25% Cuts ? 40% Cuts ? Game On

Back in 1986 the price of oil collapsed, hitting the E&P (exploration and production) activities of oil companies hard. Major downsizing was the order of the day - the city of Aberdeen nearly went under - and all manner of cost-cutting programmes were instituted.

Shell Expro, the E&P division of Shell UK, had one such scheme, and it bore strong resemblance to the Coalition's current plan for its own Spending Review. In both cases, each department gets told to draw up plans to cut 25% and 40% of its expenditures. Obviously, then as now, the purpose of the 40% requirement is to winkle out any really creative radical ideas. (They all use the same management consultants, you know.)

In Shell's 1986 episode, the staff were told that all the 25% cuts would be implemented, and some of the 40% ideas too. Just to add to the gaiety of the exercise, this planning process was called SEARCH: the S-E stood, naturally enough, for Shell Expro but no-one recalls the rest because, such was the disruption it caused, it immediately and memorably became known as Stop Everything And (w)Reak Complete Havoc.

One old lag of my acquaintance, a manager in his late 50s, had a high-profile role which required him to make a weekly presentation to the Shell Expro board. His department's "25%" plan had him being pensioned off in the first wave and, confident he would soon be waving farewell, his weekly offerings became more and more flippant, nay insubordinate, as SEARCH rumbled on.

Highly entertaining for spectators, but you can guess the rest. When the results were in, the board didn't like any of the suggestions, and did something quite different to make the necessary savings. This did not include making a fairly costly redundancy payment to our flippant friend, who was left looking, err, rather uncomfortable.

Get stuck in, Alexander and Osborne. Remember, no summer hols for you.

ND

Instant Budget Reaction

The joy of the Internet is that news is everywhere and instant these days. No doubt there are thousands of pages of analysis of the budget already; and this all adds to the ability of people to see the truth.

George Osborne, whom we at this blog have long found fault with, decided today was the day to go the extra mile. tax cuts and budget cuts, with some rises and the start of an attack on the bloated costs of the UK Public Sector. Overall the right plan, but the really there was poor execution:

1. The VAT rise - This money was used to bolster cutting personal taxes and not cutting the CGT rate. However it is highly inflationary and will surely force the Bank of England to move sooner to raise interest rates. Higher interest rates are a death knell to the hugely indebted UK companies and consumers.

2. He maintained the ring-fence on NHS and Foreign Aid - this was not the year to have anything left out. All must be scrutinised and savings found.

3. Bank Levy - Labour, bizarrely, is correct. Until there is international agreement there will be capital outflows because of this. To Ireland is the plan in the Banks in the City. They are not going to leave precious capital in the arms of HMRC. Daft.

It is not a bad budget and a far better effort than anything the Labour Party could come up with. It is delivered with a healthy view of reality not the delusions of those in the Bunker. It is a big step forward, but more risky than it needed to be. Other savings could have been made and taxes not raised in such an inflationary matter. Time may yet be a harsh judge.

Budget: One Chance To Get It Right

is for Budget, and for a Big Day in the life of the Coalition.

Machiavelli had it right: if the new Prince has anything he wants to achieve that may be unpopular, best that he take up his New Broom and do it straight away. This is exactly what the UK populace is braced for right now, and no better opportunity will ever occur.

Cameron and Osborne enjoy one other major advantage: Parliamentary conditions could scarcely be more favourable, with the LibDems formally onside, and Labour's response to come severally from an ineffectual stopgap leaderette, a peeved pussycat of a former chancellor, and five lacklustre leadership candidates, mewling and posturing as they try to differentiate their empty oppositionist brands. The Government benches hold vast stockpiles of ammunition with which to blow them away at each PMQ for five years, and Cameron is man to do it.

More dangerously entrenched are the legions of subsidy-wallahs, special interests and, yes, genuine interests, armed with arguments and heart-rending cases by clever lobbyists (who will encourage them to part with their last pennies to pay for professional pleading), fronted by more or less persuasive advocates (who will not all be as repellent as Bob Crow), gleefully hosted by the BBC and Channel 4 News. Hard-case atavistic big-staters and revivalist Trotskyite impossibilists dream of mass movements marching on London to bring down the walls with their charmless chant: "no ifs, no buts ..." Anti-CGT poujadists stamp their feet on the other side of the field.

So the battle-lines are forming up. And just as Old Nick counsels early action, so the great strategist von Moltke (the Elder) cautions that early dispositions, if badly-made, are exceptionally difficult to correct later on. Ring-fencing the NHS might be an example of just such a poor early call. Act quickly - and act cleverly as well ! No-one said it was going to be easy.

We've never been entirely convinced about Osborne in these parts, and now is his (only) chance to prove us wrong. We may be pretty sure he's read his Machiavelli. Let us hope his Big Budget meets the Moltke test as well.

ND

Budget snapshot - business rates

Apart from the usual fantasy of the deficit being reduced by super growth over the long term, there were three unusual points in the budget.
Firstly the business rates freeze.

Business rates are set to rise next week by somewhere between 20% and, as a car dealership just said on BBC, 600%. BQ's own business is facing a 34% rise and that means job cuts. There is no possibility of that not happening. A business cannot absorb that kind of rise. Its money that is paid from profits. Business cannot just pay out from nothing a tax rise that is based on the value of a premises in 2007. The height of the boom. Prices cannot be just increased either. They are already increasing. Prices are around 25% higher for most retailers due to the collapse of the £ vs Dollar.
The business rate freeze - there isn't any detail I can find online yet, but it doesn't start until October. And its only for a year. Not sure yet how this will work out yet. I think its just Labour trying to get out of its very own business 10p tax rate fiasco. A huge tax rise in the worst possible place for the economy.

The winter fuel increase came up in our fantasy budget a few weeks ago. Its far enough away for the government not to worry about it, yet is a headline for pensioners and anyone on benefits.

And the basic bank account.
As far as I am aware all of the major banks and the vast majority of smaller ones do have basic bank accounts. But as they have no charges, no overdrafts allowed and limited funds into them banks do not promote them. Some branches are completely unaware that they exist and they are rarely offered. Its a complete failure of government in much the same way that business lending is.
Why the Chancellor wants to see banks introducing more of a product that won't be offered or marketed is a mystery.

Uk Budget Week kick-off

There has been some interesting positioning around the budget this weekend. Firstly, Labour claim that this is it, if they win an election there will not be another budget.

In this sense then the budget may have a greater impact on the market than we had been expecting.

Also Alistair Darling has said he will outline, in what detail who knows, some of the cuts to public expenditure that the Government wishes to make.

Finally, Darling spoke abut 'no pre-election giveaways.' Now what that means I know not, but I presume it means more money for deserving causes of Labour voters and nowt else.

The real downside I can see though is that the Treasury is forecasting growth of 3.5% next year., The only way that will happen is if we have a massive inflationary boom on the back of a collapsed Pound. So either the treasury are not letting on to the disaster they are forseeing or else they are allowing Labour to play dirty election politics by pretending the deficit is just going to go away on its own.

Still, overall an interesting set-up as there will be more in the budget than I had thought previously. Tomorrow I will do a post on my 'trading the budget' positions, which have hte past few years done pretty well; this year is proving a challenge though.

I will not let you down

Gordon Brown's first speech as Labour Leader to the Labour party conference in 2007 ended on a big climax of a promise.

So this is my pledge to the British people:

I will not let you down.

I will stand up for our schools and our hospitals.

I will stand up for British values.

I will stand up for a strong Britain.

And I will always stand up for you.

Today during his speech on the economy even that old soundbite is being re announced.

'I will not let you down.'

Bit late to promise that now..?

A final chance to spring a trap

With a budget of new news, no tax rises and no cuts. That seems to be the plan; but Mr Brown always puts a few taxes over the horizon:

Next months road tax will be around £5-£10 higher for all cars except the tiniest {announced 2009}.
For new cars bought after 1/4/10 the tax is between £70 and £500 more.
The showroom tax

33% road tax increase for new cars in the common band 'I' bracket. At the same time as the end of the scrappage scheme and end to the VAT cut.
Darling's very own double dip seeing as how motors were pretty much keeping the economic figures going.

Gordon Brown used to like to push up the cold weather allowance. It was a great way of claiming a rise to pensioners and those on low income benefits while giving them nothing as it only came into effect when the temperature dropped below for 0 degrees for seven consecutive days.. It was fixed at £8.50 1995. Estimated by the Treasury to cost £100 millionish it was increased by Brown in 2007 to £25 as mild winters made it a soundbite but not a payment. But two cold winters and increased unemployment have seen payments rise to around £200 million in 2009 and around £260 million in 2010. Expensive for a PR stunt. Especially as these same groups automatically receive between £250 and £400 each December in a single "Winter" allowance.
The car scrappage scheme only had £300 million earmarked.

Chancellor Brown, erm , I mean Darling, likes to try and have a few unsubtle traps for his opponents.
This final budgets he could really go for it. Something he couldn't deliver, but sounds plausible, even necessary to relieve hardship. Something that a coalition parliament wouldn't approve or an incoming Tory government would have to axe.

New 5p tax rate?
Huge increase to tax credits?
Supertax
A guarantee for a government job for all 16-50 year olds unemployed for 9 months?

Any ideas on what will be the big non give-away in this mortuary budget?
The headline happy to motivate the troops, shore up the core, and try and disguise the secret department cuts, spending freezes and stealth taxes?

Darling announces March budget

Well that beat my expectations. I really did think that he would not have one. On the other hand, this makes a May election much more likely.

The budget is going to go down like a dose of swine flu; no more stimulues and plenty of cuts to be set out, with possible tax rises too. The Government is going to need as long as possible to get over this disaster, so that makes May more likely for the General Election.

Having said that, perhaps this is a pump-fake and instead an election will be called in March so that the budget gets canned?

I need some good tea-leaf reading here...what do you all think?