Tory Vat Bombshell gets dropped on Jan 4th

It's hard to avoid news of the Tory Vat Bombshell getting dropped on January 4th. Everytime you turn on the TV, there is a retailer spending hard cash on prime time television adverts warning the public that the Conservatives are going to hammer them with a VAT rise even though the economy is still in a fragile state.

We should also note that during the election campaign, George Osborne specifically promised he wouldn't raise VAT.

Here's what he said

The plans we set out involved around 80 per cent of the work coming from spending restraint and about 20 per cent from tax increases . . . The tax increases are already in place; the plans do not include an increase in VAT.

And here's what Cameron told Jeremy Paxman in an interview on April 23rd:

We have absolutely no plans to raise VAT. Our first budget is all about recognising we need to get spending under control rather than putting up tax.

This is clearly a Government Of All The Liars.

Why have the Con-Dems lost control of the street?

The 13 Labour years look remarkably peaceful as well as prosperous now, don't they? How have the Tories lost control so quickly?

Some part of the responsibility must be down to Boris Johnson, who seems to spend more time guzzling and having affairs, than running the capital. It's a massive contrast to the way Ken Livingstone ran things. Trafalgar Square was a mess in 1999, but he cleaned it up and reclaimed it for ordinary Londoners pretty quickly. The Met was given more funds and hired more police, and managed to handle really large demonstrations like the one million Iraq war marchers and the Countryside marchers, without problem. Nobody dared to go awol under Ken's watch, because he had a grip on what was going on at the Met and in his capital.

So what has changed?

When the first student protest got violent, the feeling was that the Met had been caught off guard - they simply didn't have enough police on hand to deal with it. But now it's the fourth protest, and they still haven't got a grip. Have they cut their budget so much they can't afford the overtime for extra officers? Are the police deliberately holding back in order to make a protest of their own? Who thought it was a great idea to drive Charles and Camilla through the middle of the riot? And with the light on in the car, so the students protesting about unaffordable fees could get a really good look at all the diamonds and emeralds Camilla was wearing, Marie-Antoinette style. Given that the instinct of the ordinary Brit is to steer out of troubled areas, only someone in the police feeling malicious would have decided to drive the royals right into the riot.

And what about this juxtaposition: on the 7th December, Ken Clarke announces that short-term prison doesn't work, but three days later Cameron declares that the "full force of the law" is to be applied to the rioters! Is this another U-turn for him on his law and order policy, or is he just venting for the cameras? And there's also the juxtaposition of Cameron being a violent member of the Bullingdon club in his student days, criticising other violent students. You really couldn't make this up.

P.S. For those interested in the protests against Topshop and others for tax avoidance, please visit the following blog by someone called George, called Boycott Big Business, which gives a detailed look at why these companies are being targetted.

I'd like to point out that the Inland revenue benefits from these protests. It works like this: Say you have £20 to spend on a top, and decide to boycott TopShop and spend your money at John Lewis instead. Because the £20 gets spent regardless, the effect on the economy is neutral. However, because John lewis pays all it's taxes, the Treasury experiences an increase in tax revenue. Employment at TopShop may go down, but employment at john lewis should go up, so the effect on employment is neutral too. And best of all, other retailers may hastily decide to get their affairs in order so that they are not targeted, which also leads to an increase in tax revenue. It's win-win-win, as we then don't haemorrhage tax money to the less scupulous parasite states.

House prices slump for the fifth month running

Today Hometrack reported that house prices slumped for the fifth month running, and the BoE reported that mortgage approvals fell for the sixth month in a row. Why is this important? Because house prices impinge directly on middle Britain.

I've written before that I believe that slumping house prices were responsible for the thumping defeat that the Tories got in 1997. Though the economy was growing in the run up to the '97 election, house prices remained below their 1989 levels, and middle Britain was thoroughly fed-up as a result.

Labour was very conscious of why they were elected, which was why the first action of the Labour government was to make the BoE independent, at a stroke restoring confidence to the housing market.

When the credit crunch happened in 2008, Labour did everything they could to prevent forced selling - you got help with your mortgage after 13 weeks unemployment instead of 39 weeks previously, schemes were put in place to help people who were struggling, the government made it clear they would do everything and anything to keep the economy going.

And it worked. In May 2009, house prices began rising gently again - not much, but they weren't falling. A flat market meant no-one lost money. Once house prices had been rising for about six months, Labour began to rise again in the polls - indeed they rose enough to deny the Conservatives a majority at the general election.

However, all our good work has been undone by the Tories. They have been frightening the voters on a weekly basis since the end of June. They not only don't appear to realise that confidence is vital to the economy, but George Osborne couldn't resist gloating about all the jobs he was going to axe. I guess having power over so many people went to his head and he couldn't resist savouring it in public.

People who are frightened about their job prospects don't buy houses. They don't budge and the housing activity shrivels, leaving the few forced sellers to set the price - downwards.

There are 14.5 million home owners just in England. This is a massive interest group. It dwarfs public sector workers (8 million) or the 3 million people on disability benefit.

The disabled tend not to vote (from my contact with them, they struggle so much with pain and distress, they don't pay attention to anything outside their personal lives). A lot of public sector people voted LibDem in the 2010 election (they didn't want to vote Labour because Labour were the boss). They may switch to Labour in the next election.

The key to Labour winning the next election is to get the home owners back. According to this BBC graphic Labour won 41% of homeowners with mortgages in 1997, and 39% of home owners with mortgages in 2005. In 2010 we got 29% of home owners with mortgages. That was where we lost it - those home owners took for granted that the house price recovery and economic recovery were set in stone (confidence about the economy was high in May 2010), and felt they could switch without hurting themselves.

It will start dawning on them that a Tory government means a prolonged house price slump - again. At that point I expect we shall see people switching from Tory to Labour (up until now the rise in polls for Labour has been down only to LibDems switching to Labour).

CSR Verdict

The most stunning thing that came out of the CSR for me was this: The ConDems are planning to increase the International Development budget by 37%. A 37% increase on what Labour spent (even in boom years). 37%!

And they are cutting the welfare budget by £18bn, and aiming the distress squarely on the most vulnerable such as the disabled.

They are taking mobility money away from people who can't walk and p***ing it away overseas? Really?

If Gordon Brown felt we couldn't afford an extra 37% for international development because it would come at the expense of our own vulnerable, then we really couldn't afford it.

Perhaps call-me-Dave wants to ensure that nascent superpowers such as India can afford aircraft for their aircraft carriers? What other explanation is there?

How much do election pledges matter?

There've been a gazillion U-turns by both the Conservatives and LibDems since they entered government, but none so massive than the LibDem pledge to abolish tuition fees, only to double them as soon as they got into power.

The response from the LibDems like Cable is to bleat that they "didn't expect to be in government" when they made the pledges - in other words, they felt they could safely trick voters with any number of unrealistic policies in order to get elected. Not only that, they seem to feel that the voters they tricked will nod sagely and decide that it was OK that the LibDems were pledging all sorts just to get elected, as long as they didn't expect to be in power! And that their pledges to their coalition partners are more important than pledges to the voters!

How much do broken pledges matter? Quite a bit, I think. One example is David Cameron's pledge to hold a referendum on the Lisbon treaty, and the subsequent U-turn in late 2009. The Conservative lead started to plummet as some of their voters simply abstained in disgust. They had been 20 points ahead in mid 2009, but when the general election results came in, they failed to win a majority.

Breaking pledges in government is even worse. Labour was very, very careful to stick to it's manifestos - the Labour government even delayed the passage of the tuition fees bill, so that fees were in the 2005 manifesto and voters could vote against if they didn't like it (and Labour had a mandate for them when they got elected). I recall only one pledge broken in 13 years of government and that was the pledge not to raise income tax - higher rate tax was raised to 50% with effect from April 2010, a month before the general election. And the only reason that took place before the election was because it was impractical to hold the general election on 2nd April and then the council elections in May. So one broken promise right at the end of 13 years in government.

What hurt John Major's government so badly was making a great fuss of how Labour would raise taxes (the so-called "tax bombshell") and accusing Labour of wanting to pull out of the ERM and then breaking both pledges just six months after the election, leaving voters feeling like they'd been tricked.

Major and the Tories also thought that as the broken promises happened right at the start of that parliament, the electorate would forgive them five years on when the came to vote in the next election. You hear a lot of LibDems and Tories saying something similar now. "The next election is not till 2015".

But not only did voters not forgive Major, the longer they were denied a say, the more furious they got. What had been shock in 1992 and 1993 had hardened into implacable fury by 1997, and when they finally got to vote the electorate blasted the Tories into their worst defeat since 1832. John Major would have been better off holding the election in late 1993/early 1994 before momentum against him had started to build.

LibDems and Tories dismissing voters annoyance by saying "people will have calmed down by 2015" are making the same mistake Major did.

General elections are great safety valves. Let voters have their say early and you take a minor hit. But if you blatantly fib to get elected, and then dismiss voters concerns with a patronising "they'll get over it", anger just builds and builds and builds. The longer people have to wait to have their say, the bigger the blow-out. Luckily for Labour the coalition are too stupid to grasp this. Incidentally, this is why fixed parliaments are a bad idea, and fixing the length of parliaments for five years is even worse. We should retain the right to have elections at any point (in practice this means four year terms and the ability to consult the voter in unusual circumstances).

Congratulations Ed Miliband

I can't tell you how relieved I am that Ed Miliband defeated David Miliband for the Labour leadership. I'm sorry for David M and all, but he would have been wrong for the leadership. And my fave Ed Balls came a respectable third.

I think Labour people will be pretty happy with this result. The press of course are spitting feathers as their pick didn't get the job.

One meme going around is that he wasn't the first pick of the MPs part of the electoral college. But the MPs don't exactly have a brilliant record for picking winners do they? In the last 30 years, the only two leaders of Labour who were chosen solely by the MPs were Michael Foot and our poor grumpy Gord. Good men to be sure, but they didn't win elections.

The full electoral college has a better record. When they chose Kinnock over Hattersley, there were similar cries about how Labour had "lurched left", but actually it was a sign Labour was marching to the centre. It was Kinnock after all who chased Militant out of Labour and began the rebranding of the party that was to lead to victory in 1997. The full electoral college also chose John Smith and Tony Blair, and in 2007 chose Harriet Harman as Deputy Leader.

When Harman won, again we saw the press cry "left wing" (and the MPs went for Alan Johnson, the man who was silly enough to urge people to vote tactically for the LibDems in the lead up to the 2010 election). Harman proved to be the right choice - under her temporary leadership, Labour recovered incredibly fast after the election. The Tories took 10 years and four leaders to at last recover in the polls in 2007 after their 1997 defeat. It took Harriet two months.

Why does the full electoral college make sounder decisions than the MPs? Mainly because they live in real Britain, rather than in the Westminster bubble, talking to a narrow press that seeks to influence them.

As for the meme that the EdM is a "union" man, the affiliates weren't exactly uniform in the way they voted. USDAW plumped very heavily for David Miliband, CWU went heavily for Ed Balls, and Aslef and the Musicians Union went for Diane. As for the non-union affiliates, the Fabians went narrowly for David Miliband, as did Black Asian Minority Ethnic Labour, Labour Students and the Society of Labour Lawyers. Labour is quite a complex movement and not easy to stereotype - though I've no doubt our enemies will have a go.

The Labour Leadership Election

I've been way too busy to post, and to be truthful haven't had the time to follow the leadership contest closely either - but I'm not sure that's entirely a bad thing. This is how most voters absorb their politics, on the periphery of their lives, in snippets. Tiny things seep through, lots of things that the chatterati think are important don't, and a conclusion is formed.

So here's who I'm voting for (and the list is in a different order than it was when the contest first started, so the long contest has changed my mind).

1. Ed Balls. He gets my first preference. I think he's the brightest of all the contestants, and the only "Essex bloke" type in this contest, and why shouldn't Essex bloke have a go at leading a major political party? Polls are showing that on education the coalition has a negative rating, which is entirely down to how well Balls has communicated his position to voters. He probably won't win due to his closeness to Brown, but I'm giving him first preference so that he has a base to play a major part in the fight to regain power.

2. Andy Burnham. He wasn't even on my radar when this contest started. I'm giving him second preference (and hope he wins) mainly because I like him. It's not just me -everyone seems to like him, whether they are political or non political. This is a huge deal for a politician, it's like the holy grail. I also like his opposition towards electoral reform, and his willingness to think outside the box. He is not associated at all with the previous Labour administration, despite having served in it, and I think a Burnham led Labour party would mark a fresh start. I also think there's some underlying grit in him in the way he has kept at it, refusing to concede that it's just a Miliband v Miliband affair, and continuing to come up with initiatives.

3. Ed Miliband. Originally he was my favourite, but has fallen back. It boils down to this - I don't think he's tough enough for the job of leader.

4. David Miliband. I tried to give him a fair hearing, but every time he opens his mouth he puts me off. He just talks jargon, and sometimes I'm not even certain he knows what he means. The only time I got a glimmer of the real David underneath the geek-speak was when he did a live web interview on the Guardian's CiF - but unfortunately he cut it short because he apparently had somewhere more important to be, and for me that summed up his problem: he doesn't realise he has a communication problem and that engaging with voters and critics is important. The MPs will probably vote for him overwhelmingly, but we must hope that members and affiliates don't.

5. Diane Abbott. What can I say? She's intelligent, not as left wing as she pretends, but ruins it all by being too grand to engage. Still she did inject a little flurry of excitement at the start of the contest.

So there you go. I'm crossing my fingers that Andy Burnham is the dark horse who will come through the middle. I wish I had been able to campaign for his candidacy earlier but life and business got in the way.

Labour edges up in the polls

In the opinion polls since the general election, Labour has slowly been edging up. We were about 32% in mid June, and that went up to about 35% in early July. And then we appeared to be stuck.

But the latest poll from YouGov (fieldwork 15th - 16th July) shows us on the move again. Here's the figures:

Con 40%
Lab 37%
LD 15%

So we are within 3% of the Tories.

And the cause of this sudden shift? In my opinion it's down to all the stuff in the news about the NHS. Cameron made a big song and dance during the election campaign about not touching the NHS, and here he is looking to break it up by re-organisation.

The Con-Dems seem to have decided that manifesto pledges and promises don't matter, and every day they get more cavalier about breaking them, reasoning that there wasn't that much of an outcry about the last pledge they broke, so why not break some more? It actually does matter, and the effect is cumulative. The more pledges you break the more distrustful the population gets, and then comes the tipping point.

The NHS is also the third rail of British politics. Touch it and you die. If there is any fall-out in patient care as a result of this, the Con-Dems will pay a penalty.

The other interesting thing about the YouGov poll was the response to the question "Do you think this coalition government will be good or bad for people like you?"

Total good 36%
Total bad 39%
No difference 15%
Don't know 9%

That's a change round from the YouGov poll done at the start of July (fieldwork 1st-2nd July). Then it was

Total good 41%
Total Bad 36%
No difference 15%
Don't know 8%

The constant pessimism dripping out of the government combined with such events as the chair of the new OBR resigning, have dented confidence.

Congratulations Spain

... and now is the cue for Zapatero to announce that Spain only wins the World Cup, European Championships, the Paris Open and Wimbledon Championships when a socialist government is in power!

Meanwhile, in Britain everything has turned to ashes since the ConDems took power - we were bottom in the Eurovision, out in the second round in the World Cup (after coming second to the USA in the first round for heavens sakes!) Business confidence has turned down, the IMF has downgraded our growth forecast directly as a result of the draconian action of the ConDems to take vengeance against the public sector, (the coalition dimwits believe the public sector caused the credit crunch).

Plus all sorts of lunatics are going on gun rampages - first Derrick Bird, now Raoul Moat. You have to go back to John Major's government and Dunblane (and Huntingdon under Thatcher) for the last episodes. And it's only been just over two months since they were in power.

Crime always rises under Tory governments, it rose steadily from 1979 to 1997, and looks like rising again. It's a combination of Tories cutting back on the police while at the same time causing stress in the population at large, which always tips those at the edge into violence.

Minutes from BoE Monetary Policy Committee

The minutes have been published of the BoE's Monetary Policy Committee for their meeting in the first week in June - and the shock is that for the first time in two years, one member, Andrew Sentence, has voted to raise interest rates.

He was worried about inflation, and the minutes show that other members agreed with him in discussion (though they didn't vote for a rise in interest rates). And remember this was before they BoE members knew what was in the budget.

The budget will have made him even more hawkish - as I said in my previous post on VAT, it will add to inflationary pressures that are building due to the falling pound (and sterling as been falling since the election because the markets believe that the Coalition is going to tip us back into recession).


I have some sympathy with the need to normalise interest rates. If you look at the graph left, during the global recession of 2001-3, the UK dealt with the crisis by loosening fiscal policy, and while interest rates were cut, they didn't fall too low, and the monetary stimulus was removed pretty promptly. The USA though not only loosened fiscal policy, but turned on the monetary taps too wide, causing the massive commodity speculation that did so much to hurt the world economy, plus of course a housing bubble, which led to the credit crunch.

It might be smarter for all economies to have higher interest rates and a looser fiscal policy rather than the situation we have now, where everyone in Europe is tightening fiscal policy, but money is still extremely cheap, which means we have all manner of speculation going on, from attacks on sovereign countries to an oil price that is artificially high given global economic conditions.

The nightmare scenario is if uber-loose money causes inflation, and you end up with a toxic situation of tightening monetary policy at the same time as tightening fiscal policy. The Coalition are expecting the BoE to keep monetary policy loose in response to their fiscal tightening (see the comments from the OBR), but the BoE might not be able to deliver, especially when the government recklessly puts up VAT. You'd think they would have learnt from Thatcher's experience of jacking up VAT from 8.5% to 15% in the early 80's, but no!

Like most Labour people, I hate VAT with a purple passion; it slows consumption, it's regressive, it contributes to price inflation, and worst of all, once you put it up you can't cut it without the agreement of all 27 members of the EU (and that's unlikely to happen when many EU countries have higher VAT than us).

I've no idea why Tories are so enamoured of it. I think they believe that it's a stealth tax that no one notices - but it actually causes a lot of damage to the economy, (a lot of the ills of the previous Tory govt can be laid at the door of their VAT policy). I guess we are heading back to an era of low growth under Conservatives