Thursday, 31 March 2016

UK 80% services and rising..

In the light of the Port Talbot mess, we find today that Services as a percentage of the UK economy has reached 80%.

We really are officially post-industrial now, which is amazing when you consider in the long scheme of history we only really just invented the industrial revolution and have given up on it already. Who would have thought even 30 years ago that the economy would turn out like this.

Indeed, shuffling bits of paper IS our economy.

I am reminded of the quote from the now defunct Xerox where an ex-CEO said:

"The definition of middle management is sending half-finished documents via email to each other, forever" or something like that.

But this is now officially the UK. Crazy policies around energy costs and farming subsidies/non-subsidies as well as Marxist unions and the drive of globalisation have ended our role as providers of real products.

There is much to be said for an Intellectual Property led economy and creatively led economy. On the other hand, as we are rapidly discovering, there are far more losers than winners in the new economy.

Non high value services, retail, leisure, packaging etc are all minimum wage stuff. High value lawyering and accounting etc is very well paid.

Losing manufacturing, inevitable as it may seem, will lead to a much worse division incomes overtime. How Governments deal with this will be very interesting in the next 20 years or so.

"UK Industrial Policy" - Echoes of Hollow Laughter

Being somewhat embroiled in my own industrial policy just now, this post will be short.  The headlines on Tata and the British steel industry, alongside the steady drip of crazy news on EDF's Hinkley Point nonsense, make for desperate reading.  Show me one government minister of any industrial experience, let alone 'proven track record of success', as the job application ought to read.

The rumbling UK issue of the first half of this year must soon become entangled with these fiascos.  Cameron, surely, will be pressed to go ('cap in hand' as they always put it) to Brussels for some kind of bail-out triumph.  The 'remain' camp, presumably, would ideally like Brussels to bung Tata a direct EU 'solidarity' sub: that ain't gonna happen.  So the best they can hope for is an approval for some UK taxpayer-funded bailout - which isn't so easy to spin as a reason for staying in, is it?  ("See how quickly Mr Juncker approved a breach of his own rules on state aid, isn't it wonderful?!")

But how can the EU be called in aid of Hinkley?  They've already twisted themselves in knots to approve the tens, nay hundreds of billions of state aid on offer to the beast.  I realise there are no limits to the deviousness of the frogs and Juncker and Mandy and all these disreputable types, so nothing should be ruled out.  

Still, their creativity will be stretched to come up with anything plausible on these two fronts in the next couple of months.  If they succeed, there will be a long queue for referenda across the entire continent, hahah.


Tuesday, 29 March 2016

Saudi policy has delineated the limits of its power.

This is really interesting in the FT today. Amongst a raft of dull domestic stuff is this piece on the fall in Saudi Arabia's market share in many of its key markets, including China, South Africa and Europe.

All under big pressure from Russia, Iraq and soon to be Iran.

No wonder in January Saudi Arabia agreed to hold production in discussions with Russia. Since then the oil price has bounced from around $30 per barrel to around $40 per barrel. This is somewhat of a goldilocks zone currently as it is still well below shale oil costs but enough for the petro states to exist without defaulting or getting into debt.

It does show that Saudi Arabia is at the limits of its powers today; withdrawing from a poor battle in Yemen, unsure who to support in Syria and now roundly hated worldwide for exporting Wahhabi Islam.

30 years ago the Saudi/US team was able to easily dominate the world, maybe even 20 years ago. But no longer. This is no bad thing given the ludicrous uses to which Saudi put its petro power; the it is another sign that the world is becoming more multi-polar in orientation.

Saturday, 26 March 2016

What's sauce for the goose is sauce for the gander {English proverb 1775}

King Obama III   

When Obama comes to the UK in April to urge a 'remain vote' I trust Nigel or Boris will remind the President of the United States of America of some of the text in his nation's most revered document.

The Declaration of  Independence the name, and by the authority of the good people of this United Kingdom are, and of right ought to be a free and independent state;
 that they are absolved from all allegiance to the European Crown, and that all political connection between them and the States of Europe, is and ought to be totally dissolved; and that as a free and independent state, the United Kingdom have full power to levy war, conclude peace, contract alliances, establish commerce, and to do all other acts and things which independent states may of right do. 

..We have warned.. in attention to our Brussels brethren.
 We have warned them from time to time of attempts by their legislature to extend an unwarrantable jurisdiction over us.
 We have reminded them of the circumstances of our emigration and settlement here. 
We have appealed to their native justice and magnanimity, and we have conjured them by the ties of our common kindred to disavow these usurpations, which, would inevitably interrupt our connections and correspondence. 

We must, therefore, acquiesce in the necessity, which denounces our separation, and hold them, as we hold the rest of mankind, enemies in war, in peace friends.
We hold these truths to be self-evident...

Friday, 25 March 2016

Is London the Price of BREXIT?

How many policy conflicts can a voter hold in his head?
A commonplace observation:  mid-term elections of any kind are a punt on the popularity of the government.  It seems pretty obvious that BREXIT's best chance is Cameron's crew being in bad odour.   They've made a great start on that, despite all manner of tactical trimming (delaying the Heathrow decision, dodging awkward budget choices, getting the EC helpfully to defer banning toasters, etc etc); and Jezza seems to have nudged ahead of Dave in the polls.

Since nobody has the slightest interest in debating Dave's Deal, and both sides instantly claim all 'events' confirm the rightness of their own cause, it all comes down to the mood of the moment.  Project Fear will get ever more shrill; ministers' statements will get increasingly implausible;  Nicola Sturgeon's convoluted contributions will leave the Scotties in all manner of amusing dilemmas; and Camerosborne will be wallowing in their first really serious popularity trough.

And then London will go to the vote:  Mayoralty and GLA.  Somewhat paradoxically, Khan is for Remain and Goldsmith for Leave: but Khan needs incohate anti-government sentiment above all else - he's got no use for complex, nuanced messages.  Somehow it's hard to imagine the Labour Party thinking, hmm, it would be nice to win London - but we should probably let the Tories keep it, so Cameron can have an easy ride in the referendum.

No, I think they'll be piling into the government wherever and whenever, to the best of their (admittedly rather feeble) ability.  More significantly perhaps, so will 'events' - particularly those over which dark forces have strong influence.  (Do we seriously think the Turks will come to the aid of Turkey-supporting Cameron by putting a stop to the 2016 summer migration surge?)

Now someone in the Labour hierarchy who is genuinely pro-EU (which doesn't include Corbyn, of course) will be piously rehearsing a different logicFirst, we take London, then it's all hands on deck for the referendum - and it'll be Us Wot Won It!  Trips off the tongue easily enough: but it sounds to me a bit like Harold Godwinson in 1066:  first, it's off to Stamford Bridge to tough up Harald and the Norwegians, then it's all down to Sussex and bring on the Normans!  Like many of Osborne's schemes, it sounds like a plan - but it ain't.

Cameron can lose London (and believe me I don't want that) by being deeply unpopular in May.  That's a fairly serious loss of prestige which significantly compounds his credibility problem.  And then Labour parlays its famous victory into propping him back up and turning it around in June?  Alan Johnson announces that Labour has now taken charge of public policy, and we're all to vote the way he tells us?  I suspect the cyclical, tidal forces of anti-government sentiment don't subside quite as quickly as that.


Thursday, 24 March 2016

Police think crime is your fault

The Met Police commissioner, a man whose stock is falling like a mining share on the FTSE, has mused that Banks should stop paying out people who are victims for fraud.

Apparently, it only encourages them to be reckless.

His reasoning is along the same lines that if you leave your car unlocked or a window on your house open, then you will be uninsured. But then again, is a girl fair game because she wears a short dress....this is a silly path to take the 'asking for it' legal defence.

The Banks themselves are not going to wear this either. Firstly, if they all act in concert then that is anti-competitive. Secondly, they are the ones pushing online and digital.

The world of online banking has long been insecure. The Banks have always paid no questions asked because if they don't then customers will insist on branches, chequebooks, cash etc; all very costly and the Banks are trying to dump this aspect of banking.

Paying out a few hundred million in fraud cases is pittance compared to sacking 50,000 people and closing hundreds of branches. Perhaps the Banks could do more to install anti-vires software etc at their cost and as an added benefit of current account banking; rather than useless insurance deals etc that they currently offer.

And of course, their world is ruined if the trust goes and then there is the cost of real security. Nobody loves 3-level security, indeed personally I find it easier to find a cash machine than try to log on to my supposedly accessible internet banking.

So the Met Police commissioner will take a bucket full on this and quite right as his real attempt is to get others to pay to do the Police job. After all, his union members want to sit in cars and patrol the streets, they are hardly equipped to go toe-to-toe with Anonymous style hackers; good luck with the re-training of the Force!

Wednesday, 23 March 2016

Out of the Doldrums

Hmm, a week is a long time in politics!

One of the key reasons that the Budget and Welfare Reform have become a horrendous zero-sum game is because the economy is not performing as brightly as lots of people had hoped. This recovery does not seem to be like the good, old-fashioned booms of yesteryear. Normally, after a deep recession (and usually a bit later, after financial crises) the economy bounces back quite strongly on the back of looser money, a bit of judicious fiscal pump-priming, and the reversion to norm. Productivity, which is the only real driver of growth and living standards, catches up, firms invest in the next round of equipment and skills and the economy gets better almost by magic.

But as my esteemed colleague CU likes to point out, we are now quite a long way away from the 2007/8 financial crisis. There are still lots of problems around the world: the Eurozone, the China panic (lots of people say that the panic was seriously overblown), the correction of the oil price, and so on. But still.

The Chancellor finds himself boxed in. He has promised to balance the books. He has promised not to do this by raising the main tax rates. He has even been cutting some taxes, although this seems to be more than made up elsewhere. Overall, despite the wailing from the Right, there has been and will continue to be a significant tightening of the government's finances. I think even George himself would accept that the retrenchment has not been as fast as he would have liked when he was appointed; he would accept that some mistakes have been made. There are only limited areas which can be cut, thanks to the promises made by Cameron et al. in the 2010 and 2015 manifestos. They gave themselves far too little room for manoeuvre, presumably because they did not expect to win the election outright.

In an economy with its own fiscal and monetary sovereignty, fiscal and monetary policies can adjust in relation to each other quite easily. Sadly, the UK has fallen victim to the idea that nothing more can be done on the monetary front. The consensus view seems to be that because interest rates are "low" that monetary policy is "loose" and so it would be dangerous to try to revive the economy. The evidence to the contrary is deafening: inflation was zero in 2015. Inflation has burst onto the scene in 2016 by reaching the heady heights of 0.3% in March. Wages are stagnating. Exports are sluggish. The trade gap is yawning. These are all symptoms of money being far too tight.

But looser money isn't the only thing which we need. We need structural reform, undertaken with a zeal that Mrs T and Hezza would have blanched at. As I predict will be pointed out in the comments, looser money on its own might just end up boosting house prices. Again. What we need is deregulation and immediate and heavy investment in public infrastructure. 

An amazing stat for you: 20% of London's existing housing stock was built between 1919 and 1939. As in, a fifth of what is standing now was built in a twenty year period in a city which has been here since at least Roman times and which was the first city in the world to reach a population of over a million: about 200 years ago. A city which was devastated by bombing in a period immediately after that 1939 cut-off, and which suffered at the hands of the post-1945 planners. 20%.

And we know how they did it. Pre-1945 there was very little restriction on what could be built and where. Nobody is proposing to tear up the rule-book in its entirety, although in these post-industrial days I doubt it would be as toxic to do so as people might think. Have you been to a factory recently? They are generally cleaner than most homes! Anyway, in the 1920s and 1930s, the state built extensions to tube lines, it built trunk roads, it built electricity infrastructure, and so on. It built the stuff which was needed to open up new areas for development. We should do this now, and not just because John McDonnell says so. We should press Go on new towns, on the freedom to redevelop existing developed land (although, to be fair, George has made some progress on this, much to the horror of Blue Rinse Tories and local government officials). We need skyscrapers and new transport links in our cities, and fast links between cities. We need a step-change in broadband provision.

We also need to let rip elsewhere. Businesses are held up by restrictions. The courts need to get better, faster and cheaper. We need to boost training schemes so that the new boom does not inflate away because of skills shortages.

Basically, we need a full-fronted assault on the stagnant economy. That will require cultural change which means strong leadership by someone who knows what to do and is prepared to fight to achieve it. So, probably not George, then.

Tuesday, 22 March 2016

The Heir to Blair 

 Some final thoughts on the 'Omishamles II' budget. And the larger continuity New Labour approach of Cameron's government to being in office.

Firstly, its shocking that it happened at all. To make a humiliating cock-up of one budget is a misfortune. To make a humiliating cock-up of two looks tragically incompetent.
On the business front it was a fairly decent budget. But domestically, a shocker.
Obviously something went on before the actual budget. Reforms to pensions were stopped. Reforms to tax credits failed. no doubt behind the scenes a 'Thick of It' style panic was ensuing as the centrepieces were withdrawn and the economic news grew daily worse. it all looked a bit And now even that has been shelved.

It does appear, that like Tony Blair, The Prime Minister leaves the matters of finance to his Chancellor. He simply sets a few 'red line' areas that cannot openly be crossed and entrusts the Treasury to do its job. Admittedly, the PM has had rather a lot on his own plate recently. The EU has sucked up all his spare time for months. But, not to have checked the budget's contents against his Spads and officials?
Gordon Brown famously refused his Prime Minister access to his budgets. was deliberately vague and deceptive. Rumour has it the first Blair new of many of his new taxes was when the chancellor got up to speak at the budget.

Second point.
Following in Blair's footsteps, income tax cannot be touched. This makes no economic sense. In the bad old days of Wilson and Thatcher income tax moved all the time. In 1987 the top rate was still 60% and had been for six years. Having been cut from 83% in 1981. It was 1990 when it was cut to 40%, where it remained until the Scorched Earth, elephant trap Labour policy of 2009 made it 50%.
This was solely so labour could reclaim some economic competence. Brown's fiscal rules.
In reality taxes continued to rise. And by a considerable amount. Just not income tax.

This led to the third point:
Unable to pull the big lever, the chancellor had to pull all the small ones. Corporation tax. Council tax. VAT. National insurance. Employer's NI. Holiday taxation. Car taxation etc.
Brown's favourite money grab was to just let people drift into the highest rate taxation, and inheritance taxation, and highest stamp duty rates, almost as if it was just nothing to do with him.

The time Brown did mess the income tax rates, the 10p tax rate cut, he got it spectacularly wrong. The actual change was a cut on the basic rate from 22% to today's 20%. It was largely smoke and mirrors just to fox the Tories.  The 'Wizard of Odd' Chancellor cut the lowest rate, to benefit a higher rate. It was all pence losses for the losers. But it had a massive political impact and almost finished him off mid-term when it came into effect.
For most people a rise of 1% on basic rate income tax is not going to be crippling. Ignoring bands and tax free allowances for simple maths, a 1% rise on £10,000 is £100.  £500 for  a £50k income?
Its a lot of money for HM Treasury .
The fear of raising income tax has been a good thing, overall. Previously governments couldn't resist sticking 2p on here. 5p on there.
But by denying the tax raising power for purely political purposes, the Treasury has continue to perform the same Brownian motions of old. And sooner or later, the trick goes wrong.

Finally, why is George Osborne still Chancellor at all? This is , again, continuity new labour.
Serving prime ministers feel that a change of Chancellor might put them at risk of taunts that their entire economic strategy is wrong. Why should they fear this? Previous governments did not.
Mrs Thatcher had 3. Harold McMillan had 3. Clement Atlee had 3. Most PMs have 2.
The reason Brown was in place so long was as much to do with the civil war within Labour as it was with the stability of government and presenting that firm hand image.

Tony Blair has not been Prime Minister for almost a decade.
It might be time to stop creeping along in the shadow of New Labour

Monday, 21 March 2016

UK £850 better off per person if we scrap the CBI

New statistics out today in support of Britain staying in Europe show that by scrapping the CBI we could all be £850 better off a year.

The CBI, chaired by known 1%er Sir Mike Rake, costs Britons all day long every day.

The CBI fights for:

- Lower Pay for Workers
- Higher pay for Chief Executives
- Higher Government subsidies for large businesses
- Lower taxes and more Government spending
- Membership of the EU and specifically the Common Agricultural Policy.
- Promotes the ludicrous Hinkley point power station development
-..and plenty more

The activities of the CBI are a huge detriment to the UK as a whole. Their recipe of policies costs everyone in the country hundreds of pounds in extra costs every year. Made-Up Research has today put this cost at an £850 per person in the UK for each year the CBI remains in existence.

Rather then leave the European Union, remain campaigners are as of today instead claiming that if we just closed down the CBI, the economic bonus would allow us to put up with the hassle and costs of EU membership forever.

Sunday, 20 March 2016

budget satire at its best

Not the Nine O'clock news, from the golden age of satire. Still as observant and biting thirty years on.
The nasty party lives on. 
IDS has done an IED and gone off in chancellor's lap. Some of the government's clean-up spin, and a fair few commentators are linking the resignation of the 'quiet man' to Europe.
The facts don't support the theory. 

If IDS had wanted to resign over Europe he could have gone over the gagging of cabinet ministers. The withholding of papers about Europe. The inaccuracy of Government immigration statistics. The peddling of fear. The dodgy letters purporting to be from the military or business leaders, that are actually penned in Whitehall. The back-door ushering of Turkey into the EU. Or he could pick any future week to resign. A new week, a new battle.
 As the Brexit draws nearer, the campaigning will become dirtier. IDS could find a reason to quit over Europe any day he wishes.

Another theory s its a personal attack on Osborne to reduce his chances of becoming PM and promote IDS' comrade in arms, Boris Johnson. That is more plausible, but still doesn't stand scrutiny. There is no leadership race. So why quit now? Lowering Osborne's support does not raise Johnson's. It just damages the Tory brand all round.

Most likely the reason IDS quit is the reason{s} he gave. The welfare changes hit those most in need the hardest. 

IDS has threatened to leave before. Though no concrete stories have emerged it has been reported that he has refused to be moved in reshuffles. Has threatened to resign before if the Treasury cut back his reforms.
Sadly for IDS, his plans, though very noble and very worthwhile, would have been best carried out under the last labour government. When money grew on trees. The reforms to get people working again, have a high cost. 
This government has no money. The last one had no money either. Its highly unlikely the next one will either. IDS was realistic enough to know he would not get all he wanted. But not realistic enough to see that the Chancellor was going to have to take his cut from somewhere. He couldn't touch the PM's personal red lines on NHS, education or foreign aid, so, welfare, with its bloated budget, it would have to be. I suspect Osborne reckoned IDS was just another Vince Cable. Always threatening to quit..but he would never really do it. So he called his bluff.

And he lost.

Friday, 18 March 2016

(a) Surrounded by Idiots (b) Weekend Reading

A common complaint about standards of discourse in public life is that politicians & civil servants know nothing (I may even have said this myself), ditto journalists - and yet it is they who push to the front and dominate the field.  Where are the expert voices?

Well.  In my part of the universe one of the most prominent professional bodies is the Energy Institute, some of whose work is excellent.  It has just published the first results of its 'Energy Barometer', obtained by exhaustive polling of a 'college' of 850, selected to be representative of its 21,000 members.  One of the questions they answered was this:
In the UK, which technologies have the greatest potential to make a cost-effective contribution to decarbonisation, without subsidies, by 2030? (select up to 4) [my underlining]
And coming in at #2, with 42% of these sages voting for it, is   ...  Nuclear!  

Nuclear?  Without subsidies, by 2030?  And these are 'professional' people!  With jobs in the energy industry, and votes in elections, and things like that.  We may be thankful they didn't make it #1 (which was of course energy efficiency, at least they got that right).  Universal suffrage?  It's over-rated.

ANYHOW:  here's some weekend reading for you.  Don't be put off by the title ('Despair Fatigue') or the leftie breast-beating of the first third.  It gets round to addressing some of the serious themes we knock around in these parts - what's the reality of the UK economy; do we and can we survive on the back of the London 'financal services' industry; prospects for a genuine uprising of the disenchanted under Corbyn etc etc - all the big stuff. 
"... in many ways Britain [still] resembles an imperial economy: while it does export machinery, pharmaceuticals, plastics, petrol, and a whole variety of high-quality artisanal products, in sheer material terms it takes in far, far more than it sends out. So we must ask a simple question: Why do other countries continue to send their things to Britain? How is it that the island manages to take in so much more from the rest of the world than it gives them in return?"
Kinda germane to the whole Brexit thing, no?  Read on.  And as the frogs limber up to hurl their money at Hinkley Point ... Allez les rosbifs! - England for the Grand Slam!


Thursday, 17 March 2016

Judge a Budget by its critics

As a direct result of our moderate, mixed, pragmatic popular-capitalist approach to economics in this country, I have a couple of days off work. I am putting my free time to good use by letting you know how people thought the Budget went. You can thank me in the comments. 

The Shadow Chancellor decries yesterday's Budget as evidence that the "capitalistic" system has failed. (This was quoted in a BBC article, but the text has been subsequently removed, so you will have to take my word for it.) Mr McDonnell continued with some waffle about wanting a fairer system, with more opportunities, more happiness, and generally everything nicer. Specifics were thin on the ground, although he does seem to think that there is a rich seam of economic development to be tapped by investing more state funds in roads, railways and connectivity while cutting spending on welfare. So he agrees with George - and much of the centre-right - on something.

The libertarians are furious about the sugary drinks tax. Personally I am generally against nannying by the state. After all, we already know that soft drinks are bad for you and red wine is good for you, so why should the government interfere with our choices? But if we are going to have a nanny state, Osborne's proposal is at least less bad than a blanket duty on sugar across the board. He is giving manufacturers plenty of time to introduce new versions of their drinks before the tax comes in. He is exempting hipster East London tonic-makers. And most importantly, he is sending a strong signal (which is all economics is about in the end) that those small tins of Coke (other tasty fizzy pop is available) have huge amounts of sugar in them and really are best avoided. Our readers are already well-informed and thus probably won't be affected in the slightest. Let them drink tap water, I say.

Nigel Farage thinks that the only result of the sugary drinks tax will be increased smuggling. I don't know about Nigel, but when I go to France next I will not be wasting valuable boot-space on crates of Fanta.

The land-value taxers are angry because the Chancellor has cut business rates at the lower end of the market. This will help land-owners and not small business, according to them, because rents will rise to compensate. That might well be the case in places where the supply of commercial space is insufficient, but it seems to me to be less obvious in our depressed high streets and industrial estates. The business rate reduction hopefully begins to address some of the difficulties that small businesses in the UK have competing with home-based online sellers who avoid paying for premises in the first place at one end and the Amazons at the other end who can manage their affairs to take advantage of the complexities of the global tax system at the other. I will be interested to know what Bill Quango MP thinks.

Overall, my impression of the business tax changes as a whole is that small business pays less, and big business pays more. Some are saying that there is nothing inherently evil about big business, so why should they be hammered. Capitalists are not against big business, but large organisations find it much easier to navigate the regulatory and tax minefields and can be more productive because they have the resources to be more specialised. This is not something that should be punished, but I see nothing wrong in giving small firms some compensating advantages. After all, small firms are an important part of competition and innovation. In an ideal world, we would have a lighter burden overall, but we are where we are.

There was also a small helping of red meat for those on the right of centre. I didn't catch the exact figures, but George announced that public spending as a proportion of GDP is falling, and is planned to fall to its lowest level in many years. There was a slight easing of income tax for both lower and medium earners. Savers get an increase in their ISA limits, and no blunt end to the pension-contribution system for now. 

In summary, the Budget was hated by the hard left and the unrealistic right. Those who love to hate Jamie Oliver will be apoplectic. But given the British electorate's usual preference for something middle-of-the-road, a fairly solid Budget. The direction of travel is clear: the state is gradually getting smaller; the public debt will eventually start to come down; but nothing too radical to cause an upset to our slow recovery.

As an aside, I think the OBR has done us a favour by predicting low growth from here to eternity. Osborne's big mistake in 2010 was to base his deficit plans on stellar future economic growth. His predictions were dismissed as laughable at the time, and so they turned out to be. It is A Good Thing not to assume that everything will turn out super-rosy, and then be disappointed when it doesn't.

Osborne, the Tinkerman part 94

That budget yesterday, what to say?

A million tiny changes left right and everywhere. The concept of 'Nudge' taken to its extremes.

My question is, why does George Osborne think aping Gordon Brown is a good thing?

This is the man who sat opposite Brown for years and witnessed first hand the financial crash and is in charge of the miserable financial accounts of the UK.

And his recipe for success is to do more or less exactly that Gordon Brown would have done.

As the saying goes, I have seen this film already and know how it ends.

But really, sugar taxes to pretend to pay for school sports etc. Pure gesture politics.

The only real surprise, is hidden from most people, that commercial property has been whacked the same as residential. Now, when the same stamp duty was applied to Residential the market came off very quickly; so it is likely that commercial property will too.

Certainly this is a good thing in the round as the asset bubble in property is very full; however, it still dents growth prospects as so much of the economy is dependent on property. It is the only brave move of the budget yet the Government are too worried to crow about it. Bizarre.

Wednesday, 16 March 2016

Budget day!

These days we are spoiled, two budgets in 2015 and an Autumn Statement. Now it's March already and so it's tiiiiiiime for another budget! Thank George for that!

Aren't Budgets fun?! Millions of column inches spilled in the run-up, interviews with the Chancellor and quotes from "sources", official leaks, unofficial leaks, pure speculation. Then there is the analysis, the online calculators, the poring over the detail, the revealing of the bits which weren't in the speech itself. Then we get the moaning from the left, right and centre that their pet projects weren't included; we are moving in the wrong direction! Debt is too high! Austerity is too harsh!

With the government currently caught between the EU referendum and slow growth and the consequences for the public finances, this Budget is unlikely to involve much more than a bit of tweaking here and there. This tweakfest is much to the disappointment of Capitalists, who prefer simple, flat, transparent taxes and regulations that are easy for everyone to understand and hard to avoid. We do not want to become France. 

Given the likelihood that Osborne is not about to give a radical reform Budget to match Barber or Howe, I thought it would be fun for readers to suggest what they would do, without the constraints that politics places on real-life Chancellors, especially those with a slim majority behind them and a risky referendum in front of them.

My big reform would be the introduction of a "progressive consumption tax", which has been discussed before on this site. Essentially, we would all have a flexible pension pot with money taxed only on the way out of it. So our incomes would be paid in to the pot and we would be taxed as we took money out to spend. Income tax rates would rise and flatten, to encourage people to save rather than spend. This would rebalance the economy away from consumption and towards investment, which is something we are often told ought to happen. The new tax regime could replace VAT, national insurance and some other duties. I would also simplify business taxes, abolishing corporation tax and employers' national insurance contributions, aligning capital gains and dividend taxes with income tax - although investments within the pension envelopes would, obviously, be free of such a burden. I would get rid of the crazy income-offset schemes which help high-paid staff in large corporations to cut their tax bills at the expense of everyone else who doesn't have huge HR and accounts departments behind them.

Once the system is established, I would encourage people to opt out of the state pension system. People would be encouraged to make their own plans for the future, with only a minimal safety net for those who don't make any provision.

I would also devolve huge tracts of public services to the new super-duper-devolution regions. Why should London, Manchester et al. not run their own health services, for example? There is no reason for the Health Secretary to be in charge of every last detail of every last contract of employment with every last doctor and nurse in the country. Such devolution would hopefully mean better oversight of services, and more efficiency.

On the subject of devolution, I would like to see local government raise its own money for spending. At the moment, central government hands about half of local spending to councils - with the accompanying controls. This undermines local democracy by disconnecting spending from taxes and local accountability. That would probably mean a big rise in council tax and service charges, but with offsetting tax-cuts from central government.

Over to you, readers.

Tuesday, 15 March 2016

'Strategical' Osborne Hits the Hinkley Buffers

Sorry to keep coming back to the Hinkley fiasco, but it really is quite an extreme (not to mention amusing) example of several phenomena, all in the one train-wreck.  In no particular order ...

Can-kicking:  one of the key aspects of Hinkley is that in its physical manifestation - i.e. as a producing power station (putative) - it has been viewed as consequence-free within the usual political time-horizon.  It was always going to take more than one parliament to build the wretched thing so Osborne was able to take the approach of 'paying for it' via an ultra-inflated electricity price that wouldn't kick in until that distant day when production commenced, by which time the price of other energy could be, well, it could be anything, really.  OK, in the meantime there is the minor matter of millions in legal fees etc, but that's small(ish) beer.  Kick that can!

Hubris:  of course in its political manifestations there have always been much more imminent aspects.  Osborne reckoned there was a triumph to be had if (a) Hinkley appealed to the Chinese as an icebreaker for their own nukes to follow, a down-payment on the relationship he wants for when he's PM four years from now, and (b) it could be heralded as the dawn of a new age, proof of political will, marquée project, big swinging dick etc etc.

Kinda depends on it actually going ahead, though ...

Suspending the Law of Gravity:  as I often say, you can suspend the law of gravity - but only if you are prepared to throw enough money at it.  And guarantees backed by an AAA government plus a couple of AAs are worth a heap of money.  But: when the music stops, you fall to earth, every time.  And Hinkley just doesn't fly.   

Naïveté in Whitehall:  but less so elsewhere.  In the red-white-and-blue corner over here we have the endlessly ignorant and gullible politicians + civil servants of Whitehall who know nothing of industry, finance, commerce, negotiation etc etc - in fact, the whole real-world package, it's just plain missing from their repertoire.  In the red-white-and-blue corner over there we have the shameless, unscrupulous, highly adroit members of the French diplomatic machine and politico-industrial complex who think nothing of lying, lying and lying again.  We'll build you four new nukes if you'll just let us buy British Energy.  The first will be up and running by 2017.  All we need is a guaranteed floor on the carbon price.  The first will be up and running by 2019.  Oh, and a guaranteed electricity price of £45/MWh.  The first will be up and running by 2020.  Well, make that £50.  The first will be up and running by 2021. No, actually £80.  The first will be up and running by 2022.  OK, if you twist my arm, £92.50.  Index-linked.  For 35 years.  The first will be up and running by 2023.  Oh, and a stack of indemnities ... did I mention, the first will be up and running by 2025? 

The Strategical Genius that is Osborne:   we do rather keep coming back to this, don't we?  On the one hand, it's clear enough he does indeed think in a rather 'strategical' sort of way: he knows what chess is, he's thinking several moves ahead, he has long-term goals and a game-plan, he can often trip up political opponents (of all parties) who can't see beyond the end of the next gin and tonic.  In the land of the blind men, the one-eyed man can sometimes score a few easy points.

But thinking strategical-type thoughts isn't enough - eventually they have to be good ones.  This is doubly the case, because the arrogant and ambitious would-be strategical genius frequently projects himself into a Position of Power, where the stakes are high.

And in the cockpit of Power, sooner rather than later one comes up against the two-eyed man.  That's the sort of person who's often to be found in such places.  Playing Big Boys' games.

Yes, you're a strategist alright, George, OK?  We've noticed, and we've acknowledged it.

But you're crap.  And that's been noticed, too.


Monday, 14 March 2016

UK Budget mess caused by Brownian motion

One thing that is really bothering me is that somehow the Government is finding more and more ways to spend money, whilst at the same time putting in place some huge cuts in certain areas (local Government for example).

Traditionally, tax rises on income tax and VAT were the way forward. For PR reasons, these have been dropped by Brown/Osborne and now they try it on with a variety of smaller taxes that they hope people miss; like Insurance premium tax or stamp duty.

Yet the national spend rises inexorably north, with the tax base stable or at least growing far more slowly than hoped.

Every budget becomes the same issue, where can they try and make the cuts that piss off the fewest special interest bodies, make a few giveaways to the Grey voters who vote Conservative and raise stealth taxes.

This, in reality, is in no way different from New Labour.

But we do have a problem, because the deficit is now stuck at far too high a rate for us to manage and with little clear idea as to how to get it down. Plus, because of the need for excessive taxation to tackle welfare and the NHS, there can be no real reform of pernicious taxation such as business rates. Instead we have the ludicrous Apprenticeship Levy to add to business burdens.

A brave Chancellor would harmonise capital gains taxes with income taxes and bring in larger sums as avoidance became less incentivised. A brave chancellor would put up income tax and reduce the complexity of the Brownian fiddling with the tax code.

Of course, we have no such thing, what a fix the Government has made for itself and yet come Wednesday it will all be; China slowdown, Brexit, Canine consumption of written commissions etc.

Saturday, 12 March 2016

A zero sum game?

UK trade deficit narrows in January
The UK's trade deficit narrowed in January, official figures show, but its goods trade gap with the EU widened to a record level. 
The Office for National Statistics (ONS) said the total trade deficit - covering goods and services - shrank to £3.5bn from £3.7bn in December. 
The deficit in goods alone narrowed to £10.29bn - down from £10.45bn the previous month. 
However, the goods trade deficit with the EU widened to £8.1bn, from £7.4bn. 
Trade with the EU is coming under more attention because of the UK referendum on EU membership on 23 June.
Of course what is nice and easy about a zero sum situation is that you can present it in many different ways. One minus one plus one less one divided by 28 times 189 (or however many nations there are) being zero, and all that boring stuff.
So, if the trade deficit narrowed in January, but the goods trade gap with the [presumably the rest of the] EU widened, then either the non-goods trade gap with the rest of the EU was in the UK's favour or the goods-and-services gap with the world beyond the EU was in the UK's favour, or possibly a bit of both.
Any which way, the last bit of the cited article is highly relevant, because it highlights how little analysis our national broadcaster has publicised. We simply do not know from what is stated in the bit quoted whether our overall position with regard to the rest of the EU is better or worse than it was before. If we bought a stack of cars from Wolfsburg and Barcelona but sold two stacks of legal services, financial products, consultancy advice and accountancy services as well as a stack of cars from Sunderland back, then the numbers quoted by the article would look really bad. My guess, given how neutral the BBC is, is that we overall sent more stuff* to the rest of the world and provided more demand from our sclerotic neighbours.
* we, the people of the United Kingdom of Great Britain and Northern Ireland, really are rather good at selling high value services around the world.
In other totally unrelated news, it turns out that sacking all the nation's best statisticians and hiring cheap ones out in the sticks and not updating statistical methods during a period of information explosion may have left us with a vaguely unreliable set of economic performance data.

Friday, 11 March 2016

Brexit; cutting through

It seems the Leave campaign is having a hard time fighting Project Fear and the Remain campaign which well organised and well directed.

Every day there is a nice procession of articles in the media about how dangerous leaving the EU maybe; many of them with grains of truth which make them extra effective.

The Leave campaign need a simple metaphor to help them close the deal. Here is my effort.

"Voting to Remain is voting to stay in the burning car as it jumps over the cliff. The fire is the immigration crisis and the cliff is the inevitable collapse of the Euro in due course. Nothing can put the fire out and nothing can change direction to avoid the eventual Euro collapse.

Voting leave is voting to jump from the car. Injury maybe possible and it will certainly be bumpy. However, certain death by fire and impact is avoided. We can brush ourselves down and look over the edge of the cliff later and think "Phew, just in time"

Wednesday, 9 March 2016

Energy Policy Goes Mainstream!

Guardian cartoon: detail.  (c) Steve Bell
It is not every day of the week that an energy topic becomes the subject of a major cartoonist's big OpEd piece  -  but today the great Steve Bell runs with Hinkley Point!

Yes, his Hinkley Point white elephant, lumbering and puffing as it is under George Osborne as jockey, nevertheless represents a "dead cert to win Grand National" as it powers ahead of the more worthy nags in the well-bent race.  Yes indeed, the fix is in.

But not to everyone's satisfaction evidently, as EDF's finance director Thomas Piquemal resigns in disgust at the stupidity of it all.  The EDF unions are pretty unhappy about it, too - they know EDF will need to sell down and slim down if it is to raise the dosh for its share of the Somerset monster, at the same time as completing the EPRs it's already started, rescuing Areva, and extending + decommissioning its vast French fleet.  Bon courage with all that, mes braves.

The French and UK governments would like it to be known that this doesn't change anything.  Indeed, they allow their whisperers to intimate that M.Piquemal was a hindrance they are glad to be shot of.  The City will be the judge of that.

The statement from Dave's mouthpiece - "President Hollande said himself on Thursday afternoon that it has the full support of the French Government" - was a bit loaded, I thought.  But Hollande is an ideal candidate for the opprobrium that may be about to follow, as and when reality bites home.

But, actually, it may never do so.  You really can suspend the law of gravity - for so long as you are willing to throw money at it.  Given the start-up date has already slipped 8 (that's eight) years - now 2025 and counting - Hinkley's electricity output doesn't feature directly in anyone's thinking.  So the primary ongoing costs of this endless farting-around are lawyers' fees and reputational damage.  Eventually, I suppose, the Chinese will get pretty pissed off at being associated with this shower, at which point any attraction of Hinkley for 'Genius' Osborne evaporates.


Tuesday, 8 March 2016

US Politics betting post

I have been lucky the last few days to meet some very senior and influential Republican party types on their various visits to the UK.

So lucky that I have been promised a dinner with Mr Trump on my next visit to the USA! (I reminded myself there are 2 kinds of luck)

On the other hand, much of what they say is known in the media more widely, but there was one interesting titbit which I have acted on.

Apparently, as well as wishing Trump to succeed over Cruz who the party bosses think is even more dangerous, they also are quietly confident that a brokered convention will be the outcome of the Primary votes.

This means that no candidate has the backing necessary to gain the Republican nomination.

In this case, the plan is to scrap all the current candidates, on the basis that none has passed muster and to appoint instead a new candidate who is more centrist and likely to beat HRC in the General Election in November.

This candidate has already been chosen and his name is Paul Ryan.

On paddy Power you can currently get him at 33-1 to be the Republican Nominee (and 66-1 for the Presidency for the very brave!) Well, it was worth £10 of my money as the chances of this scenario must be better than those odds.


Monday, 7 March 2016

Oil hit s $40 - rally monkey arrives

We all know markets go up and down.

Commodity markets too are overdue a bit of a rally given the run of disasters since the middle of last year.

But now there are some interesting changes, with oil back to $40 and looking set for a few more days of gains, a lot of the pressure is easing on the markets which as we know have been very dicey.

Interestingly too, with less pressure on oil prices, some of the sovereign issues will ease a little which in turn means they will stop liquidating all their market positions; lending more stability to the markets overall.

Of course, the real economy has clearly slowed down a touch in the last few months, but where are the indicators showing a big plunge?

All this puzzles me, if economics was good at prediction (which it isn't), low commodity prices should be a good thing. But in 2015, they are apparently a bad thing.

The world remains an inexplicable place.

Friday, 4 March 2016

Weekend Reading: IT, Productivity and Values

Just recently, FT Alphaville has carried some excellent essays by our old friend Izzy Kaminska.  (Back in the old days, she used to link to us ... *sighs*).    Here's one for the weekend: after starting out on cybercrime she gets to the vexed issue of whether IT actually drives productivity, or just redistributes wealth around the place.  It (or even IT) may be all about the metrics: how is 'productivity' measured (and valued)?  That question can be posed two different ways.

-  If we understand (and value) productivity in the usual economic ways, then in the light of that value-paradigm & its metrics - what's the answer on productivity?  
-  Or, flipping that on its head, does it (IT) point us to valuing things in different ways to how the economists traditionally do?
"The technologists instead claimed the economists were too set in their ways to recognise the real truth: the world was experiencing the dawn of a ‘new economy’ in which ideas were becoming more highly valued than material resources."
Well: maybe, on a good day ... but then again, I am sure we have all seen examples of IT projects chewing up productivity however defined, along with material resources, 'ideas', reputations, careers, sleep ...  and on a grand scale, too.    Anyhow, read on!


Thursday, 3 March 2016

Victims of $36 Oil, Home & Abroad

PMQs is an opportunity for MPs to get into their local papers; so fair play to Andy McDonald (Lab, Middlesbrough) for bemoaning the demise of 'Five Quarter Energy', a company from his part of the world, whose goal he said "was the extraction of gas from coal deep under the North sea ... totally decarbonised"(!)  To be fair, Cameron was poorly briefed and thought the question was about Carbon Capture & Storage, and he replied with a defence of the government's righteous decision to pull the plug on CCS.  So McDonald was pissed off with the answer he got.

An easy mistake to make, though, because Five Quarter had been thrashing around all over the place trying to find something vaguely to do with gas-on-Teesside.  They've taken down their website now, leaving just a "last-one-to-leave-please-turn-off-the-lights" notice: but in the past two years they have claimed to be working on:
  • underground coal gasification
  • a 1,000 MW gas-fired power plant (sic) 
  • an 'LNG decarbonisation plant' (whatever that is)
  • ... and CCS (hence the PM's confusion)
In short, they had no real idea what they wanted to do (except that it would be "totally decarbonised"), which is no way to raise money.  But, according to McDonald, "the Government failed to provide a supporting statement to secure foreign direct investment".  
Sorry Andy: even gullible foreign investors aren't taken in by pitches as scatter-gun as Five Quarter's.  Price of oil = $36.  Say no more.

Actually, right now there is no end of direct foreign investment prospecting going on in the UK.  I can report that wherever there is a remotely plausible UK energy infrastructure project or asset in prospect, teams of Chinese and Korean would-be investors are crawling all over it.  Whoever has been out selling the UK in the far east - Osborne, I suppose - has done a decent job.  At the very least, a bunch of airlines, hotels, taxi drivers and *ahem* consultants are doing very nicely from it.  Whether these orientals end up actually investing ... well, the jury is out.  I see the French have just deferred their decision on Hinkley again - another project with Chinese interests. 

Still, $36 puts the mockers on many an energy project.  Today I heard an argument (from a sage and senior energy executive) that was new on me: the prospect of war in the Middle East speaks to an even lower oil price.  Now traditional reasoning was that war would mean the price went up - disrupted supplies, etc.  But yer man was arguing that wars cost money, so Saudi and Iran would need to keep pumping out ever more of the black gold.

I take this as just a way of articulating the fashionable, deeply bearish sentiment.  Still - even lower than £36 ...


Wednesday, 2 March 2016

Super Tuesday. All about nothing.

Super Tuesday. All about nothing.
The race isn't even on yet.

To win in the US the candidate needs to have 270 electoral college seats, won from different values for different states.

The key states that any would be President must win are;

California - 55
New York - 29
Texas - 38
Florida - 29

Obama won Florida both times, though by a whisker in 2012.
New York is democrat. Obama very comfortable wins both times.
California was the same - Easy Democrat wins by a 2/3 majority.
Texas is Trump territory. Both recent elections went Republican.

of the big 4 states, on a likelihood basis, 
 Billary has 84 seats to The Donald's 38, with 29 in the balance. If Hilary takes Florida then its probably all over for Trump.

March 15 is Primary day for Florida. If Trump can win big, over his Republican rivals, that might be an indicator of his popularity in the sunshine state.

Virginia, worth 13 votes, has been Democrat the last 2 elections. Trump won, but not comfortably. Rubio picked up an almost equal number of delegates. That doesn't look good. Or rather, doesn't look good enough to stop another Democratic hold.

Where is Trump going to make gains from the Democrats?  He didn't manage to win the primary for Alaska, even. Which is a state in the Republican heartland. 
No doubt the experts will be telling us just this information once the candidates are secure and the race actually begins.

But for now, for me, Trump doesn't look like picking up any significant states that will make the outcome any different to 2008 or 2012. 
And the 'events, dear boy,' issues. Potentially removing Hilary.
Probably would not harm the Democrats all that much, as long as they don't pick 'The Colonel'.
HRC isn't really very popular with ordinary voters. Someone else might be able to do better.

Trump vs HRC - dystopia

So, as bad as things are in the UK where we have a ruling party fast going off the rails as the economy slows, the EU fails and the opposition provides no counter-punch, the US it seems is worse.

There, in deciding who should be Presidential candidates for November in the electoral college process, Hilary Clinton and Donald Trump have emerged as strong favourites.

Hilary, the wife of a former President, bankrolled by JP Morgan and Goldman Sachs. Trump, a US chancer who inherited billions but has a charmless approach to telling home truths; they make quite a pair to choose from.

Which means, in reality, that Trump has next to no chance of winning; given the Republican's lost last time with a more centrist candidate, the odds of the swing states like Ohio going for Trump.

So HRC will be the next President of the USA, bar some crazy events which could always happen as we know. She will be an awful President, certainly as bad as Obama which is quite a low.

I thought UK politics was messed up, but when Samantha Cameron is standing for PM against Alan Suagr in 2025, I know we will have sunk to the level of the USA

Tuesday, 1 March 2016

EU vote if you want to

In the handful of days since the "renegotiation" agreement was announced, I think we have got a flavour of the referendum campaign. The Remainers have launched Project Fear and the Leavers are painting various pictures of what a post-referendum Britain might look like.

For my part, I have spent the time between the historic announcement outside Number Ten and now trying to work out what is going on. Two years ago the PM promised fundamental reform, and up until relatively recently hinted that he might be prepared to back Exit if the other EU nations did not come up with some of the goods. Yet, on the face of it, the "deal" is an empty vessel. 

Post-deal, the PM has appeared to swing from being a Eurosceptic to threatening all sorts of calamity if we vote to leave. Even as he announced the agreement (or was it earlier, I forget) he admitted that Britain could thrive outside the EU, but that it could do even better within. Now that position appears to have been abandoned: it is EU or literally bust for Mr Cameron. 

Some have accused Dave of lying; others have said he is deflecting from how little the agreement changes. He seems to have fallen out with his bessie mate, and appears to be genuinely furious that some of his colleagues are now campaigning for Out, and carrying large numbers of MPs and activists with them. Surely if Cameron had never intended to change anything, he would not be reacting this way.

The scare stories have an air of the desperate, and we are only a few days in. We should hear some real corkers in the final days of the campaign. It seems obvious to me that nobody is going to get stranded, The Terminal-style, on the day after the Article 50 period is up. Why would they? Are the French et al. really likely to stop recognising UK passports just because the final polish hasn't been put on an exit agreement? Of course not.

In the interests of ensuring that my decision on how to vote is properly informed, I am reading up and doing lots of thinking. As part of that I went over to EU Referendum (not a site I normally look at). They have a detailed plan for how to manage Brexit, called Flexcit. I haven't read the whole thing... but the introductory section reminds us of the background to this referendum.

The point I was reminded of is that there is a bigger picture. We are not voting to stay or leave a club which is in a steady state. What Britain seems to want is economic involvement in Europe (via the single market or something similar) without taking too much part in the political centralisation. Even EU Referendum concedes that for at least a transitional period the UK is likely to need to join the EEA on exit. So even quite hardcore Outers accept that at least at the start, the UK is not going to have complete control over its affairs.

Another issue is where will the EU go from here? If we vote to stay in will we get roped into more projects against our will, with no way to express our dismay because we have just voted to stay in?

But there is an even bigger EU story, of course: that of the reforms which are likely to happen to shore up the Eurozone. The Euro countries need to decide whether to integrate further or to break up the Euro - the current situation is clearly unsustainable beyond the very short term. Those countries will need a new arrangement and that will mean Treaty Change. When Treaty Change comes around, non-Euro countries will surely be relegated to a second-tier status within the EU that emerges. And of course Britain may be in a much stronger position to negotiate a looser arrangement when the new treaty will need to be agreed and ratified by all member countries.

So I can't help wondering whether the present referendum actually provides us with very little real choice. If we vote Out, we are likely to end up in the short- to medium-term in a kind of Norwegian status - outside the EU but deeply connected with it. In we vote In, we are likely to end up in the short- to medium term in a kind of Norwegian status - but formally inside a very different EU.

This idea may just join the dots. Mr Cameron's original plan to time a referendum to a major treaty change process has failed, but with major treaty change on the horizon perhaps he has been persuaded to sit on his hands for the moment. And if I'm right, then there is no particular reason to get exercised about this referendum one way or the other. There are likely to be others.

Government Hits Panic Button

The government has, predictably, panicked over the possibility of the lights going out in the next couple of winters.  The story is evidently a bit recondite for many - indeed, at the time of writing only the Daily Mail (sic) has picked it up amongst the learned ranks of the MSM - but DECC is rushing through a "Consultation on further reforms to the Capacity Market".  The rather technical details don't need to concern us here but, take it from me, that's the Big Red Panic Button alright. 

Early comments are that Drax will be a big beneficiary, and indeed their share price has ticked up more than 5% this morning.  An early return for their scaremongering blackmailing lobbying.

Like we've always said, chances of the lights going out are slim because - when the lights go out, the government goes out.   Mark you, the way the EU thing is rumbling at the moment, they may be going out anyway ...


PS:  oh and, well done, the Daily Mail! 

UPDATE:  so - is this the pro-CCGT measure I predicted here in JanuaryCould be.  A bit too soon to say definitively, some detailed analysis required.