Change is Coming to the UK, in comedy form

I don't know about everyone else but this Scottish referendum malarkey is quite the most enjoyable political event to watch from a far as I can remember.

As a distraction for the rather sad and uncertain wide world it is great, here are the highlights for me thus far:

1 - It's all about Hate; hate of the English and the Tories. Scotland already has its own parliament, its own NHS, its own tax raising powers (never used), it own currency notes, its own national football and other international teams, its own culture, its own legal code. It's a Country, it just does not like having remote Tory Government in Europe, although it also has a right wing led Government in Europe and does not complain about that. The undercurrent of anti-English hate and justification for it is hilarious.

2 - Yes or No, its the end of the Union. With more powers to Scotland surely even our pathetic set of Westminster politicians are going to struggle not to sort out the West Lothian question. This means split Government for the UK and an end to Labour being able to pass legislation in England with no majority in the Country. That will be fun, if the Politicians dodge this, then UKIP will make great hay.

3 - All of Cameron, Milliband and Clegg are immensely unpopular in their different ways. Normally one party manages to lead with a duffer, but at the moment we have three duff leaders all in their Prime. The Peter principle of professional politicians has evolved to fulfil its destiny.

4 - One small poll this way or that has moved markets, I even make £20 betting just on the moves to Yes after a single poll. To see the media and politicians gripped like this is hysterical.

Really, it will be sad next Thursday when it is all over No have won (keep going Yes Scotland, my heart is with you, but my head says No will do it 55%-45%).

5 - But it won't be over will it. Anti-English Salmond will still be First Minister or his equally shouty deputy Sturgeon, the vote will be close and there will be demands for a re-count and re-run etc. So maybe that will provide us with some enjoyment for the Winter months.

The power of OPM

Nick's last post highlights well the living fallacy that our politicians thrive under of hiding how much of Other People's Money they are giving away. By forcing private companies to extract taxes on our behalf, they direct the ire of the populace against capitalists, when all the while it is the socialists who are responsible for the rising taxes. It's very clever and from a realpolitik perspective, an excellent play.

Of course, the real truth is worse still. It is not just the energy companies that various Government's have hit with this wheeze;

 - Rail subsidies have been cut, still these are at least subsidies, but by reducing them steadily the Government has instead allowed RPI+1% as minimum increases in rail fares, pushing rail travel to become more expensive than air travel domestically.

- With the introduction and increase of the air passenger tax, air travel too has been made more expensive and the collection of this tax falls on the airlines. So in particular, former national industries are often hit, no doubt the socialists enmity to progress focus' them on such business.

However, it is not just the Government who like the spending on your behalf. Just this week we have seen a private sector case, which will be of little interest tot he high minded, but does get to me! BT Sports have massively outbid Sky for the rights to Champions League Football from 2015 onwards. This huge bid has been portrayed as the first real challenge to Sky since ITV's ill fated ITV Digital initiative. Sky suffered a 10% loss of share price on the back to the loss.

Worse though for punters, is that BT Sport will only offer one match per season per team free to air. So now there will be even less 'free' football on TV. Now of course this is BT's commercial right to try and compete with SKY. However, the massive over-bidding for rights, will mean more costs to watch the sport. Let alone having to potentially buy Sky and BT Services, the actual prices for the sports packages will go up.

Of course, this is a commercial decision that is up to BT, if they don't get the subscribers they will give up. But what it does mean is for 3 years there will be very little free to air champions league and then after that Sky, should BT fail, will be in a better position to not revert to offering more for terrestrial opportunities.

But then again, those football clubs, just like the Government, really do need those extra revenues. At least I can opt out of watching football, it will be harder to live without power.

A living wage

Well, you wouldn't start from here would you. What a bizarre place the modern UK has become. Gordon Brown's huge extension of tax credits and the general extension of welfare benefits has led to a large percentage of wages effectively being subsidised by the State. The damage that this has done cannot be under-estimated. Brown was a brilliant marxist economist, he knew full well what he was doing. Now so many people are dependent on state hand-outs that any threat to take them away can result in protest groups like UK Uncut being formed.

Ed Milliband's weekend whimsy has been to suggest that companies pay the living wage rather than the minimum wage. the difference is quite a lot, but far less then people imagine when taxes are taken into consideration - almost half the increase would go in NI and income tax anyway, plus benefits would be reduced for the higher income - leaving receivers of ed Milliband's promise probably no better off. The companies too would benefit for one year, so hardly and incentive to change or much of a reward for doing so. all this smoke and mirrors avoids the key question in any event, why are wages so low?

Well, firstly, free movement or labour has not helped the lowest paid as they face the heaviest competition for work from unskilled immigrants. Secondly, with input costs rising as the Pound has de-valued 25% since the recession, businesses have had to cope with increase costs, with prices hard to rise in a deep recession, wages took the brunt of the crunch. Thirdly, there are taxes, it is very expensive to employ people, less so at the bottom, but still expensive. This is why firms have moved to zero hours contracts and other ways of trying to avoid full-time recruitment, because the costs are prohibitive. Fourthly and finally, taxes are too high, this is related to the third point for employer taxes but also applies to the employees, too much of their wages go on taxes on council tax, fuel duty, VAT at 20% and so on - even though income taxes are low and nearly non-existent for low income households, other taxes are high, reducing their disposable income to be spent on real goods and services.

What is interesting is that Labour are sort of trying to come up with a partial solution to point three, but ignoring the other three. Current politics has become a game of band aid policies, with seemingly little attempt to alter under-lying dynamics. Above I have laid out the obvious, immediately changeable issues, with even mentioning the standard or schooling or the type of jobs being generated by the economy, both of which are harder for a 5 year Government to do too much about.

Osborne: As much fantasy as Milliband when it comes to economic promises

..but of a different kind. It is the most extreme sort of wishful thinking to think the UK is going to balance its budget in the next Parliament, a promise which cannot be delivered upon. Worse is the pure deception that this implies, that somehow when we do this things will improve. Here are 2 charts from the ONS:

What do these tell us? Well thei first one shows how the Public Sector Net Borrowing has changed since 1995. As we can see since the financial crisis in 2008 it has shot up massively. Worse, it is proving to be very stubborn to get down, due in the main due to a lack of will to introduce any drastic cuts or to keep taxes high or raise them further. Or to generate any growth until very recently, of course.

Then the second graph show the total debt and its growth, which is apporaching parabolic. The effect of compound interest is huge as is the garganutan nature of the speed of increase. each month £9 or £10 billion is added to the total bill, costing another £25 million in interest per annum, just to sit still. All this in a low interest environment where gilts are still trading at below 3%. A return to more normal economic conditions, or another euro crisis, could see gilts move up 25% or even 50%. This in an of itself would add something like £20 billion to the PSBR per annum. Drastic cuts would be needed just to stand still.

Also of course, with PSBR this year at £100 billion its hard to see how this gets to zero in say five or six year, especially when the rate of decline has been about £10 billion a year during the Tory 'cuts.' Economic growth and tax receipt increases should help a lot, but still, its not realistically going to come close. Meanwhile total debt is going to arrive at north of 100% of GDP during the next Parliament whoever is in charge; leaving the interest rate time bomb lurking for any incumbent.

The most likely outcome of the election is currently a small Labour majority Government. When the economy enters its post-election downturn, mild, but likely when you look back and see we normally have downturn every 7 years of some sort, the maths will be too hard to beat. Being Labour, they will eschew cuts to NHS, Welfare or Pensions, as even the perhaps Tories would. So instead its going to be really massive tax hikes for the middle and upper income segments or begging to the IMF. Red Ed really will bring back the 1970's. I wonder if George Osborne will be opposition leader then? Somehow I doubt it.