some parts of the public sector will experience real cuts in budgets, while others will see spending growing at a very low rate. Economy and efficiency is going to be very much back in fashion. The squeeze on public spending is now likely whoever wins the next General Election – which has to be held before June next year.
The key is going to be ensuring that we make the right “tough choices”, which protect key services such as education and health, and which are fair to those on middle and lower incomes.
Set against the hundreds of billions spent by Government, the cost of Parliament is not large. But if belts have to be tightened, then MPs and Parliament must set an example. And it is essential that parliamentary pay and allowances are reformed so as to tackle the abuses which have led to a “drip, drip, drip” of media stories which have undermined the trust of the public in Parliament and in all elected representatives.
Some necessary action has been taken, but much more is necessary.
On the bright side, MPs have at last given up any role in setting or voting on their pay – which will change automatically by the average of a group of other public sector workers. And there is at last going to be transparency on MPs allowances. Detailed figures will from now on be published on a quarterly basis, and this July every single expense receipt will be issued for every MP going back to 2004.
But there is more action that is, in my view, needed. MPs who live in or close to London should no longer be able to claim a second home allowance. For other MPs, there must be an end to the ludicrous loopholes that have allowed Jacqui Smith, the Home Secretary, to claim second home allowances on what is clearly her main home. There should also be a tightening up of what allowances can be spent on – with no more claims for expensive TVs and inessential items such as plants! This would allow the total size of the second homes allowance to be cut.
MPs should not be permitted to employ new staff who are relatives, and there should be closer scrutiny of the pay and work of current staff who are related to an MP.
The pension of MPs should be reviewed, and there should be a cap placed on the maximum taxpayer contribution. MPs could then choose whether to cut back on their pension benefits, or pay more out of their own salaries.
I would also support a review of the number of MPs. If constituencies with low numbers of voters were merged, we could get rid of as many as 50 or 60 MPs.
Taken together, these measures could help to deliver a cut in the cost of Parliament, without doing any damage to our effectiveness.
We are entering tougher times, and it is time for Parliament to give a lead.