Uk Q1 2006 GDP revised upwards to 0.7%

According to the Office of National Statistics, GDP grew by 0.7 per cent in the first quarter of 2006, revised up from 0.6 per cent published last month.

According to their web-site:

In the first quarter of 2006 there is growth in both the production and services industries. Production grew by 0.8 per cent, with manufacturing growing by the same amount. This was the first quarter of manufacturing growth since 2004 quarter four. Services grew by 0.7 per cent within which the financial & business sectors grew by 1.0 per cent. In contrast, growth in the transport, storage and communication industries slowed to 0.3 per cent, with particular weakness in post and telecommunications.

Household expenditure rose by 0.3 per cent, following 0.8 per cent growth in the previous quarter, as expenditure on clothing and footwear and household goods and services fell.

Government final consumption expenditure rose by 0.1 per cent in the first quarter of 2006 and is now 2.1 per cent above the level seen a year earlier.

As you can see from the above graph, GDP is on an upward trajectory again, after the slow-down of last year. Rule of thumb is that employment usually follows, with a lag of a year to eighteen months.

Bill Gates and the American Equivalent of City Academies.

There can't be many people in Britain unaware that this week, Warren Buffet announced that he would be giving $31bn to the Bill and Melinda Gates Foundation. At the press conference, they said the money would be used to cure world diseases and to improve American education.

The Gateses has been invovled in American education since 2001, when they tried to rescue a failing Denver school with $1 million. (And of course this is the inspiration for New Labour's City Academy idea). Their first attempt was a failure, but they kept trying.

According to this BusinessWeek article,

Six years and a steep learning curve later, the Gateses see just how
intractable are the many ills plaguing America's worst schools. It has been a
difficult, even humbling experience. Melinda Gates says she and Bill didn't
realize at first how much cooperation it would take from school districts and
states to break up traditional big schools. "If you want to equate being naive
with being inexperienced, then we were definitely naive when we first started," she says. "There are a lot of places where many people have given up, or decided that 'bad schools are not my problem.' There are also a lot of entrenched interests."

Visits to 22 Gates-funded schools around the country show that while
the Microsoft couple indisputably merit praise for calling national attention
to the dropout crisis and funding the creation of some promising schools, they
deserve no better than a C when it comes to improving academic performance.
Researchers paid by their foundation reported back last year that they have
found only slightly improved English and reading achievement in Gates
schools and substantially worse results in math. There has been more promising news on graduation rates. Many of the 1,000 small schools the Gateses have funded are still new, however, and it's too soon to project what percentage of their
students will finish school and enter college, also a foundation goal. The
collapse of Manual High is an extreme case, but one that points to a clear
lesson: Creating small schools may work sometimes, but it's no panacea.


The Gates have spent $1 billion so far, and the results are mixed. Some schools are showing progress, but others are not. Starting schools from scratch is easier than repairing schools that are broken.

I would urge people to click on the link and read the entire Business Week article. I'm in two minds about the whole idea. On the one hand it's a nice that fresh money is coming in that eases the burden on the tax-payer. On the other, it seems clear that without buy-in from the parents, you get failure. And without rigorous standards imposed from the outside you get failure. Our traditional method of getting parents involved is local democracy, and locally elected people controlling schools. And our traditional method of imposing standards is via the Department of Education.

Unemployment in the UK

I thought I'd do a piece on UK unemployment, especially as the rate, though low, has been creeping up in recent months (causing much excitement amongst Tories). Here's some stats from the Office of National Statistics:

Percentage of the Labour force in work: 74.2%
Percentage of the Labour force unemployed: 5.3%
Unemployment Benefit Claimant count: 3.0%

In the three months to April 2006,
The number of people in full-time employment: 21.61 million
The number of people in part-time employment: 7.33 million
Total employed: 28.94 million

Of employees:
Full time: 18.68 million
Part-time: 6.34 million

Of self-employed:
Full time: 2.88 million
Part time: 0.87 million

Workers with second jobs: 1.03 million

Public sector employment: 5.88 million
Private sector employment: 22.94 million

Breakdown of unemployment claimant count by region:

North East: 4.3%
North West: 3.3%
Yorkshire and Humber: 3.3%

East Midlands: 2.9%
West Midlands: 4.0%

East: 2.4%
London: 3.5%
South East: 1.9%
South West: 1.9%

England: 3.0%
Wales: 3.2%
Scotland: 3.2%

Economic activity has increased sharply in the 65+ group - the number employed in this group has increased 9.7% from a year ago to 1.17 million. A trend perhaps of older people working longer.

All sectors of the economy increased the total number of people they employed in the last year with the exception of agriculture and fishing, hotels and restaurants, and manufacturing. The economy has also been able to absorb some 300k of migrant workers from eastern europe. The pressure from migration from eastern europe should start to moderate as Spain, Greece, Finland and Portugal opened their doors in May, to join Britain, Ireland and Sweden in letting them in.

If you haven't fallen asleep reading the above stats, it's clear that the increase in unemployment is down to the big lay-offs in the manufacturing sector in the Midlands. People in those industries may be holding out to try and get similar wages rather than take the first /any job available. However, manufacturing activity has accelerated in recent months, helped by the upswing in the euro-zone economies they export too. Let's hope they gain the confidence to hire again.

Capitalism and the Centre-Left

The economist Joseph Schumpter described capitalism as a process of Creative Destruction, whereby new businesses create competitive pressures that destroy old businesses, thereby freeing up the capital in them to be deployed in other new businesses, in an endless cycle.

Unfortunately those on the receiving end of creative destruction - workers laid off, businessmen forced into bankruptcy - find it very painful indeed, and if the process is left unchecked, rebellion arises which threatens to destabalise the whole system. The paradox of capitalism is that though it is a process of creative destruction, the system as a whole needs peace and social stability to thrive.

The first person to get an insight into this was the original Iron Chancellor, Otto von Bismarck, who was chancellor of Germany from 1862 to 1890, the period when the second industrial revolution and the first age of globalisation came together. Europe in the mid-18th century had repeated attempts at revolutions, as well as the Long Depression, which lasted from 1873-1896 and affected much of the world. Bismarck, who was not a liberal man (he tried to control the press and fobade union meetings) , was deeply worried about the outcome of the depression and it's affect on the poor. His solution was to enact Europe's first labour laws. In 1883, he passed the Health Insurance Act, Accident Insurance was provided in 1884 and old age pensions and disability insurance was passed in 1889.

In doing so, this very conservative man laid the foundations of the welfare-state, the basis of centre-left policy everywhere. The right hates the welfare state and would seek to dismantle it. However it provides a crucial safety net for those on the receiving end of creative destruction, without which you would get social disorder and the end of capitalism. Not long after Bismarck died, the Russian revolution erupted into the world - a direct consequence of the Tsar ignoring the plight of the poor. And Germany herself in the 1930's, experiencing her second severe recession after the end of WW1, cracked and succumbed to fascism/national socialism. Countries as far away as China and India have understood the lesson and are starting to set up basic welfare provision from pensions to the minimum wage to alieviate social distress and unrest.

The conclusion is that the party who maintains the welfare state acts as the facilitator and protector of the capitalist system. At the moment in Britain (David Cameron's fine words notwithstanding) that party is New Labour.

The STR (Sold to Rent) phenomenon

People who STR (Sell to Rent) are those who have sold their house's and are renting, in the belief that house prices will crash, enabling them to buy them back again at a lower price. This is a new phenomenon, which didn't exist during the last housing boom, and very unusual as it's difficult to "trade" houses as though they are shares as the transaction costs are very high and prices are not transparent (i.e. one share in Marks and Spencers is exactly the same as another share in Marks and Spencers and has the same price, whereas one house in a given city is not like others).

The phenomenon seemed to grow around the time of 9/11, when many became convinced that houses were overvalued and that global events meant houses were "sure" to crash.

Web-sites such as HousePriceCrash were set up, as well as property forums on The Motley Fool. Economists piled in, notably Roger Bootle of Capital Economics (who writes for the Telegraph, who predicted a 20% crash by 2007), and David Pannel of Durlacher who predicted a 30% crash by 2007. HousePriceCrash urged people to sell-up to "force" a crash, forgetting that for every seller there is a buyer, and that sellers only cut their prices if they are desperate - i.e. you need forced selling due to unemployment to have a housing crash.

When nothing materialised from 9/11, desperate STR's cast around for other events that would precipitate a crash - the Iraq war, Al Queda, bird flu, the price of gold rising, the price of gold falling, housing in Shanghai and in Florida, the state of the German economy and the state of Italian economy. STR's diligently search the web, eg posting about worldwide job losses announced by Dresdner Bank even when they don't affect the UK. Jobs created are ignored. Conspiracy theories abound - that the Halifax, Hometrack, Rightmove etc manipulate their house tracking statistics, that the Consumer Price Index is inherantly flawed, that the Monetary Policy Committee of the Bank of England is "instructed" to keep interest rates low. I expect the sad death of David Walton today, the MPC member who voted last month for a rise, will spawn any number of conspiracy theories.

It's easy to laugh at the STR's, but they are suffering real pain. Some sold their houses as long ago as 2001 - only to see house prices march upwards until 2004, where they formed a plateau to the current date, so that the STR would have to borrow quite a bit more to buy back the same house. To add insult to injury, interest rates have remained steady, but rents have been rising all the while, so that if they'd stayed put, their monthly outgoings would have remained lower than they are now.

So how did they come to make such a big mistake? Most STR's tend to be Tory voters. Central to their world view is the belief that of course Labour is worse than the Tories, and therefore if the Tories had a house price crash, not only can Labour not avoid it, but it's "bound" to be much worse. This belief even colours the views of the economists pronouncing on the subject (breaking the classic rule of not letting your prejudices colour your judgement). They've bought wholesale the Tory propaganda that the Labour economy is sure to fail - indeed the earliest house price crash stories date from 1997, when some people were "sure" that the advent of a Labour government meant a recession and a property crash.

It's an understatement to say that they hate Gordon Brown - it's a constant theme. Here's an excerpt from this post in 22/11/03, "What Rachel [Lomax deputy of the BoE] is doing is laying the groundwork a. for the MPC not to look too incompetent when they fail to deflate the bubble in a gentle manner, and b. to excuse themselves for having sat there and watched while Gordon the Moron created his doomed so called economic miracle, based on nothing more than cheap credit and a housing bubble. "

This post on 14/05/05 "That time will come, I have little doubt, and will involve a million and one shattered dreams, and a completely naked Emperor Gordon whose absurd claims to have eliminated boom and bust, will be shown to have been simply meaningless rhetoric from a ruthless political animal prepared to sacrifice the financial wellbeing of others for his own personal advancement."

This post on 12/12/05, "Not much more than a year ago it wasn' altogether unusual to have people on here remonstrating with me about my incessent pillorying of the pillock in no 11 Downing St. And they were seriously indignant as well, if not a little taken aback. Did I not know that this financial genius from the other side of Hadrian's wall was the architect of an economic miracle the like of which had not been seen for generations ? How on earth could anyone dare to take his name in vain ? Let alone take the p*** out of him as if he were some kind of useless spendthrift old labour type boom and bust charlatan ? Was I not aware that his thrifty presbytyrian housekeeping and canny Scots nose for a bargain had earned him the name Prudence ?

..........If Brown ever does make it into No 10, it will probably only be long enough for Cameron to **** all over him. It really is the economy stupid and by the time the greatest Chancellor in living memory actually makes his move next door, his economic legacy will already be collapsing around him. He will be the lamest of lame duck prime ministers"

Ouch. If they gave Oscar's for rants, that poster would surely win hand's down.

The moral of the story is don't let your prejudices and politics interfere with your financial decision's. And the message for political parties is don't put mis-leading scare-mongering propaganda out there - your own supporters might believe you and lose real money over it.

Spotted: the first serious critique of Cameron

Alice Miles writing in The Times offers a stinging critique of David Cameron's family policy with lines like

"The cynical embrace of single parents yesterday was the embrace of the boa constrictor. “The weapons have been put beyond use” in the war against lone parents, Mr Cameron cooed, while remarking that “we do want to help girls to avoid teenage pregnancy”. Ooh. Ouch. Just 3 per cent of lone parents are teenagers; the median age is 35. Any stereotyping going on here?"

True she has a pop at Gordon Brown too, saying he has no agenda and is more of the same, but he can live with that. I hope all those numpties infatuated with Cameron's manner wake up too and realize what he's about. Is his honeymoon now coming to an end?

Energy

Europe draws energy from three locations; the North Sea, where Britain, Norway and the Netherlands drill for oil and gas; Russia, who supplies oil and gas via pipelines through Ukraine; and Algeria and Morrocco, who supply gas via pipelines beneath the Mediterranean to France, Italy, Spain, Portugal, Slovenia and Greece.

As the North Sea stores get exhausted, Britain will need to draw energy from the east and the south. Our geographic location on the north-western fringe of Europe is a disadvantage. Unless all pipelines are widened considerably, they simply won't carry enough energy to reach us (as the countries nearest to the source draw out the gas first).

Last September, Russia signed a $5.7 billion deal with Germany to lay a 1,200-kilometer gas pipeline with an annual capacity of 55 billion cubic meters connecting Russia's Black Sea coast, through international waters offshore Poland and the Baltic states, with Greifswald on Germany's coast. This pipeline can be extended from Germany to Britain via the North Sea, relieving our shortage.

Unfortunately becoming reliant on Russia doesn't fill one with confidence, given the games they played in the winter with Ukraine's fuel.

The Americans thought they could by-pass Russia by building the Baku-Ceyhan (BTC) oil pipeline (from Azerbaijan through Georgia to Turkey), which has cost US$2 billion. (And from Turkey the oil could then be piped into Europe). But according to the Asia Times this pipeline may depend on "the volume of Kazakh oil on this route. But Kazakhstan is fighting shy of committing to a Trans-Caspian pipeline, which the US is seeking, for linking the BTC with Kazakh oil fields. Simply put, Kazakhstan will not ride roughshod over Russian interests."

Even worse, a new "Alternative OPEC" might be being formed. Again, from the Asia Times, "The SCO [Shanghai Co-operation Organisation] was created in Shanghai on June 15, 2001, by Russia and China along with four former Soviet Central Asian republics, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. ... At the next SCO meeting on June 15, Iran will be invited to become a full SCO member. " India and Pakistan also attend SCO as observers and are keen to become full members. The USA asked if they could attend as an observer and was refused. The SCO is seeking to divert Kazakh and Iranian oil and gas eastwards towards China (and India).

Meanwhile, Russia has been eyeing the reserves south of the Med. According to this article, "Russian companies have been given monopoly rights for oil production in the Sahara Desert; Russia's Gazprom will participate in the development and production of Algeria's gas sector; and Algeria will share with Russia its sophisticated Western technologies in gas liquefaction. Most important, Russia and Algeria decided to work together in the European market. " - this deal came together after Russia agreed to provide $7.5 billion worth of arms to Algeria which will be paid for by the oil and gas rights in Algeria. Russia is seeking to gain a monopoly on all energy going into Europe.

Why am I recounting all of this? Quite simply, we are going to get stuffed if we don't find alternatives to North Sea gas that don't involve Russia, Central Asia or the Sahara. Mr Blair is right when he says we need nuclear power - it's clean, and the world's biggest suppliers of Uranium are Australia and Canada, friendly countries. France, which generates 80% of her electricity through nuclear power, has proved that modern version of the technology is safe. By all means let's have wind-power, tidal power, energy-efficiency drives etc as well - but don't let's kid ourselves that we can get by without nuclear power.

Are the BMA the modern equivalent of the NUM?

The BMA continues to moan, because the government wants to hold down doctor's pay-rises. Government wants overall health rises to be 2% and doctors pay to rise at 1%, so that other health workers can get a bit more than 2%. The government's position is reasonable - they've more than made good previous underpayment of doctors, doctors are now paid better than average (indeed they are the highest paid doctors in Europe) and now the rises need to moderate. The public won't tolerate any more rises and certainly won't pay extra tax to indulge the doctors.

The BMA always cloak their greed with protestations that their pay rises are for the public good, but are they? While no one wants badly underpaid doctors, no one wants hugely overpaid doctors either.

The other bizarre thing is that the doctors contracts seem to be negotiated nationally - is there any other industry with this practice? (they also set "recommended rates" for private doctors fees nationally). Surely it would be better for local trusts to negotiate the pay for their doctors locally. That way trusts with financial problems can cut their wage bill with a pay freeze instead of having to resort to redundancies.

The BMA is probably the most powerful union in the country and they retain their power because they are a Tory union. If any other union was behaving like them the Daily Mail would be up in arms. They also have a history of trying to scam money out of Labour governments - see the trouble they caused the Atlee government when the NHS was set up.

Perhaps the Labour government should do to them what the Tory government did to the NUM.

The Deputy Leadership

According to this article in the Guardian, a recent poll shows "Two-thirds of Labour's remaining members want Tony Blair to stand down by the autumn conference next year,
......The poll also reveals members want the deputy leader, John Prescott, to stand down at the same time as Mr Blair."

Gordon Brown will be leader, so the interesting question is who should be deputy. I thought I'd try to answer it from an ordinary voter's point of view - well, I've never been to a political meeting let alone met any of the people I'm writing about, so my views are formed through looking at them via the prism of the media (as are all voters views).

You really need to look at Gordon Brown first, to work out who would most compliment him. Brown comes across as an old-fashioned male. Gruff, rumpled, a bit of a workaholic, reliable, stable, solid, protective of his wife. I really like his wife from the little I've seen of her - she comes across as shy and unassuming - a good contrast to the cold Samantha Cameron and the pushy Cherie Blair.

Gordon Brown's Chancellor should be Ed Balls - it would be a travesty if he didn't get the job. This job needs to be filled on technical merit and Balls is the only one with the brains for it, and whom the City would automatically respect. He would also represent a form of policy continuity. Balls comes across in this profile as a bit of a "New Lad" - all economics and football and "Flippin 'eck's".

So you have "Old Lad" in Brown, and "New Lad" in Balls, each representing the maleness of their generation. Male voters, who have felt public life has been feminised, will love it, as will those males who find Cameron to be a bit too camp and metrosexual (in a way that Blair is not) - and that's most of them.

In the Foreign Office, Margaret Beckett - she represents, cool, capable older woman.

Therefore the Deputy Leadership cannot go to Alan Johnson - he's a cheeky chappy of the sort you see in 1960's movies. It would make the front line-up too male, it would be male-overkill, alienating 30-something females like myself. Jack Straw - associated with Iraq. Peter Hain - looks like a cipher. Harriet Harman - too bland, not sharp enough, too fluffy, doesn't seem up to the job.

Here's a suggestion - what about Caroline Flint? She's female, her look is typical of a lot of women in their thirties and forties, a managerial type, she's representative of our generation in a way Ruth Kelly is not, we can relate to her. I don't know what her background is, but she has the look of a bright working-class woman who has succeeded. She seems to handle the hard questions well on Newsnight.

With her in the line-up, you'd have two men, each representaive of their generations, and two capable women, also representative of their generations. You'd have one Scot and three English people. Two older people, two younger people. Working class and middle class, in contrast to the aristocrats and millionaires in the Tory line-up.

There's no-one fluffy there - but it's only fashionistas in London who find the Cameron fluffiness attractive. The rest of us find him too limp-wristed. People want capable government, not cute.

Unemployment in the EU

Ever wondered why there are so many Poles in Britain? Here's the unemployment statistics for the EU for April 2006:


eurozone = country that is a member of the euro
ERM II = country whose currency is in an exchange rate mechanism with the euro

Country                           Unemployment Rate


Netherlands (eurozone)              3.8%
Denmark (ERM II)                    4.3%
Ireland (eurozone)                  4.3%
Luxembourg (eurozone)               4.8%
Austria (eurozone)                  4.9%
Estonia (ERM II)                    5.1%
United Kingdom                      5.3%
Latvia (ERM II)                     6.0%
Cyprus (ERM II)                     6.3%
Slovenia (ERM II)                   7.0%
Hungary                             7.4%
Czech Republic                      7.5%
Finland (eurozone)                  7.5%
Portugal (eurozone)                 7.6%
Italy (eurozone)                    7.7%
Germany (eurozone)                  8.0%
Spain (eurozone)                    8.3%
Belgium (eurozone)                  8.4%
Malta (ERM II)                      8.5%
France (eurozone)                   8.9%
Greece (eurozone)                   9.6%
Slovakia (ERM II)                  15.5%
Poland                             16.5%

Notes: The Eurostat definition of unemployed people are those aged 15 - 74
and who, following the International Labour Organisation (ILO) definition are

- without work

- are available to start work within the next two weeks

- and have actively sought work at some time in the previous four weeks

The unemployment rate is the number of people unemployed as a percentage of the labour force. The labour force is the total number of people employed and unemployed.

Sweden has just adopted the EU Harmonised calculation of unemployment and sesonally adjusted time series are not available. The Swedish government's calculation is unemployment of 5%

To be fair to the Poles, their position has improved from last year when their unemployment was 18.1%. They should take heart from the Spaniards. When Spain joined the EU 23 years ago, their unemployment was over 25%, it has been dropping steadily ever since.

Mervyn King and the Maradona Theory of Interest Rates

Mervyn King gave a very interesting speech last May to the Cass Business School, City University, where he said the following:

"The great Argentine footballer, Diego Maradona, is not usually asociated with the Theory of Monetary policy. But his performance against England in June 1986 is... a perfect illustration of my point..... His second goal was an example of the power of expectations in the modern theory of interest rates. Maradona ran 60 yards from inside his own half beating five players before placing the ball in the English goal. The truly remarkable thing, however, is that, Maradona ran in virtually a straight line. How can you beat five players by running in a straight line? The answer is that English defenders reacted to what they expected Maradona to do. Because they expected Maradona to move either left or right, he was able to go straight on.

Monetary policy works in a similar way. Market interest rates react to what the central bank is expected to do. In recent years, the Bank of England and other central banks have experienced periods in which they have been able to influence the path of the economy without making large moves in official interest rates. They headed in a straight line for their goals."


The bank has of course held interest rates at 4.5% since last August, despite the market thinking first that a rate cut was on the way, and now a rate rise. On Monday 12th June, we saw another Maradona like management of expectations from King when he warned that the prices of imported goods into the UK were starting to rise. On Tuesday we saw an unusual intervention from Gordon Brown echoing King's comments, when he said that the authorities would be "resolute" in fighting inflationary pressures that were emerging across the world.

Global interest rates are rising due to inflationary pressures emerging in the USA and China. But will rates rise here? Real interest rates (the base rate less headline CPI) in Britain are the highest in the developed world with the exception of Australia and New Zealand. The £ is strong, which should help contain "imported inflation", unemployment has crept up to 5.3% from it's 40-year low last year, so labour supply is not tight, and above all, the Treasury is embarking on tightening fiscal policy, which should slow the contribution of the public sector to the economy. I think the bank will want to keep rates will be on hold all year, and the statements from the governor and the chancellor are designed to talk the consuming public to rein in their spending so that inflationary pressures are contained without the need for a rate rise.

The importance of the EPP

Daniel Finkelstein, has been holding forth in The Times, on the subject of Tory membership of the EPP, writing:

It has been suggested that leading Christian Democrats such as the German Chancellor, Angela Merkel, won’t deal with Mr Cameron if he ends the relationship with the EPP. What nonsense. Whatever she says now, of course she will.

......But who needs a new group? Why don’t the Tories just sit on their own? Why would that be a problem?

......What does not matter is the EPP link. So the EPP link goes. It’s simple.


Egads. I'm an ordinary voter living in Southampton, and even I know more about the EPP and it's importance than Mr Finkelstein. Just for him, here's what it's all about:

It's a network - just as you network in ordinary office politics, so you network at the national and international level. Trying to negotiate European politics without belonging to one of the political groupings is like trying to be a doctor without belonging to the BMA or an actuary without belonging to the Institute of Actuaries.

The EPP isn't just about the European Parliament. It's is a powerful network that regularly meets outside the Parliament, and where deals are cut before the all-important EU Council of Ministers heads of state meeting. For instance, the EPP's web-site tells us that the EPP leaders will meet on 15-16 June ahead of the Council meeting in Brussels. There, governments will cut deals and decide what they want to achieve at the Council. The current government's of France, Germany, Austria, Greece, the Czech Republic and the junior coalition member of the Danish government are all members of the EPP. They will agree their strategy before the summit, when all 25 heads of state come together to negotiate.

And Finkelstein asks "why does it matter"! It matters because in politics as in life, weirdos who have no friends and sit alone don't get on and struggle to make their views heard. The Tories constantly tell us they will "renegotiate the Treaty of Rome" and abolish CAP and so on - but how pray are they going to do all this, if they are outside all the groups, and deals are negotiated prior to the summits in their absence? It's just childish fantasy. If the Tories don't understand the reality of how it all works, they are "not fit for government", to paraphrase Reid.

They'd be nuts to leave the EPP - which brings them to another problem: Cameron made a promise to the eurosceptics to leave the EPP. If he breaks that promise, he'll get the reputation of saying anything to get elected and reneging once he's got the job. And if he can't even keep his promises to Tory MP's, how can anyone trust what he is saying to the electorate? All those speeches about the work-life balance, and the environment and public service - he could be just telling the public what they want to hear, and getting ready to renege as soon as he gets into government just like Dubya Bush.

This is fun isn't it? ;-)

G8 to become irrelevant?

World economic stability has historically been "managed" by the G8 - The US, UK, France, Germany, Italy, Japan, Russia and Canada - the most industrialised, wealthy and powerful states, sharing approximately two-thirds of global wealth.

It began informally at a summit in France in 1975 in the aftermath of the oil crisis, and continued ever since, trying to manage global economic crises E.g. putting in place the Plaza accord in 1985 to intervene to devalue the dollar against the Yen and Deutchmark to deal with the US trade deficit, and then the Lourve accord in 1987 to halt the decline of the dollar. The Lourve accord didn't quite work out properly (the Americans were half-hearted), and with the advent of China, India, Brazil and the tiger economies of South East Asia, the G8 has been seen as less and less influential and relevant, despite grandiose summits and equally grandiose agendas (such as making poverty history).

Last week, the IMF, which has been trying to build a new role for itself, announced a new grouping to deal with world imbalances.

According to the FT,

"China and Saudi Arabia have been named as two of the five economic areas that will participate in the International Monetary Fund's efforts to resolve the world's glaring trade imbalances. The other three participants will be the economic superpowers of the US, the eurozone and Japan.

The IMF said this week that this new group of five systemically important economic areas for the global economy would engage in its first "multilateral consultations" aimed at "how to address global imbalances while maintaining robust global growth"."

According to Roderigo Rato of the IMF, "".These economies are either ones with large current account surpluses or deficits, or they represent a large share of global output," he said.
"Their co-operative action can play a major role in the orderly unwinding of these imbalances and in sustaining global growth as savings, consumption and investment patterns adjust."

China's trade surplus doubled in 2005 to exceed 7 per cent of gross domestic product, according to the IMF, making it an indispensable part of any resolution of the imbalances.
Saudi Arabia, as the world's largest oil exporter with a current account surplus of 28 per cent of GDP in 2005, will represent oil producing countries, which have accounted for the most rapidly growing surpluses over the past two years."

The significance is that it will leave the G8 out in the cold, and with it the economies of the UK and Canada (both considered too small) and Russia (not as important as Saudi in terms of trade surpluses and energy). Our exclusion is a consequence of not being part of the Euro, and perhaps British Chancellors will have to get used to not being at the centre of things anymore.

Tax

I recently got e-mailed an article from the Daily Mail titled Tax Rises, by a friend hoping to convince me that I should no longer be voting New Labour. And as I read, my blood did start to boil as it included such gems as "Increase of £45 in vehicle excise duty for gas-guzzling 4x4s cars" without mentioning the cut in vehicle excise duty of £35-£65 for fuel efficient cars.

It's like trying to calculate unemployment by counting only job-losses and ignoring jobs created or like trying to calculate inflation by focusing only on price rises in gas bills and determinedly ignoring any price cuts like the drop in the price of milk.

At the bottom of the article, the Daily Mail did admit that "Source: Grant Thornton, Institute for Fiscal Studies and Conservative party ". Of course you expect such dodgy thinking from the Tories - but Grant Thornton and Institute of Fiscal Studies, to the back of the class with you (though to be fair, it's entirely possible that the Daily Mail selectively published the data they were given).

I couldn't help wondering if there were other Labour tax cuts that were being completely ignored by the Tory press. With a little research, I came up with this list:


New Labour Tax Cuts

1. Cutting VAT on domestic fuel (electicity and gas) from 8% in 1997 to 5% now.

2. Cutting basic income tax from 23% in 1997 to 22%.

3. Introduction of the 10p starting rate of tax (lowest starting rate since 1962) for £2150 of earnings above the personal allowance.

4. Cutting large company corporation tax from 33% to 30%

5. Cutting small business corporation tax from 23% to 19%

6. Capital gain tax for long term business assets cut from 40% to 10%

7. Stamp Duty threshold raised from £60,000 in 1997 to £125,000 now

8. Vehicle excise duty for 38 tonne and 41 tonne lorries cut by 500 pounds; the 40 tonne class lorries rate cut by 1,800 pounds; for all other heavy lorries rates frozen. (2000 budget)

9. Abolition of the 2% employee N.I. "entry fee" payable on earnings from £0 - LEL, when earnings crossed the lower earnings limit.

10. Abolition of the 3% employer N.I. "entry fee" payable on earnings from £0 - LEL, when earnings crossed the lower earnings limit.

11. Abolition of the "stepped" employer N.I. rates, saving companies administration hassles.

12. Alignment of the LEL with the Income tax personal allowance. This involved increasing the LEL sharply from £64 per week in 1998 to £87 in 2001 and £97 per week today, which means the exempt threshold has increased by 51% since 1998 (or at a rate of 5.33% per annum, considerably faster than the rate of inflation).

13. Class 2 flat rate of self-employed N.I. reduced from £6.55 to £2.10 per week.

14. Freeze on duty on spirits since 1997.

15. Employee shareholders capital gains tax cut to 10%

16. Business investors in new and unquoted companies who invest between 5% and 25% have capital gains tax cut to 10% on investments above 5% held for four or more years

17. For small and medium companies, the 40% capital allowances are made permanent

18. Research and development tax relief introduced for business

19. Tax relief for intellectual property and goodwill introduced (2001 budget)

20. Abolition of withholding tax on payments of interest and royalties between companies in the UK.

21. Abolition of withholding tax on interest paid on international bonds

22. Working families tax credit introduced

23. Child tax credit introduced and extended for families who earn £58,000 and below

24. Introduction of stakeholder pensions which for the first time are available to the unwaged, giving then a tax-free savings vehicle where a contribution up to £2808 also attracts tax relief of 22%.

25. For businesses with turnover of up to £58,000, VAT is not charged at all.

26. To bring disused properties back into use, VAT on residential property conversions cut from 17.5% to 5%

27. For cleaning up contaminated land, an accelerated tax relief, set at 150%

28. To help revitalise high streets, government provided 150% first year capital allowances for bringing empty flats over shops back into the residential market.

29. For churchs, for repairs started after April 1st 2001, a new grant, the equivalent of a VAT reduction from 17.5% to 5%. This was further abolished to 0% in the 2004 budget.

30. Vehicle excise duty abolished for tractors

31. Betting duty abolished for pools.

32. Exemption for companies from corporation tax on the gains from the sale of substantial shareholdings. (2002 budget)

33. Automatic entitlement for business to reclaim VAT on bad debts after six months, introduced for the first time.

34. Betting duty abolished for bingo players

35. A 20p per litre reduction in fuel-duty for bio-ethanol

36. A 20p per litre reduction in fuel-duty for bio-diesal

37. Fuel-duty frozen for petrol and diesal since 2003.

38. Halving of beer duty for pubs that brew their own beer

39. People with disabilities who got back to work entitled to tax credit

40. Child-care tax-credit introduced for people who place their children in nurseries

41. Vehicle excise duty cut to £0 for cars emitting less than 100 CO2 g/km (saving of £65), cut to £40 for cars emitting between 101-120 CO2 g/km (saving of £35) and cut to £100 for cars emitting 121-150 CO2 g/km (saving of £5).


I gleaned the above from a couple of hours trawling the Treasury web-site - no doubt the accountants will be able to find much more tax cuts. Note also that I could have padded it out Daily Mail style by showing every single tax cut on a year-by-year basis - but I couldn't be bothered.

The most interesting thing about the above is the way the tax-cuts have been targetted at lower earners and at business. The raising of the N.I. LEL threshold and the abolition of the "entry fee" for employers and employees clearly contributed hugely to it being worth-while for low-paid people to seek work, and for busineses to hire them, bringing down the unemployment rate. The support for business is also down to the government's eagerness to ensure that they continue to employ people. The child-tax credit also contributes hugely to supporting working parents .

The above list also gives lie to the whole Daily Mail/Tory party propaganda that this government is an Old Labour government that only raises taxes. New Labour clearly has no ideological opposition to tax cuts at all - they are merely keen to target them at the poor and at people with children.

In effect Labour have altered the burden of taxation slightly, with the poor benefitting and the rich paying slightly more, while making sure that the total tax-take as a % of GDP has remained broadly stable give or take a % point, over the last decade.

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