Liberal Vision

Ed Miliband’s tuition fees policy would favour people on £72k pa

Liberal think tank Centre Forum has been busy crunching some numbers, and their findings don’t make happy reading for Labour’s seemingly-doomed leader.

Ed Miliband has made a big socalist play of his alleged plans to force nasty bankers to subsidise cheaper degrees for the bright teenage children of  hard-working families.

Yet through its complexities, Miliband’s plan would typically benefit “graduates in their fifties earning £72,500”.

The study says: “Virtually no one in the bottom half of the earnings distribution, and virtually no one under the age of 35, will stand to gain from Labour’s plan.”

The policy of lumping further taxes on the financial sector “will be harmful during a period of economic recovery”.

It also adds: “Given the way that the student loan system works, the majority of the gains are illusory – what government gives on one hand, it takes back on the other.”

Indeed. Taking with one hand to give back (less) with the other. Nice to know someone else has noticed that.

Anyway, it looks like Our Vince is happy with the report:

“I would urge anyone attracted to Labour’s proposals to read this very informative analysis,” Vince said. “It makes clear that the policy only benefits wealthier, older graduates, and it exposes Labour’s claim that they want to help young people as completely false.”

You can read the report BY CLICKING HERE .

Labour VAT move is half right

Shadow Labour Chancellor Ed Ball’s call for a permanent or temporary VAT cut puts him half into the same camp as liberal think tanks who opposed the VAT rise in January. Philip Booth, Programme Director at the Institute of the IEA wrote 

“Today’s VAT rise is simply bad economics… If the government insists on increasing taxes, there are better candidates than a general VAT rise.”

 Where Balls and Booth part company however is on the flipside of the balance sheet. Booth writing:

“Today’s news should be a wake-up call that the spending cuts are insufficient. If the government wishes to prevent growth from stalling, it will cut spending further, not burden the population with an unnecessary tax rise.”

Balls, a Keynesian of sorts, remains convinced stimulating demand alone can restore growth.

Economic growth fundamentally is based on doing new things and more commonly doing old things more efficiently. It is a supply-side issue.  If you increase the money supply without improving productivity you just increase inflation. Interest rates rise, we are all worse off.

Two important element of Keynesianism are also missing from the Shadow Chancellor’s analysis . Firat that the last government, of which he was a leading player, should have been running a surplus during the long boom in the last decade. Not a deficit in every year since 2001. The surplus would have taken some heat out of the boom, and provided a fighting fund for the crash.  

Second Keynes did not confuse government spending with government investment. Investing in infrastructure such as roads, or development such as scientific research is clearly a very different growth proposition to spending on welfare and public sector pensions.

In that regard Balls is not a very good student of his own economic philosophy, Keynes did not advocate profligacy. A VAT cut without corresponding reductions in unproductive spending would be just that.

Shameless Balls

The line adopted by the Ed Balls, that the Government’s current deficit difficulties are purely due to international banking / credit crisis in 2008 is one much repeated.

This is surely easy to test?

At one level is clearly false. It is simply an admission that the last Labour government made spending decisions on the basis of a bubble.

Anticipating such risks and hedging against them is the job of the Treasury. Under Labour the Government was spending more than they made in every year since 2001/02. As was said at the time, they didn’t ‘fix the roof when the sun was shining’.

They excuse this with all sorts of pseudo-Keynesian waffle about ‘investment’, but much of the rise in public spending was not infrastructure for the future, but current spending on wages for public sector workers and voter-pleasing bribes such as the child trust fund. A classic Labour approach to economics; spend, spend, spend, and hope something turns up.

Further the impact of the credit crisis on Government income is measurable.

Tax revenues fell from around £550bn in 2007/8 to £520bn in 2009/10 (£533bn in 2008/09). It’s a difference of around £30bn.

That’s less than the current interest on the national debt (@£50bn), let alone the annual deficit (@£150bn)

This means, crudely, public spending commitments are accounting for about 80% of the deficit, the recession around 20%.

And that only if you generously assume the Government couldn’t have possibly seen there was a bubble (whilst Vince Cable kept predicting it), and taken precautionary action. And further that the debt itself, and that large interest bill, was nothing to worry about and should not have been reduced.

How all that equates in the mind of Balls to the financial crisis being solely responsible for the deficit and debt is a mystery to me.

Perhaps a Labour economist could explain?

Barnsley defects to Scotland

Congratulations to Labour’s Dan Jarvis, who has beaten the nationalists into second place, to be coronated the next Labour MP in Barnsley Central. The Liberal Democrats came sixth. 

Were this a small town in Scotland it would not be an entirely unusual result, albeit still bad for the Liberal Democrats.

 The low turnout (37% versus 57% at the general election) was a factor. The 2nd place at the general election was only 17%, some 6 votes higher than the Conservatives.

The headline though is what matters, with echos of the SDP’s 7th place performance in Bootle 1990. The result that finally persuaded David Owen to dissolve the party.

It is hard though to draw any meaningful conclusion from the result beyond a sense that the UK like the USA is polarising. The US split is sometimes characterised as ‘the United States of Canada’ versus ‘Jesusland’, ours as ‘AngloSaxonia’ versus ‘Southern Scandinavia’.

Multi-party Scotland for example has proven curiously resilient to plural outcomes over the last 30 years with Labour regularly out-performing their national vote share, and widely predicted to return as the largest party in May’s Scottish elections.

Even in 2010 Labour secured 42% of the Scottish vote (versus 29% overall) with a swing away from the SNP. This after presiding over a financial disaster on a scale akin to the Scottish banking crisis that precipitated the Act of Union in 1707.

In that context it’s hard to see what trends or political winds it would take for a centrist or centre-right party to win big in Scotland.

Could some parts of the north of England be going the same way?

The North East has 25 Labour MPs and 4 from coalition parties. It’s hard to see that changing much, even with voting reform.

The South East conversely has 75 Conservatives, 4 Liberal Democrats, 4 Labour and 1 Green.

These are regions as divided on politics as Texas and New Jersey.

Such division is a problem for the Liberal Democrats. It means a centre-ground squeeze if we remain coherent, and (at least) two parties if we return to protest-vote opportunism.

Results like Barnsley Central, numerically irrelevant in themselves, will encourage defections and add fuel to the narrative of a liberal split.

There is a further problem in what to do about it. Ending the coalition or ditching Nick Clegg might appease typically Labour protest votes, but not win them back, whilst simultaneously alienating liberal conservatives and independents.

Reversing the tuition fees reversal would deepen tensions in the party (many MPs would be made to look ridiculous) and do nothing to restore public trust. That damage has been done.

Does it mean the party should always sit outside Government until it can win a majority? Maybe electorally, but this is unlikely to improve the party’s credibility as a future government, or make the case for electoral reform.

The unhappy advice surely then is that Nick Clegg must stick to his guns, do more to flesh out what his centre-ground liberal alternative looks like, and weather more Barnsley Centrals on the road to 2015 in the hope events and opponents will provide the opportunities for revival.

Whether or not the party let him do that remains to be seen.

Two Eds are not better than one

The long and short of Ed Miliband’s reshuffle is that the Labour party are now represented at the top table by a group wedded to tax and spending as the solution to all ills.

This is a very good opportunity for Nick Clegg to ditch his ‘progressive’ baggage and position the Liberal Democrats firmly in the liberal centre ground.

Left-wingers who have used the Liberal Democrats as a dumping ground for all the mad ideas they could never get past New Labour concessions to electability and  balance sheets now have a very familiar place to call home.

Ed Balls meanwhile will be focusing on his next target, his Leader. It’s the good old days of the Blair and Brown show coming back, without the veneer of aspiration and competence that kept the show on the road.