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The 2020 Public Services Trust Blog

Tuesday, March 30, 2010

Lights, cameras, action…

By Ashish Prashar

Last night the chancellors squared up in a the first live TV debate in the UK and although it wasn’t always electrifying the programme was certainly a triumph. The three would be chancellors clashed over how quickly the deficit should be cut, tax and what to do with the banks but there was concensus – the candidates were “all agreed that the cuts would have to be tougher than those imposed by Baroness Thatcher in the 1980s.”

In a fiesty hour-long debate the chancellors started off by talking about their personal qualities but it really got going when Alistair Darling and Vincent Cable ganged up on George Osborne to heap derision on the Conservatives’ proposed tax cut. Then the Chancellor attacked Osborne saying he “did not have a single penny in the bank” to pay for his plan to reduce National Insurance contributions and that he was taking a terrible risk… and with Osborne on the ropes Cable weighed in.

Vince Cable went from strength to strength by simply telling the truth. He won the most applause by presenting himself as the man who saw the recession coming, adding “we are not beholden to either the super-rich or militant unions” and winning the biggest cheer of the night when he described people unhappy with 50p tax as “pin-striped Scargills”.

They all criticised the financial sector and the banks in particular came under heavy fire. There was also consensus on public sector pensions until Darling pointed out the Tories’ failure to support Labour on care for the elderly. Osborne then accused Darling of stealing the Tories policy on stamp-duty, Darling replied with “there’s nothing like cross-party consensus Geroge” getting his biggest laugh of the night.

Darling did boob on the death tax and Osborne’s position on child tax credits still remains confusing.

So what’s my verdict?  Well, Darling made no big mistakes. There were a couple of decent gags that got a few laughs from the audience and some flashes of passion, which may have surprised some. Osborne stood his ground and certainly looked calm. However, he made little of the National Insurance announcement and sometimes looked like he was being ganged up on. Cable threw and landed the most punches, and in my opinion secured his place as the people’s favourite by smashing MPs and bankers, and clobbering Osborne over his IHT cut.

This was always going to be a warm-up to the main event; the leaders’ debates. Although I don’t think they will have the same drama and impact as the US Presidential debates they will certainly be interesting.

One last quick note Krishnan Guru-Murthy was excellent and played it really well… Watch Ask the Chancellors!

Thursday, January 7, 2010

Let it snow, let it snow, let it snow!

By Ashish Prashar

As we are in the middle of the coldest winter in the UK for 30 years and people across the country are battling treacherous conditions after sub-zero temperatures follow days of snow, the economic impact of the cold snap is beginning to pile up.

The Federation of Small Businesses has criticised head teachers for closing schools too readily in the snowy weather (over 10,000 schools closed across the UK), saying lost working days are affecting many companies. With millions unable to get into work, business leaders are ‘forecasting’ (excuse the pun) that the cost to the economy could top £14.5bn by the end of January and with the big freeze set to continue until March business leaders are urging workers to carry on regardless.

This doesn’t bode well for an economy still navigating its way through a recession, oh and wait there is still more snow to come… I guess the only big winner from the cold snap has been energy firms, whose profits are set to soar, well I’ve had my central heating on all morning haven’t you?

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Posted by Ashish Prashar at 12:40 pm
Thursday, December 10, 2009

Borrow more, borrow now…

By Ashish Prashar

There was very little change in the borrowing figures in yesterday’s Pre-Budget Report, which is impressive given the turmoil of the last year. The Treasury also estimated that the cost of bailing out the two state-backed banks will now only cost £10bn and £50bn as previously estimated and the Chancellor promised the markets that the deficit would be halved in four years. However, he ducked the decisions on where cuts would need to be made and spending for 2010-11 will surge ahead as planned.

Now although deficits look bad it has been relatively cheap to borrow since the start of the recession and we’re probably now entering the beginning of a period where the rate for government to borrow will normalise as the recession comes to an end, therefore becoming more expensive.

So if government going to go forward with spending as planned and borrow more in the near future, it’s probably a good idea to borrow now and lock it in while rates are low.

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Posted by Ashish Prashar at 11:10 am
Tuesday, August 18, 2009

Charged interest after death… ouch!

By Ashish Prashar

Families who are grieving will not only have to worry about inheritance tax but it emerged over the weekend that they will hit by a new stealth tax, the Government is imposing a 3 percent interest charge on the IHT. Relatives of the deceased are required to pay 40 percent IHT on estates worth over £325,000 within six months of the death, after which the interest will be levied.  This unethical move will raise about £10million for the government.


To do this in the current economic climate makes no sense.  The Telegraph amongst others makes the following point:


“Families who are forced to sell properties who are forced to sell to cover IHT bills are likely to be hardest hit by the current market conditions. The current interest rate will force relatives of the deceased to sell properties in a struggling housing market instead of waiting for conditions to improve.”


I believe in redistribution of wealth and the choices we make through life do sometimes determine how much we give back, whether we own a car or not or buy a house.  But IHT is like no other tax – we don’t choose when we die and to levy interest on relatives after they have lost a loved one is morally wrong, maybe no one in government knows the pain of losing someone close to them.


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Posted by Ashish Prashar at 10:28 am
Friday, August 14, 2009

Unemployment – just following the tide?

By Henry Kippin

The latest unemployment figures make for awful reading, especially for those under 25 feeling frozen out of the labour market before their careers have even begun. Reports this morning warned that “Britain faces losing a generation to unemployment”, effectively marking a “reversal” of the gains made over the last ten years.

Flashbacks to the 1980s are impossible to ignore, especially the stark juxtaposition of City bankers with enormous mobile phones, against dole queues and depression in many northern cities. Things have certainly changed since then, but pick up any broadsheet yesterday and you would have seen articles on the human effects of the “worst recession in modern history”, side-by-side with the reporting of an effective free-pass from the FSA to help restore the City bonus culture.

Whatever the economic rationale (usually about protecting the City’s comparative advantage), this is pretty hard to take. As Matthew Taylor points out, under 25s “were not to blame for the economic mistakes made by Government, business and consumers. Most have done their best in the education system on the promise that their efforts would be rewarded, a promise that is now being broken.”

It feels like there are a couple of undercurrents running below these headlines. One is a re-emergence of economic liberalism, having ridden out the storm of calls for more and deeper state intervention in financial and other markets. Bill Emmott’s article in yesterday’s Times is a good illustration of this:

“The … biggest, implication of a recession that ends now is that the obituaries written last year for liberalism, for the 30 years of policy domination by the ideas of Reagan and Thatcher, will prove premature. The state has been back only as an emergency rescue service, albeit a vital one, and governments in Europe and America will sell nationalised banks and other assets at the first opportunity, and cut public spending wherever they can. Financial regulation will be tighter at the end of this crisis than at the start, but even Friedrich Hayek, Lady Thatcher’s guru, would not quibble with that.”

From this perspective, the state – having effectively stepped in to prevent total market collapse in the financial sector – is simply a short term backstop, and calls for a more socially responsible model of capitalism reflect a crisis of confidence, but little more. If we accept this line, then rises in unemployment are simply an inevitable byproduct of a necessarily flexible and dynamic labour market, and we should wait for the upturn…

The second undercurrent feels like the beginnings of a reincarnation for orthodox economics, and the efficient markets hypothesis in particular. This is not reflected across the whole community of high-profile economists (Thaler, Skidelsky and Shiller notable examples), but I noticed a piece from William Easterly the other day that attempted a bit of retrospective justification:

“Economists did something even better than predict the crisis. We correctly predicted that we would not be able to predict it. The most important part of the much-maligned EMH is that nobody can systematically beat the stock market. Which implies nobody can predict a market crash, because if you could, then you would obviously beat the market.”

I am not an economist, but this feels a bit like Donald Rumsfeld double-speak mark II. And in any case, I might well be overstating the importance of these opinion-pieces. But it certainly feels like the further we edge out of total economic crisis mode, the more likely it is that these undercurrents will again define the direction of the mainstream. And I’m not sure that is something to be welcomed.

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Posted by Henry Kippin at 10:12 am
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