Darling - "Spending spree hasn't worked and I plan more"

Never let it be said, that Darling doesn't believe in throwing more good money onto bad.

In a Guardian interview today, Darling said that "You'd be very foolish indeed to say 'job done'. We've got the Budget next year, and the pre-Budget report in 12 months time. I put more money into the reserve on Monday because I know we're almost certainly going to be doing additional things"

Well there you have it. Monday's spending spree was just the beginning.

And it's not just Darling. Peter Mandelson is apparently drawing up a list of companies that are judged 'too important to fail' and would be bailed out by the Government. If this list were to be leaked, then it would spell doom for the companies involved. I hope that if a list exists that it is not left on a train.

Taxpayers should not prop-up failing companies.

We really are looking at a return to the 70s - Tax and spend, government nationalisations, recession... I can only hope that David Cameron comes to power with the zeal that Mrs Thatcher did and reforms the failing state.

Damien Green's arrest

Damien Green's arrest for receiving leaked documents ranks as the most significant political development of the week.

The MP for Ashford and Conservative spokesman on immigration spent 9 hours under arrest - but was not charged - during which time his constituency and London homes were searched, computers and telephones were seized. In addition, his Parliamentary office was raided.

From what has come out so far, there appears no indication that this was over an alleged breach of the Official Secrets Act. Rather it was to do with an ongoing investigation in the Home Office over the leak of embarrassing documents to the Tories from a junior civil servant.

Green's 'crime' is apparently to have released the information into the public domain - information which is definitely in the public interest, and which is the Opposition's duty to release.

This is something that Oppositions have always done as the video of Gordon Brown below shows:



It's worrying for national security that on the day Mumbai was attacked by extremists, that nine anti-terrorism officers apparently have the time to search MPs houses.

But it is far more worrying for democracy that elected individuals can have their houses and Parliamentary offices raided. MPs work on confidential cases on behalf of their constituents who have the right not to have such information raided by the police.


As for who sanctioned this raid, no one is currently stepping up to take the blame. Despite Boris Johnson and David Cameron being informed, neither Gordon nor Jacqui Smith were apparently aware of the arrest. I find that inconceivable. The arrest of a shadow cabinet member and no one thought they should consult the Home Secretary? Smith has been doing the tour of the television studios this morning claming that it would be wrong to intervene in an ongoing police investigation.

But what is Smith's view and that of Gordon? Is it right that members of the official Opposition should be arrested for doing their job?


Condemnation of the action has come from across the political spectrum. David Cameron is, naturally, furious, writing in today's News of the World. But other MPs of principle are similarly enraged. Nick Clegg has been particular vocal in criticism and veteran Labour MPs Dennis McShane has said that, "... it would destroy people's belief that they could deal confidentially with their MPs about matters of concern to them." - Well said Dennis.

And while not a fan of Ms. Harman, I did think that she looked decidedly uncomfortable when interviewed on Sky News this morning, and has agreed to an inquiry, saying, "I am determined that we should protect those constitutional principles. Our democracy is important not just for electing the government, but for electing the opposition and the role of the opposition is to hold the government to account."

The real winners in 2008's pre budget... the banks

Once again, the banking sector is the real winner.

The VAT reduction from 17.5% to 15% was announced as being a benefit to the consumer. But the real winners are the banks. Why?

The banking and insurance sector make supplies of services that fall outside the scope of VAT. What that means, simply put, is that they supply services upon which VAT is not chargeable. But any services of goods the banks may buy from other companies, have VAT added. As a company, you can only recover VAT suffered if you are making taxable supplies.

So for the banks - VAT is a real cost to their business and a tax that they, like the end consumer, have to pay.

A 2.5% reduction is paltry to most people. But for the banks and insurance industry it is huge given the amount that they spend.


Taxpayers are still smarting from bailing out the banks, and I daresay, most would be very unhappy to hear that the banks are in line for this tax reduction.

End of New Labour

Yesterday's budget truly marked the end of New Labour. The branding exercise that made the Labour party electable has been terminated. New Labour was built designed to allay the fears of the public that Labour could be trusted to run the economy and in a series of high profile pledges, to not increase the rates of income tax.

Darling's plans for a new super-tax of 45% on earnings over £150,000 and the latest borrowing projections showing that the country is heading for debt levels of a trillion pounds have proved the old saying that all Labour chancellors run out of money, and all Labour governments bring the country to the edge of bankruptcy.

I personally never believed that New Labour extended far beyond Tony Blair. It certainly never included Gordon Brown. As chancellor, he persistently increased taxes on everyone during the last ten years. From the stealth moves - fuel duty, stamp duty, the appalling removal of the tax credit on dividends which has destroyed private sector pensions, to the more brazen moves, such as the increase in NI rates for everyone above the upper earnings maximum some years ago, here was a man who clearly believed that the state was the best spender of your money.


We all want better schools and hospitals. But the bonanza that has been delivered to the NHS and the state school system has not brought about measurable improvements. Survival rates of cancer in the UK are still well-below comparative countries in Europe. The UK has fallen down the world league table of educational attainment.

The great disappointment of Tony Blair's time as PM was that he did so little to reform public services. Oh, the money poured in. But as it was not matched by reform, much of it has been wasted.


I do hope the public wake up and realise how much has been spent, how much they have paid, and how small the improvements have been. It's time for a change and I'm looking forward to seeing Brown booted out of office.

pre Budget Report leaks and my thoughts

Today heralds the announcement of the pre-Budget Report. Darling is due to stand up this afternoon in the Commons to give details of his tax give away and the expected grim borrowing and growth projections.

I'm not sure why he's bothering, as I would have thought most MPs - like the rest of the public - could have read the budget report in the Sunday papers. This has to be the most comprehensive leaks of what is going to be in the budget EVER.

I can understand the tactical leaking of plans, especially if they are controversial, as a means of gauging the reaction of the press and the public at large. If your plans are shot-down, then you have the advantage of either denying the leaks, (and then ditching those plans), or amending them accordingly to make them more palatable.

But the leaking of the pre Budget report would appear to have little or no benefit. It's surely too late to rewrite the report once it is splashed about in the Sunday papers - the day before. All it has done is give the Conservatives and the Liberal Democrats advance notice of the contents such that they can provide a more considered response.


As for the details... well if we are to believe all of the Sunday papers, then Darling, sorry I mean Brown, is planning the following:

• A cut in the rate of VAT from 17.5% to 15%
• An extension of the stamp duty holiday on homes costing up to £175,000
• An extension of the £120 rebate for basic-rate taxpayers through a rise in the personal tax allowance (this was introduced to 'compensate' the losers in the 10p tax fiasco)
• A postponement on a planned one per cent corporation tax rise on the profits of small businesses
• An increase in income tax rates for those earning over £150,000 per year from 40% to 45%
  

(There are more measures, but these are the significant economic ones. Some of the others appear to be gesture politics at their best e.g. buying back former council homes and 'measures' to ensure the banks pass on cuts in lending rates).


Let's deal with these one at a time.


VAT from 17.5% to 15%

The aim with the cut in VAT would be that it would incentivise people to spend now, prior to a likely increase in VAT later. My belief is that this is fraught with problems:

1: Businesses will face considerable costs in changing all their systems to account for the change in VAT rates. Simple businesses will find it easy, others will find it far more difficult. In addition all those 1000s of items will need to be repriced - that is, assuming the retailers pass on the savings. Are 'pound shops' going to suddenly change their prices to 97.5p? - unlikely.

2: It doesn't actually put any money back into people's pockets. To access the savings you have to spend money in the first place, and generally, the problem is that people are nervous of their future job prospects, don't have any money and actually need to pay back debt they've racked up during the last ten years. I'm not sure that it would have the desired fiscal stimulus. Most food is exempt from VAT as are children's clothes, newspapers, train fares etc.

The goods that will be affected are that new plasma TV that you were going to buy. So - instead of it being £699 including VAT it would now be £684... a £15 saving. Now if you were considering spending that much money, would your decision be affected by a £15.00 saving? Unlikely. Even on a £10,000 car, the saving would be about £220...

When the retailers themselves are having 20% off days, I think that this will have very little impact on anyone's spending plans.

And let's not forget, that it is highly likely that any additional spending will be on imports e.g. that plasma telly - and imports are going to be more expensive now anyway, owing to the weakness of the pound - note Sony's announcement earlier this week, that it is increasing prices after Christmas owing to the exchange rate movements.

Verdict: An awful lot of money to borrow to finance a tax cut that will have such a marginal effect.


Stamp duty holiday extension

Fewer are buying houses as they cannot access mortgage finance. As the rates on new mortgages taken out are now about 2% above base rates, this is going to do little to restart the housing market. The housing market will only recover when confidence returns.

Stamp duty needs to be completely revised as a tax. It is simply wrong that the rate is 1% up to £249,999 and then 3% on £250,000 and above. So if you were buying a property at £249,999, you would pay £2,499 in stamp duty. But if you bought a property at £250,000, you have to pay £7,500 in stamp duty.

If stamp duty has to be retained, and I believe that it is a major barrier to mobility in the economy, then it would surely be far more reasonable to have a graded tax - something like 1% on the first £250,000 and then 3% for values between £250,000 and the purchase price etc.

Verdict: Fairly cheap. Can't see much revenue being lost in the short-term owing to the fact that no one is buying property anyway. Tiny benefit as a fiscal stimulus.


An extension of the £120 rebate for basic-rate taxpayers

I have to agree with this. The abolition of the 10p tax rate for lowest paid was unfair and unjust. A permanent correction should be introduced.

Verdict: Fair and just. Will provide a small fiscal boost.


Corporation tax - delay in introduction of 1% increase in CT for small businesses

Incredibly marginal effect. Aids only small businesses making profits in the first place, and these enterprises are highly unlikely to change any investment decisions on the basis of such a small move. If your business had profits up to the maximum permitted to access the lower tax rate, then you'd save £3k per year in tax on profits of £300,000. That could probably just about pay for the changes to your systems to implement the VAT rate changes.

Does nothing to help small businesses that are not making profits.

Verdict: No measurable impact.


Income tax rates for those earning over £150,000 per year up from 40% to 45%

This is a deeply cynical and political move, and nothing do with economics whatsoever.

It is entirely engineered to neutralise the Tories' charge of a tax bombshell to come. Most people casually looking at the budget announcement would think, "Oh great, well those people that are 'rich' can pay for this." And that is Labour's intention - announce massive borrowing and imply they will 'soak the rich."

If this is announced this afternoon, it would be a bare-faced lie - and must be shot down by the Tories.

Raising rates of income tax on those earning over £150,000 per year would generate additional revenue (assuming those people didn't catch the next plane out) of £2bn. Sounds great. But the VAT proposal alone will cost £12.5bn, so there's a massive hole in the public finances which will need filling in after the election.

Verdict: No one should be under any illusion - taxes will rise in the next two years. And it won't be the rich who are paying it back. It will be everyone.


Janet Daley has an excellent piece in today's Telegraph. Her conclusion is simple, and I agree with it -

The Government is borrowing too much because it is costing too much because it is doing too much.

More early election thoughts from the blogosphere

Mike Smithson over in PoliticalBetting.com is pondering Michael Portillo's theory that Gordon has become a risk-taker and a gambler.

Fraser Nelson in the Spectator magazine reckons Brown will go for a JANUARY ELECTION.

At this rate, he'll be calling the election the day after the pre Budget report...

Arguments for and against an early election

Anthony Wells has an excellent summary on the pros and cons for Brown in going for an early election, and this is starting to attract growing comment in the media.

Anne McElvoy writing in today's Evening Standard claims that Brown's allies are calling for Brown to go to the country on the 4th June next year. And Daniel Finkelstein over on Comment Central in the Times agrees that Brown should go early. Michael Portillo on the BBC's politics show, This Week, also thought Brown would and should go early.

But Michael White over in the Guardian reckons there's no way that Brown could go before 2010 and the Fink's Times colleague, Peter Riddell thinks Brown should wait.

After the debacle of the election that never was last year, Brown will be determined that speculation does not get out of hand. However, with growing speculation and discussion in the press, it could require action from him to rule out an early election.


The latest that the next general election can be held is May 2010 - about 16 months from now. Prime Ministers rarely wait until the last possible moment unless their position is desperate, for example John Major in 1997. Usually parliamentary terms last for around 4 years. By waiting until the last possible moment, Brown would be risking being knocked off course by unexpected events: strikes or even an outlier like fuel-price protests.

The pre-Budget report due on Monday of next week is expected to be a short-term giveaway. Expect something for everyone. How quickly this fiscal stimulus feeds through to the public depends on what is announced, but expect it to be quick. By January, all those with mortgages will be seeing large reductions in their monthly repayments. For those not yet in economic woe, a combination of tax cuts and mortgage reductions will make them feel substantially better off - probably to the tune of £300-500 a month for the average family.

The political effect of such a move could be startling. It is conceivable that this could further erode the Conservative's lead in the polls or even leave Labour out in front. Owing to the vagaries of the electoral system, Labour only need to be slightly ahead of the Conservatives to win a majority, wheras the Conservatives need to be significantly ahead. It could be Brown's best chance before the downturn starts biting in 2009 and 2010. If Brown went to the country at the nadir of the recession, which will probably be reached by late 2009, then I cannot see any way that Brown could win in 2010.

Even if Brown loses in 2009, looking at long-term strategy for the Labour party, it might be better to lose small, leaving the Conservatives with a small overall majority, which the Labour party could hope to demolish in four years time. The Conservatives would be taking over, if they won, in a position of having to deal with the worst parts of the recession, and, would be in the position of making unpopular tax increases or public spending tax cuts over their term to get to grips with the huge budget deficit.

Waiting until 2010 would probably increase the chances of a more heavy loss - not only as a result of the backdrop of a recession with 3m unemployed, but the 'Time for a change' story would be all the more pertinent. Labour would then have been in power for 13 years.


There are several reasons why Brown would not want to go early, and I think that these can each be dismissed:

1. Money and organisation. The Labour party is heavily in debt, has lost 1000s of councillors - the footsoldiers of any general election push. In contrast the Conservatives finances and organisation generally looks far better. But I don't see how waiting will improve Labour's situation. It is unlikely that their finances will improve significantly over the next 18 months, and I don't forsee a rapid turn-around in their activist base.

2. Gordon doesn't take risks and doesn't relish elections. This is undeniably true. Gordon famously pulled-out of the election that never was. His whole political career has shown a very risk-averse approach. But I think we are seeing a changed Brown. His whole policy of prudence and caution has been blown away by the economic circumstances. Could it be that this new-found arrogance could see him taking a chance. I think Mandelson and Campbell would be encouraging to go early - and they were not around this time last year.

3. He doesn't need to go early. He can wait for 16 months. But I think that he would only do this if he is resigned to eventual defeat, which I don't believe that he or those around him are.

The BNP list

There's been a lot of media interest today on the leaking of all BNP members' details on the web. Nick Griffin, the BNP's leader, has taken to the airwaves during the day, initially blaming disgruntled insiders, and then later blaming the Labour party for the leak.

Clearly the leak of such data is a breach of data protection laws and the police should investigate this case, as members of the BNP have the same right to privacy as members of the Tories, Labour and the Lib Dem parties.

The social breakdown of the membership is what has caused much of the interest. A vicar. A pig farmer. Some 40 teachers. Members of the armed forces. Some serving police officers. A broader range than one might, I suppose, expect. But the total list of members of less than 15,000 is lower than might have been feared.

Some of the members whose details have been leaked are now experiencing problems. Police officers, for example, are not permitted to be a member of the BNP, as it runs contrary to the police's stated aims to serve the entire community. Merseyside police are reportedly investigating the membership of one serving officer.

Others have apparently received 'hate calls' from strangers.

Secondary to the social breakdown, the geographical breakdown has been the media's focus. The Times has a Google Map style search to locate members, and I understand on Google Earth, you can view an overlay identifying the streets (but not exact addresses) of members. And the Guardian has a click-map online.


A BNP representative was elected to the Greater London Authority in the recent London-wide elections thanks to proportional representation and there is a risk that the BNP could make a breakthrough in the Euro elections in June next year, as these elections are being fought under PR for the first time.

If ever there was a reminder to us all that our first-past-the-post voting system, while imperfect, is the best way to prevent extremist minority parties from achieving electoral success. 'No' to any more trials of PR.

Retailers are beginning to panic

Worrying signs are starting to emerge from all areas of the high street. A whole host of retailers have been subject to speculation as to their futures over the last few days and some of the biggest names are now holding one to three-day 'spectaculars'.

The list of retailers reportedly suffering woes includes:

Dixons Stores Group's share price has collapsed in recent days and was trading as low as 11p per share today - basically valuing the company at about 10 days worth of sales. The owner of Currys and PC World is reportedly struggling and many see it as poorly placed to survive a prolonged downturn. When buying some items, there are some advantages to buying on the high street rather than the internet. Unfortunately, I don't think electrical goods fall into this category, and certainly the level of service on offer is surpassed by other high street retailers.

Woolworths is in desperate talks to try to sell the business. The timing is the most interesting part of this. It has been well-documented that Woolworths has been struggling for many years, but trading must be very bad if they are considering a sale before the key Christmas period. It has been suggested that the retail giant could be sold for £1...

M&S are holding a 20% off sale tomorrow (Thursday), with some of their stores staying open until midnight.

Debenhams - are holding an unprecedented sale. "10% off cosmetics and fragrances, 25% off absolutely everything else" they were trumpetting in their e-mail this morning.

Not to be outdone, middle class favourite, John Lewis are responding. After several weeks of reporting disappointing sales, I received an e-mail from them this afternoon stating "Prices lowered today. Today we are responding to a competitor's event"

I think I'm going to make a personal assessment of the gloom and will check out Oxford Street tomorrow.

Election fever is back

The latest IPSOS MORI poll in the Independent has the following shares of the votes (and changes on the previous month)

Conservative - 40% (down 5%)
Labour - 37% (up 7%)
Lib Dems - 12% (down 2%)

So in one month, the Conservative's poll lead has dropped from 15% to 3% (and they were 23% ahead in September's poll).

I think there is now a very real chance of Gordon Brown holding a snap election - probably a deeply cynical move to hold one after his tax bribe feeds through.

Rumours are already beginning to fly around the blogosphere:

• Apparently lines of Labour candidates have been seen being photographed with Gordon Brown (in readiness for their election leaflets)

(more to come)

Cameron's press conference

Many columnists are suggesting that this will see a U-turn on sticking to Labour's spending plans...

And it has. In a particularly effective speech, David Cameron has given a comprehensive account of where he thinks the economy is. He has abandoned the pledge to match Labour's spending plans in 2010-2011 and onwards saying that, "I can announce today that we set a new path for restraining the growth of spending from 2010-2011... public spending growth of 2% looked sustainable in the boom, after 2010-2011 looks unsustainably high."

This will please the punk tax cutters who will see it as a clear sign that there will be scope for future spending cuts. Cameron reminded everyone, that he has already asked the Shadow Cabinet to look at all spending pledges and programmes to ensure that they are all desirable and necessary.

But this was a wide ranging speech in which Cameron attacked the £30bn "borrowing bomb shell" that Gordon Brown is planning, saying that it will lead to a "£30bn tax bomb shell - or an 8% rise in income tax or a 6% rise in VAT."

He pointed out that there is little evidence that the fiscal stimulus plan will work, pointing to Japan which had tried to push through an unfunded fiscal stimulus in the 90s. Japan's net debt rose by 50% of GDP, but the economy grew only by 1% per year.

Cameron maintained his plans for the 'sharing the proceeds of growth' saying that over an economic cycle, there would be growth to share, by ensuring public spending grew at a level less than that of the economy as a whole.

In the questions afterwards, he was particularly keen to emphasise Gordon Brown's 'lies' over the economy and stated that he believed 'no one believes the Labour lies over Conservative spending cuts anymore'.


I think that this a clear and much needed change in direction for the Conservative party. Although they have not gone as far as I would have liked, in terms of identifying public spending to cut now, in order to support tax cuts, I do think that Cameron has set out the case eloquently, and is by far, his most effective performance on the economy for some time.

There may be some risks in abandoning Labour's spending plans for 2010-2011 - it leaves the Tories open to Brown's charges of 'Tory cuts' - but I really think that the public are feeling taxed to the hilt, and are willing to listen now more than they were in previous elections.

Organ Donation

One of things Gordon has not been slow to sanction is the use of taskforces, commissions and special reports to defer decisions...

The UK Organ Donation Taskforce has reported back today on the idea of 'presumed consent' i.e. that people's organs can be used for transplant unless they opt out. Their report said that "assuming organs could be used unless people opted out was unlikely to boost donation rates" They also voiced concerns over the patient trust issue with doctors.

The current situation is that people have to sign-up to the organ donation register in order to consent to their organs being used in the event of their death for transplant. There are currently almost 16 million people on the donor register.

Over the next couple of years, NHS Blood and Transplant will be raising public awareness of the issue in the hope of attracting more donations. As of today, since the 1st April 2008, 565 people have donated organs, 1,623 people have received transplants, but there are still 7,929 people waiting for transplants.

But instead of going with the recommendations of the task force, Brown has refused to rule-out a future change in the law i.e. presumed consent. I have no doubt that Gordon has the best of intentions in trying to increase organ donation, but it demonstrates once more, that he is unprepared to listen to the experts and always knows best.

You can sign the UK Transplant register here.

Flash Gordon

Gordon (Saviour of the Universe) returned to Planet Earth today to report back on the G20 finance meeting in Washington. Announcing global backing for his plans for a fiscal stimulus (i.e. tax cuts), Brown claimed there was a clear need for rapid and coordinated action around the world.

The press summary from the G20 ran to some 3,500 words, but the only section which appeared to support Brown's position was this "Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate, while maintaining a policy framework conducive to financial stability" Just 20 words, and crucially, "while maintaining a policy framework conducive to financial stability"

Cameron's response was to tell Gordon to "be straight with the British people and admit that his plans to borrow more will mean higher taxes tomorrow". Clearly this is the case, as anyone who has ever borrowed will know - at some point the money has to be paid back.

The relevant question, is whether the UK economy can sustain the level of borrowing required. Gordon's rumoured plans amount to a £30bn giveaway. The government was already projecting to borrow heavily in 2008 - and this was before the crisis developed. Now debt is expected to soar to £100bn in this fiscal year, on the back of the banking bail-outs, nationalisation of Northern Rock and Bradford & Bingley, and increased social expenditure (i.e. unemployment benefit).

Ministers have already conceded that this will mean tax increases over the medium term, say 3-4 years. (Leaving the next government to pick up the problems...)

The Conservatives have already pointed out that they believe that further borrowing and unfunded tax cuts are unsustainable, as have the Liberal Democrats. Iain Dale is reporting that Boris has joined the battle with a passionate attack on Brown in his Telegraph column, and goes on to say that the Shadow Cabinet need to be far more passionate and angry and take the battle to Brown.

I couldn't agree more. But as I suggested on Saturday, the Conservatives should agree to the tax cuts, but produce a list of public spending that they would curtail, and I'm pleased to say that by Sunday, the Telegraph was reporting that Oliver Letwin is working on a package of spending cuts. Excellent news - let's hope he delivers the goods.

New Tory strategy on economy needed

George Osborne has launched a ferocious attack on Brown in an interview with the Times. Talking about a 'run on the pound' and a 'scorched earth policy' is a high-risk strategy. Confidence in the economy is low, and talking down the country's currency is generally not advisable by any senior politician.

Justine Greening, a member of the shadow treasury team has said that George Osborne is very much reflecting the broader concerns of the business community and John Redwood has written several pieces recently stating that a sterling crisis is a major risk if the government embarks on its tax cuts and borrowing strategy.

The timing of George's intervention is interesting as the G20 leaders meet in Washington. Is this to push the G20 meeting off the agenda? Or is to shore up his own position?

The clamour for Osborne to be 'shuffled' out of the shadow chancellorship continues to grow. The Telegraph has produced a number of opinion pieces this week, starting with Iain Martin, saying that Osborne should be replaced, and this has been followed-up by other commentators and in fairly harsh leader pieces.

And the former party treasurer and Dixons founder, Lord Kalms, has joined in telling the Telegraph, "You need someone who relates absolutely to working people who is heavyweight. I think George is a first-class man, but I'd like to see a bit more grey hair on the front bench... David Davis would be absolutely the right man at this time as shadow chancellor. I am informing everyone who will listen that change needs to happen."

Osborne's supporters continue to point to his sucess in derailing Gordon's election plans last year and point out that Labour want to 'take a scalp'. While all this may be true, I have to say, that I am significantly underwhelmed by the Tory's economic strategy and response to the crisis.


As I pointed out in a previous posting, the Conservatives are at a grave risk of being outflanked by Gordon on tax. What is the Tories' reponse under the current strategy going to be if Gordon announces £16bn of tax cuts? Oppose them? That would be electoral suicide.

David Cameron needs to formulate a new strategy and fast. If Osborne cannot do this, then it is time for someone else to be put in position. Move Osborne to party chairman and preempt the report on 'Nannygate' by moving Caroline Spelman.

Support the tax cuts that Gordon produces, but instead of going along with his wreckless borrowing strategy, start outlining some proposed spending cuts. Nothing from the education or health budgets (which doubtless nonetheless contain huge amounts of potential after 10 years of massive growth). Say that they will not introduce ID cards - saving billions, will abolish the Regional Development Agencies - saving billions, cut back on the non-jobs in local government... there's plenty of potential there.

There is a real risk that on the back of falling interest rates and a massive tax bribe that Gordon decides to go to the country early in 2009. It is conventional wisdom that says politicians do not win general elections in recessions. But John Major did - and as the Tories will remember - he won.

The Prime Minister is not up to the job

It's taken me some time today to blog my thoughts on today's PMQs. The main exchanges were over the difficult subject of the death of Baby P and the circumstances surrounding it, and I wanted first of all to read up on the facts of the case.


The BBC detail the sad life of the young boy here, if like me, you have not followed the case. The list of injuries is truly sickening. Two men and the boy's mother are due to be sentenced in December.

Baby P was known to social services, having been put on the child protection register following reports from the family GP and a paediatrician. Despite 60 visits to Baby P's home, no one from Haringey Council's social services thought that the injuries were severe enough for the baby to be taken into care.


I think everyone in the country is asking "How could this happen?" and as such - it is perfectly reasonable for David Cameron to ask questions of the prime minister on this subject and urged the PM to consider whether the time has come for Haringey social services to be taken over. In one of his most unbelievable replies ever, Brown accused Dave of 'playing party politics' over the issue.

Brown has totally misjudged the mood of the public on this. The BBC's Nick Robinson described Brown as having reacted with a 'political tone-deafness' to the mood outside Westminster. John Cruddas the left-wing Labour MP said that David Cameron was 'absolutely right' to bring up this, and Charles Kennedy echoed the thought that "Brown was out of touch".

When Brown moves off his comfort zone on the economy he just cannot cut the mustard. Instead of being able to reflect the country's outrage and show he is dealing with this serious issue, he just ducked and resorted to accusations of partisanship. This is clearly not a man who is prime minister material.

My verdict on the Tory tax plans...

Not good enough. Not good enough by far. A wasted opportunity.


Essentially, small businesses have the potential to earn a £2,500 tax credit (on employers' national insurance contributions) if they take on new employees who have been unemployed (claiming benefits) for three months. There are safeguards to prevent making people redundant and then re-hiring them.

Most small businesses will need to speak to their accountant to understand the scheme which will add to the administrative cost. This is exactly the same as all those other complicated tax credits that Brown has engineered over the past ten years.

Even assuming that businesses have the resources to take on people during a recession, which I doubt, surely it is just going to subsidise businesses that were growing anyway. Thus I very much doubt that the £2.5bn is going to be achieved.

I'm afraid I concur with Nick Clegg's conclusion that it is "Timid".

Yes - people are concerned about their jobs, but I think that most will just see this as a tax cut for business. And let's not forget - this only affects those who are not in jobs in the first place.

The Council tax freeze for two years is similarly timid.


I'm afraid that I appear to be in a minority of right-leaning bloggers. Iain Dale has described it as a 'home run' for the Tories.


There's little doubt that Brown is going to produce a substantial package of tax cuts over the next couple of weeks. Whether this is responsible or not is irrelevant politically. As a voter what would you prefer - jam today (i.e. tax cuts now and higher tax later) or jam tomorrow (responsible tax policy now and lower tax later)... The time value of money suggests that most voters would go for money now rather than money later.

The Conservatives will be politically outmaneuvered by Brown's announcement, putting them in the position of then opposing his tax cuts to those 'hard-working families'...

Labour tax plans - PM's conference

It's the PM up now, in his usual monthly press conference (pushed up to 09:30 from the usual 12.00), which caused Dave to move his to 08:30.

Erm no announcements on tax... and very quickly over to questions from the floor. Sounds like we'll have to wait for the pre-Budget report, after all. The closest hint was an answer to Sky's Adam Bolton.

Adam Bolton, "Is there room for a stimulus on unfunded tax cuts. Cameron says 'No', you're saying we have a low debt. Is there room for tax cuts."

GB - "We have lower public debt than all our G7 neighbours" (once again omitting PFI, the bank-bail out and the unfunded public sector pensions!) "We are prepared to add to borrowing to give a fiscal stimulus to the economy"


And that appears to be it...

A day that initially promised a war over tax cuts has actually turned out to be a phoney war. Gordon is not yet showing his hand.

Tory tax plans

The first of the day's press conference on tax moves. Present - David Cameron, George Osborne and Chris Grayling.

"Well will not walk on by" says Dave, saying that the focus of his moves are to keep people in work, but that "Irresponsible borrowing that created recession will not help us out of it"

The new plan appears to be a £2.5bn package of measures to give tax breaks to companies who employ new workers, the idea being that companies that are still hiring workers are incentivised to do so. It is financed by the £8,000 saving to the taxpayer that is realised when people move from unemployment benefit into work. It is claimed that it will keep 350,000 in work.

CCHQ has just released this document explaining how it will work.

Dave set out the moral case for keeping people in employment yesterday and this continues the theme of compassionate Conservatism.

Other than this there was little new - the other policy proposals had been previously anounced i.e.:

- Will freeze council tax for two years
- Take family homes out of inheritance tax
- Abolish the Vehicle Excise Duty changes.


And that's it...

These measures are very modest, and I daresay that the punk tax-cutters in the Conservative party will be infuriated. There is the very real risk of being outflanked on tax by Labour (who are up next).

In response, Dave says, "We'd like to do more, but we have to recognise the extent of the public spending deficit"

Hmm - let's wait and see what Gordon's proposals are... My thoughts are, that politically, Dave's moves will have little traction with the public.

The battle for tax cuts

Twelve months ago, the prospect of all three main parties offering tax cuts was inconceivable. Now all three parties appear to be competing to offer tax cuts.

The Lib Dems have already set out their position, the Tories are due to report tomorrow and Labour are reported to be mulling over cuts too, with several 'sources' quoted in the Sunday papers.

The radical change has come about as the economy is in need of a fiscal stimulus to stave of the downturn. But more than that, public opinion seems to have changed. Obama and McCain both campaigned on manifestos promising tax cuts - Obama focussed on low and middle income earners, McCain was promising tax cuts for all, and it is now seen as a potential vote-winner.

Sentiment has moved on in the UK over the last twelve months and appears to have been driven by the inflationary squeeze on incomes. Families and individuals were finding that more and more of their income was being spent on food and fuel, and started looking around at where all of their money goes.

The 10p tax row helped to put tax back on to the agenda in a way that it hadn't been for years forcing a reversal by Gordon Brown. Poll after poll now suggest that a large majority of the public believe that local and central government 'waste' public money, and a quick glance at the TaxPayers' Alliance website would appear to confirm this, so there is an appetite for tax cuts.


The three parties, while all now supporting tax cuts, appear to differ in how to pay for this.

Lib Dem - cut taxes for low and middle incomes, levy more tax from high earners. Essentially, a redistributive move in taxes, but wouldn't provide a fiscal boost, unless the assumption is that those on low incomes will spend more of their money in the economy than the loss to the economy of the spending power of those on high incomes.

Labour - cut taxes and borrow more. This will provide a fiscal stimulus, but surely this is simply government spending on the never never. Borrowing will have to be repaid at some time, and taxes would have to rise in the future. This is a short-term move.

Conservative - cut taxes and finance this through reduced government spending. Appealing, although cutting public spending in a recession is going to be challenging. And it does bring about the charge that front-line public services will be 'hit'.


The challenge for the Tories is to find a way to reduce government spending, in a credible way, without impacting on public services. I look forward to their proposals due out tomorrow.

Glenrothes - it was NOT close

To say that Labour hung on in Glenrothes would be an understatement. Labour comfortably held the seat, actually increasing their share of votes by 3%. The SNP vote did go up, facilitated by a collapse in the Lib Dems, who were down 10%. The Tories did push the Lib Dems into fourth place, but will have little to celebrate, as they too lost their deposit.

The pundits said it would be close, the punters said it would be close. Labour were writing off their chances - which will now be seen as skillful expectations management. Alex Salmond, hubristically, was declaring a "political earthquake", and even on the day of the poll had been forecasting an SNP win.

If ever there was a reminder to politicians, that it is not over until the votes are counted, this is it. Alex Salmond should have studied more carefully the famous 'Sheffield Rally' where Neil Kinnock threw away his chances of victory in 1992 with a triumphalist, congratulatory display - before the votes had even been cast.

Alex Salmond's honeymoon is over. In this particular by-election, the SNP were in the position of defending their position as the establishment, not only in the Scottish parliament, but also as leaders of the local authority. And although this was a safe Labour seat in 2005, with a majority of over 10,000, the SNP did win a seat with about 80% of the same electors in the Scottish parliament elections in 2007.

So how did Labour win?

A relentless Labour campaign, focussed on a simple message about increased charges for home-help, brought in by the local SNP council, and other general scaremongering and negative campaigning has been cited by Nicola Sturgeon, the SNP deputy leader as a major factor. But this is an over simplification.

Unlike in Glasgow East, Labour selected a credible, local candidate, Lindsay Roy, known throughout the community due to his long career in education, as headmaster of Brown's old school. The SNP candidate, Peter Grant was also a credible local man, and on the whole fought an effective campaign, although there was the occasional gaffe.

And of course, Gordon Brown is a local boy. There was much made of this by-election being in his backyard. And he and his wife, campaigned in the constituency. Was it that his fellow Fifemen weren't prepared to kick one of their own, which the Glaswegians were willing to do?

However, I think that the real factor here is Gordon's performance in dealing with the global economic crisis. Whether he can be blamed for having contributed to the problems is almost irrelevant, to voters, who I believe will make judgements about who is to blame in the future. What Gordon has shown, is that in the short-term, it is he, who is providing leadership in charting a course out of the troubled economic waters.


So where does this leave the parties?

Labour will have been boosted by a strong performance. It is clear evidence that there has been a recovery. More than this, it is a signal that the Labour's core voters are willing to turn out to support the party. We have probably seen the bottom of Labour's recent collapse in popularity.

The SNP threat, for the time being, has receded in Scotland. At the next general election, voters know that they will be voting for the UK government, and I think that Scottish voters will vote tactically to keep Labour in power in Westminster.

The Liberal Democrats came second in Scotland in the 2005 general election by share of the vote. They should be concerned that in two by-elections in Scotland in the last six months, they have been unable to build or even hold their share of the vote. Granted, Glasgow East is not their sort of area, but to have their share of the vote go down by 10% in Glenrothes, is not particularly reassuring.

We all know that the next election battle will be between the Conservatives and Labour, and for the most part, this battle will be decided in the Midlands and North of England. David Cameron cannot now rely on the SNP to chip away at Labour's MPs in Scotland. They may lose a few, but I don't think it will be more than a handful.

Although it is difficult to make predictions and extrapolations from a by-election, it shows that Labour's core support has not abandoned the party. Hence, Cameron needs to redouble his efforts to appeal to voters in middle England, and he needs to fight for every vote at the next general election.

Will the medicine work?

The Bank of England's reduction in base rates from 4.5% to 3.0% took everyone by surprise today. It is not possible to understate the significance of this move - at a stroke, the notional cost of borrowing has been reduced by a third.

The last downward move in interest rate in excess of this (excluding the slight hiccup during Black Wednesday) was the 2% reduction in 1981 from 14% to 12%, but in terms of a percentage reduction, the cost of borrowing fell by only a seventh.

The Bank is tasked with setting interest rates to target inflation. It has no remit to target growth. Therefore, one must conclude that the Bank believes there is a very serious risk of it undershooting its 2% inflation target in the medium term - deflation. Japan went through an unpleasant period of deflation in the 1990s, and the Bank of Japan reduced interest rates to zero, but it took over a decade to work.

Deflation in economies is a problem because when prices are falling simply because consumers have no desire to buy, this leads to a vicious cycle. Consumers postpone spending because they believe that prices will fall farther. The effect on businesses is that they then cannot sell goods and make a profit. In response, companies then reduce production and lay off workers, which in turn leads to even lower demand for goods and even lower prices. Businesses struggling to repay borrowing ultimately impact the banks, who then become more risk averse and have less money to loan, further restricting the supply of money.

House prices are currently falling in the UK as there is a shortage of credit to finance the purchase of assets. And of course, who wants to buy a house when it is probably going to be cheaper tomorrow. A lack of demand then causes further house price falls, and the spiral continues...


So I suppose the question is, will the interest rate cut help boost the economy and avoid recession, or are we in for a period of deflation, recession and stagnant growth?

For the homeowner, on an average £150,000 mortgage, the cut for those on a tracker deal (around 40% of mortgage holders) represents about £135 a month. For the 10% on standard variable rates, it will be ultimately up to the individual bank or building society what they do with their rates. For the other 50% or so on fixed deals, this will make no difference to their monthly repayments. However, this is a sizeable

Lloyds TSB have already announced that they will be passing on the full 1.5% interest rate cut to those on the standard variable rate. Given the taxpayer ownership of HBOS and RBS, I think it would be inconceivable for either of these institutions to not pass on the full reduction. There would be public outcry and I would suspect the Government would find continuing its hands-off management of the banks unsustainable.

HBOS is the biggest mortgage lender in the UK, and Lloyds TSB and RBS, which owns Natwest, together would make up a sizeable proportion of the UK mortgage market. Competitive pressures would then bear down on the other private institutions and they would probably all be forced to cut rates.

So I believe that the banks will pass on these savings and by my rough calculation, this should mean 7.5m households will benefit by, on average £1,600 per year. Or - put it this way - it puts £12bn back in consumers' pockets to spend. This is a considerable stimulus. What is unknown is whether the public will spend this money, or fearful for their jobs, decide to save it...


For businesses, consumers with extra money should provide a boost to their sales. The direct impact of the base rate cut on business is less certain. What is stifling companies is the lack of available credit more than the absolute interest rate. And while rates may fall for business in the short term, when they come to renegotiate their finance, they may find that the new rates are higher.


It is probably too late to avoid a recession, but the Bank's actions have probably averted a depression.

Bank of England decision

BofE has just announced base rates to be cut by 1.5% taking base rates to 3%.

A shock move - more than expected. Most analysts were expecting 0.5% to 1.0%. This moves the Bank ahead of the curve and represents the lowest rates seen for decades.

Clearly, the rapidly worsening signs coming out of the economy have signalled to the MPC the need for a strong dose of medicine.

Glenrothes countdown

Countdown until the polls open...

PaddyPower has lengthened the odds on Labour retaining the seat - now at 2 - 1 with the SNP on 1 - 3.

And here's the latest thoughts doing the rounds:

Ben Brogan is suggesting that Labour have already given up.

Andrew Sparrow over in the Guardian is suggesting a narrow SNP win.

Of course, politicians are adept in the art of expectations management - you always see it with local elections. Play down expectations so when you do badly, you can spin it as being "rather better than we expected, actually."

One thing is certain, a victory in Glenrothes for Labour would allow the Brown recovery story to be perpetuated. Failure to win will not be a disaster, but it will signal that Labour are back in remission.

It's tricky - very difficult to call. Has Brown done enough to save himself? Before the polls open, I'm going for the SNP. Alex Salmond's party machinery will win through.

Triumph of the novice

Barack Obama has been elected as the next President of the United States. The US has once again shown the world, not only that it can re-invent itself, but that it leads the way with an egalitarian society, where now anyone, irrespective of background or race, can be President.

John McCain was gracious in defeat, despite some of the assembled faithful booing at the mention of Obama. He fought valiantly, but ultimately had little to offer in contrast to Obama's message of hope and change, and was undoubtedly damaged by a perceived closeness, in policy terms, to the now universally unpopular George W Bush.

America's image around the world has been damaged by a foreign policy failures, from the War against Terror - whose threads take in the Iraq war to detention without trial in Guantanamo Bay - to its dismissal and inaction on climate change. Americans and friends of America around the world will be hoping that Obama's change starts to put this right.

Obama will take office and inherit a full in-tray from Bush - a burgeoning deficit, the need for revised bank regulation, ongoing adventures in Iraq and Afghanistan for starters. Add to this his own stated policy initiatives of personal tax reform, increased tariffs on Chinese imports and tax policies to ensure companies keep jobs in the US rather than shipping them abroad, and reform of healthcare.

Quite a lot to work his way through.


Both Gordon and Dave tried to bask in the reflected glow of Obama's victory today. I think Dave was slightly more successful, by asking Gordon whether he'd told Obama that it was, "...no time for a novice".

Most commentators agree that Obama's election in the US has neutralised that line of attack against Cameron. Novices can win. The question is, can Cameron emulate Obama's wide-ranging appeal and compelling message of hope and change?


Oh, and don't write off that other novice, the lipstick-wearing Sarah Palin from having a stab at the top job in a couple of years time.

Hostility to London?

I wondered whether the election of Boris as Mayor of London would signal an increasingly difficult relationship with the Labour central government.


TFL FUNDING

The opening shots have been fired in a row over tube funding. Mayor Boris has written to Alistair Darling, demanding a bailout of the tube, which is apparently facing a shortfall of £1.4bn.

Transport minister, Lord Adonis, has rejected Boris's demands - which will have the effect of cutting back on station refurbishments and other projects. TfL must 'make do'

The capital is, of course, saddled with Gordon Brown's PFI scheme for the tube, which has so far seen the collapse of the Metronet consortium which was upgrading two-thirds of the tube. The PFI scheme has proved to be a complete disaster for both Underground users and the taxpayer. Years behind with station refurbishments, and, more significantly, with line and signal upgrades, it now seems that upgrades will have to be delayed or scaled-back.

Public transport in London is essential for the continued success of the capital, so if the government is not willing to finance the shortfall, then it will be over to Boris to plug the gap.

The bus service is heavily subsidised. Too many people can travel for free. The young. The old. Aside from the arguments over children causing mayhem on bus services, is there any reason for children to travel for free?

Free travel for children on buses should be abolished. This perk is costing the network between £70m-£80m per year, which the network simply cannot afford.

Speak to any commuter who travels on the tube, and their biggest gripe is that the service is overcrowded. Fares are already cheaper, if using Oyster pay-as-you-go, to travel outside of the peak periods. However, the real issue is that peak periods last for at least three hours, with the evening peak lasting well until 19:30, so I'm not sure there's a lot more that time-of-travel based pricing can achieve.

Fares should rise on the Underground to increase revenue, reduce demand and provide funds for enhancement. Tube users can either choose to pay or they can be displaced on to buses.

No doubt such moves will be desperately unpopular, but the Mayor should make it clear to passengers and voters, that it is the government's failure to finance TfL that is the cause of these changes. Just like they do, he needs to balance the books.

But it should not be all bad news. Increased revenue from the tube could also finance the introduction of an express bus network. Is it really necessary for every bus to stop at every bus stop - often not more than 50 metres apart?

What about an E-prefixed bus network that perhaps stops only every half-a-mile? The journey time would be significantly reduced, not only in an increase in average speeds, but in the fact that dwell time at bus stops, as people board and exit, would be significantly reduced.

Be bold Boris.


LONDON LIVING WAGE

More surprisingly, a row appears to be brewing over the Mayor's 'London Living Wage'. The London living wage is £1.72 more than the national minimum wage of £5.73 and Boris has already promised that it will be paid to all staff employed by the GLA and TfL. It could signal a big pay increase for the army of cleaners on the Undergound. (It should be noted that Ken was a supporter of the living wage).

However, Childrens' Minister, Ed Balls, has said that an artificial 'living wage for London' could distort labour markets and prove poor value for money, and produce inflationary risks.

Yes this is the Labour party. Given the extortionate cost of living in London it seems to me perfectly reasonable to suggest that a higher minimum wage is needed for the capital. Almost all companies, including the public sector, have a 'London weighting' added to salaries to reflect the extra costs of living in the capital. I cannot understand why the lowest-paid workers should not also benefit from a weighting.

Probably, it is because the government is obsessed with tax credits and a whole plethora of central benefits to 'top-up' the wages of low-paid workers rather than just seeing them paid a fair amount in the first place.

The economic week ahead

Plenty of economic indicators due out this week, including a host of companies reporting. They should give an update as to how the economy is faring:

Retail figures due out:

M&S (Tuesday) and Next (Wednesday) will be giving their interim and and Q03 trading updates. Interesting to see if the downturn is yet being felt by these high-street stalwarts.


A plethora of economic indications:

The purchasing managers index for manufacturing and services, the British Retail Consortium's shop price surveys... all just in time for Thursday's MPC decision:


Bank of England (and ECB) rate decision:

Most expect the Bank of England and European Central Bank to reduce rates. Inflation figures published in the Eurozone showed an easing of inflation leaving the hawkish ECB free to cut rates following the Fed's move last week.

Will the Bank of England cut by 0.5% or 1.0%? It will depend to some extent on the weakness of the figures disclosed above, and the bank's internal data. Mervyn King may yet surprise, but as he's in favour of 'boring banking', I expect a 0.5% cut.

A day for leaked memos

Two interesting leaked internal memos - one from the Conservatives and the other from Labour...

First up - the Tories. A memo, written by the Conservatives' Director of Policy and Research suggests, "We need to ensure that we have a strong and steady flow of policy ideas, speeches and announcements to release between now and Christmas... these do not need to be economy themed, or necessarily brand new... perhaps a previously announced policy that didn't get much attention could be relaunched successfully."

Labour have got hold of the memo and have tried to make some political capital out of it.

At least it shows that the Conservatives have recognised they need to counter the government's recent activity.

Second and more interesting, was leaked handwritten notes from a Labour party away day concerning the Glenrothes by-election. Apparently, the notes show that Labour fear that the party in Fife is "Not geared up for modern campaigning," and that their internal figures suggest a swing to the SNP across Fife of 5.5%. Guido has the document on his blog here.

Salmond has been quick to jump on the news and has predicted that the SNP will win - but it will be close.

Labour are defending a 10,600 majority in the seat, although the SNP did win the seat in the Scottish parliament elections last year.

It's probably too close to call. The bookies have the SNP as slight favourites. Politics Home's PHI 100 panel were at first confidently predicting an SNP victory, but are now leaning towards Labour. I think that Labour may just pull it off. Of course, if they don't it will be very damaging for Gordon, as he has campaigned twice in the consitutuency, and it's in his backyard.

UPDATE 21:40 The Times is now reporting that Labour are admitting defeat and expecting a 3,000 SNP majority in Glenrothes... I still think it will be closer...

It must be a day for people losing things - James Purnell, the work and pensions secretary has apparently left confidential government documentation on a train.