Monday, 28 June 2010

The State of Play

As I write David Cameron is busy blowing his own trumpet in the Commons post G8 so it seems a good time to reflect on reaction to the budget, nearly one week on, as well as commenting on some of the further proposals that we have heard from the coalition to cut the deficit.
Without doubt this budget has generated huge levels of interest from all parties, groups and commentators as well as for the first time in a long while, the ordinary man on the street.
In summary, it was a harsh budget that did not help anyone. No-one comes out of it better off, for which the coalition makes no apology; their oft repeated line is that we all have to contribute to clearing up the mess of the budget deficit. And most people would concede that this is fair enough, unless you consider just who will be hit the hardest as a result of Osborne's measures. No surprises, it's the poor that seem destined to suffer as a result of George Osborne's determination to pay off our deficit a full 15 years before even the IMF believes we need to. Research by the Fabian Society projects that spending cuts are likely to affect the poorest 10% six times as badly as the richest 10%. This is because it is precisely this group that relies both on welfare and front line services from local government, such as social care and services which are likely to be vastly reduced by Eric Pickles.

Various polls at the weekend seemed to indicate that overall the electorate are happy with the budget; the increase in VAT seemingly the only announcement that the majority take issue with. It appears that middle income Britain is if anything a little relieved; child benefit is staying albeit with a 3 year freeze; tax credits remain for those with salaries of under £40k and the cuts that we so far know about seem to be focused on benefits for those at the bottom of the pile; caps on housing benefit, review of disability allowance and as well as these measures the Tories are making frightening noises about relocating the long term unemployed, rehousing council tenants who's houses are deemed too big, forcing single mums back out to work when their children reach 5 as well as cutting disability benefits....oh and just make things even more Thatcherite we even have a culture minister suggesting that the Hillsborough tragedy was due to 'hooliganism'.

Meanwhile as our most needy digest how these changes may impact them at a time where unemployment is still climbing and their options are fewer than at anytime in the past 13 years; what are the cuts at the top of the tree? Ah, well....there is a banking levy which is only likely to bring in £2bn per year (around 0.07% of the balance sheet of the average city institution) which has been offset by a gradual cut in corporation tax. And we did see an increase in Capital Gains Tax, but even this was a good deal lower than expected by many commentators and investors.

Despite all of this, perhaps it is fair to say that so far, so far good for our merry coalition. Well, for the Tories that are no doubt controlling this government this may be the case but the Liberal Democrats are really starting to suffer. Labour are making it their clear modus operandi to attack them at any opportunity. All leading Labour figures used their articles and television appearances over the weekend to put the boot in, personally attacking the big Lib Dem names and digging out useful quotes especially relating to VAT rises. There are known to be an increasing number of Liberal Democrat MP's feeling very disengaged and nervous about what is happening in Westminster in their name. Alas, it appears that things can only get worse for the junior party in the coalition and indeed those needing any state support in the UK. A key part of Osborne's budget was the announcement that most government departments will have their budgets cut by some 25%, we will not know until the October spending review what this means in terms of inevitable job losses, cuts to services and further benefit reductions but it is likely that this is the point where the electorate will begin to sit up and take notice of what is surely an ideologically led attempt to shrink the state. October is likely to be the time that  real cracks will appear in the coalition, followed by severe tremors after the May local elections which will surely see a huge reduction in Lib Dem seats in councils across Britain, in particular in the North West where there is likely to be a strong sense of betrayal from the electorate.
However, even this won't make life easy for Labour. With the leadership battle in full swing and virtually all of the candidates admitting that mistakes were made in both the recent election campaign and the proceeding government there is a fundamental issue which doesn't appear to have been addressed. All five candidates have slammed the budget as regressive, unfair and attacking those most vulnerable and have been keen to point this out given any opportunity. But, as we have already seen, the electorate does not seem to share their view (at this stage at least) and surely any reinvention of the Labour Party needs to acknowledge this. The demographic that ensured Tony Blair's coronation is precisely the group which is currently satisfied with how the coalition is performing, whether we like it or not and Labour need to win back these people. How does it do it? If Osborne's plans don't plunge Britain into a double dip recession then whichever Ed or Miliband or Burnham or Abbott wins in September is going to need to be able to do more than just appeal to the UK's sense of fairness and  justice to get back into power.
Perhaps we can readdress this question in October when we will know more about how our future looks and who will be Labour leader but either way the candidates need to ensure that they are listening and can appeal to those who cannot see, or perhaps do not care that this budget is likely to cripple the poorest in Britain and could be the first step on an incredibly depressing,rocky road to  two tier society.

Tuesday, 22 June 2010

Budget Day....

Just hours after George Osborne delivered his first budget and it is fair to say the dust has far from settled. We were warned, of course, that this would be an unpleasant budget and both Osborne and Cameron did the media circuit at the weekend accepting that their popularity would suffer in the wake of today's announcements.
Osborne began his speech by outlining headline figures and concentrating on some of the macro economic figures; his intention is that by 2014/5 Britain's books will balance and that debt will be falling. Unemployment, he said, will peak next year at 8.1% but will be in decline to 6.1% by the end of this parliament. He stated that his rule of thumb is to work on a 80/20 ratio of spending cuts to taxes; and for this budget he has achieved a ratio of 77/23 - a sign, according to the BBC's Nick Robinson, of some LibDem influence. The camera hid David Cameron; giving the impression that Osbourne was flanked by his LibDem colleagues; Nick Clegg looking more smug and Tory-like than ever before and Danny Alexander still wondering how he got to be in the front bench of the Commons as Osborne's sidekick...

The big news is of course the increase in VAT from 17.5% to 20% from January 4th 2011. This measure was widely expected, but is still a disappointing move given the effect on the poorest. ONS statistics show that the richest 10% pay £1 in every £25 of their income in VAT; the poorest 10% pay £1 in every £7 as VAT. It simply cannot be denied that this move affects the poorest in Britain and counter balances any other measures that are designed to help them.

Regarding departmental budgets; the NHS and International Aid budgets have been protected but Mr Osborne announced that on top of the £40bn spending cuts that the previous government outlined he had found a further £17bn cuts in departmental spending. All other departments will be subject to 25% decrease in budget over the next four years, with seemingly some flexibility around this for Education and Defence. As an example, this could be a £10bn cut from the Home Office budget; and it is hard to see where these cuts can be made without reducing the police force and other vital, front line services.

As feared those working in the public sector were hit hard, a review of the public sector pensions was promised as well as pay freeze for 2 years for those earning more than £21000. Undeniably a cut given inflation; another blow to the so called 'protected' front line.

He confirmed that John Hutton will be looking into the benefits system in more detail and his report will be ready for next years budget; but some changes to benefits were ready to be unveiled..the headline grabbers will be:

  • Child benefit frozen for the next 3 years
  • Accelerating the increase in pension age to 66
  • Review of disability allowance, including introduction of a medical examination
  • Cap on housing benefit, maximum up to £400 per week for a four bed home (in London!, how on earth?); saving £11bn by the end of the parliament. He did, of course, tell the obligatory story of the family claiming £104k per year...the reality is there are 100 families in Britain claiming £100k - surely isolated and could be dealt with locally?
  • Scrapping the Health in Pregnancy grant, Surestart maternity grant, the Savings Gateway
  • Scrapping child tax credits for those families with a joint income of £40k plus
  • Increase of £150 above inflation for child tax credits
  • Public sector pensions, benefits and tax credits will be linked to the CPI rather than the RPI from now on, effectively cutting them
  • Relinking the state pension to earnins

In terms of tax rises and changes the big ones, aside from VAT, were:

  • Rise in Capital Gains Tax, staggered so that those in the lower tax bracket aren't affected; those in higher tax bracket will see an increase up to 28%
  • Increase of £1000 to the personal tax allowance threshold, rising to £7475 - taking 888,000 out of the tax system and affecting a further 23 million basic rate taxpayers
  • Introduction of a banking levy from January 2011, France and  Germany to follow suit.
  • Cuts in corporation tax, phased over the next 4 years
  • National Insurance holidays and tax cuts for some regional and small businesses, in order to encourage enterprise
  • The government will 'assist' those local authorities wanting to freeze council tax next year. Given that these very local authorities are victim to some of the toughest cuts, it will be interesting to see how this pans out.

The Chancellor also announced his plans to sell off NATS (National Air Traffic Services), the student loans book, TOTE and repeating the intention to inject private capital into Royal Mail; he also announced that the civil list will once again be frozen and that the list will be subject to scrutiny by the Audit Commission.

Osborne ended his speech by suggesting that this was a 'progressive budget' and that there would be no increase in child poverty numbers as a result of it's measures. Harriet Harman was passionate in her response; attacking the Liberal Democrats for their duplicity and damning the budget as one that would cost thousands of jobs and would affect the poor the most. She noted that the area most adversely affected would be Merseyside, and the least affected? Cheshire, home of Mr Gideon Osborne.

All commentators agree this was a tough budget and included the harshest measures for the last 30 years; no one will come out of it better off and there will be tough times ahead for many. It has to be said that those at the bottom of the ladder seem to have the least rosy future; a reduction in many benefits and few jobs to go out there and single mothers are supposed to go and find jobs when their children reach 5, given the economic climate and the need for flexibility is anyone's guess....
It would appear though that even more difficult times are ahead; in October's budget each department will announce where they are making their 25% of cuts - here is when the knife will go in even deeper...we fully expect more cuts to filter through over the next few weeks and I intend to keep track of them on the blog. If you have any comments regarding specific cuts or general thoughts please do comment. The future is certainly not bright, it is looking very blue in more ways than one....

Friday, 11 June 2010


I am away on holiday from today until 20th June and unlikely to be able to update; however I will catch up on my return. If you have any comments on previous posts please let me know!

Wednesday, 9 June 2010

Chop, come the cuts...

So Gideon/George wants us all to have a say in where the cuts are made. This rather lame policy was panned in most of the press this morning, including the Tory newspapers. The idea that those that hold the budgets, the figures and the power in their hands don't want to be the bad guys and make the tough decisions on their own is a little worrying, and a whole new way of avoiding responsibility! Ministers too are in for a tough time, they have been warned that they will judged on their ability to find cuts and wastage in their departments rather than their eloquence in lobbying for more cash.

The bottom line is this:  around £360bn in savings have to be found in the next five years (why oh why were we all getting so excited about the £6.2bn mentioned in the election campaign?!) and the deficit for the last tax year was £156bn which works out to be around £2500 per person in the UK.
Phew, pretty frightening.
So, what are we doing about it? Well, so far STILL no actual detail but apparently we're all going to get involved in talking about it and we are going to look at what Canada did in the 1990's for inspiration...But tidbits are coming through from Westminster, through both rumour and policy and the below could give us some indication of what to expect:

  • Libraries being staffed by volunteers? Mooted by Head of Public Sector at consultants KPMG, Alan Downey on yesterdays Today programme. Lots of libraries in the home counties then; not so many in the inner cities?
  • Increase in VAT seems imminent. An increase to 19% or perhaps a two phase rise? There is even talk of extending VAT to include some currently zero-rated items such as food, children's clothes or books.
  • Was the 5% ministerial pay cut a precedent for wider public sector salary cuts? Will the coalition be asking our teachers and nurses to take a reduction in salary? There is a growing belief in Westminster that this could be the case.
  • After Cameron's attack on the £20bn increase in benefits spending under Labour, the Department for Work and Pensions is bound to a take a hit in the emergency budget. Let's hope they keep their promises to protect Britain's poorest and most vulnerable and in particular their children when these cuts are allocated.
  • New Chief Secretary to the Treasury, Danny Alexander refused to comment on means testing child benefit, so this looks likely to be part of the cuts
  • The Department for Education announced today that they will not be implementing the extension to free school meals. The extension, which would have affected 500,000 pupils was due to include all of those will a combined parental income of less than £16191. Michael Gove's department said that this measure can no longer be afforded.
But despite this cut the Home Office has today managed to find £81m over ten years to bring forward a Labour policy of testing English language skills of all non-EU immigrants coming to the UK through marriage visas. The policy was due to be introduced next year, but it will be implemented this summer instead. Many immigration welfare groups are against the policy which is expected to reduce marriage visa applications by 15% , but clearly the government feels it is money well spent.

Let just keep an eye on these savings,  I am not seeing that many that are affecting Cameron, Osborne and their pals from Britain's elite so far! Instead we've got kids losing out on free school meals, mum's potentially having to pay VAT on kids clothes and no public libraries....

Monday, 7 June 2010

And so it begins...

The first LibDems have defected and David Cameron has told us, as predicted, that the books are in a much worse state than anticipated so cuts will affect each and every one of us. No surprises there.
The two LibDem absconders are a couple of local councillors in Exeter who have moved over to Labour as a protest at the coalition. I am sure that they won't be the last, but wonder how long until Nick loses a 'name' - I guess when the public sector job cuts begin; speaking of which....
Cameron chose the Open University at Milton Keynes to make his speech of doom, understood by many as a 'softening up' of the public before the spending review on the 22nd June which is likely to hit the public sector hard, as well as an increase in VAT - possibly to 20%. It has even been rumoured that public sector workers will be expected to take a 5% pay cut, mirroring that of ministers.
Cameron focussed on the deficit and the interest payments that the UK will be paying in 2014/5 if the deficit isn't reduced now. He said that there was no link between the deficit and the recession and is purely due to the previous governments overspending in the public sector. The Shadow Chancellor, Alistair Darling, challenged this by stating that pre the recession the UK had the second smallest deficit in the G7 and pointed out that "there’s absolutely nothing now that people didn’t know when I made my Budget statement in March". Once again the PM's speech was short of detail, and there was no information regarding the scale or focus of the cuts other than a promise that the most needy and vulnerable will be protected. Again, there was a lack of detail as to how that can be so, and already commentators are wondering how the gap between rich and poor can possibly be closed given the cuts we are likely to see. All should be revealed on June 22nd, when George Osborne will announce his spending review and our new age of austerity begins...
Meanwhile in the Commons, Nick Clegg was busy defending his reform proposals and indicating that there maybe some movement on the 55% for dissolution policy, should a parliament find itself in limbo, yet unable to find the missing 4% to dissolve.

Friday, 4 June 2010

First PMQ's

Wednesday saw David Cameron's first PMQ's, it was a subdued affair due in part to the horrific events unfolding in Cumbria and also due to the first day of school atmosphere in the Commons with so many new MP's getting the feel for this tradition. Harriet Harman was asking the questions on the opposition benches and she did very well, asking questions based around two key policy areas; marriage tax allowances and rape. There was an amusing exchange on the subject of cutting the married man's tax allowance; a policy that Cameron claims will reinforce his commitment to promoting marriage and keeping families together. Harman pointed out that this measure will cost the Treasury half a billion pounds per annum whereas the difference in pocket is likely to be only £3 per week - is this likely to keep a family together? I think not. Nick Clegg, who is against this policy and has won the Liberal Democrats an abstention in this vote, looks decided squeamish and rather like an embarrassed teenager on holiday with his middle aged, and rather uncool dad.
The exchange of questions relating to the proposal to change anonymity laws for rape defendants was really interesting and some commentators observed that David Cameron has perhaps diluted this proposal somewhat. It had been thought that the coalition was attempting to retain anonymity until the point of verdict in any trial, the PM seemed to indicate that it is more likely that this will be until the accused is charged.  A change from the current law which can release a name at the arrest stage. It would appear that this issue will be subject to some debate and hopefully a consensus will be reached across all parties. A key concern is that there is evidence that many victims do not come forward until the identify of a rapist is released and the fear is that any changes could be a step back in time.
The rest of PMQ's was largely uneventful with several questions from new MP's relating to issues such as NHS spending, RDA's, building new schools programmes and the Human Rights Act. We didn't learn anything of substance from the answers to these questions, but the Prime Minister was polite, honest and spoke broadly of aims and intentions.