Wednesday, 29 January 2014

A recovery not made in Downing Street

The best economic figures for seven years are a cause for celebration, but also a moment to take stock. The numbers are good, actually - and about to get better. Last year the United Kingdom's economy grew by nearly two per cent, and next year that figure might hit three per cent.

So has the Chancellor, George Osborne (above) been vindicated? We say 'no'. If you look hard into the data, Britain's renewed growth looks familiar indeed from every other recovery we've ever had since the Second World War. More debt. Higher house prices in the South East of England. A chronic labour productivity problem that just won't go away - which is fluffing up those unemployment numbers no end as employers feel obliged to take on more and more workers, but not really helping the UK pull away in terms of relative economic performance.

Now we shouldn't get too carried away by all this criticism. Every economic historian will tell you that all developed economies start to recover via a domestic shopping spree. Ask yourself this: are businesses more likely to invest and grow after demand has started to reappear, or preempt it and risk losing out? The answer's pretty self-explanatory, isn't it? And regular readers of 'Public Policy and the Past' know that Mr Osborne always planned for private and household debt to rise and take up the slack that all his precipitate early cuts to public spending left, even though it was always the state - and not individuals - which was in a good position to borrow more.

But this recovery has got even commentators usually friendly to the Chancellor really worried. They don't use phrases like 'unbalanced and unsustainable' without good merit. Nor does Vince Cable, the Business Secretary, air his own concerns without good reason. Low productivity, rising asset prices and worries about inflation just a few months into a recovery? It's a great big red light that tells you that parts of the UK's grotesquely segmented economy are going to start overheating pretty soon. Overstretched households, many millions of whom are now very vulnerable to any rise in interest rates, will feel the pain.

And remember how we were supposed to get here. Government spending was going to reach structural balance by the end of this parliament - and state debt was going to be falling. There was going to be a 'march of the makers', with manufacturing powering our exports. Productivity was going to rise to fill all the gaps. Britain's triple-A debt rating would be preserved. Did any of it happen? Er, no - something Mr Osborne should remember when he berates the political opponents whose macroeconomic views he basically accepted in 2011-12 by turning the public spending taps back to half-on.

Will all of this matter politically? Probably not. The present Coalition will probably now get the benefit of the electoral doubt in 2015: certainly its prospects look better now than for a couple of years. If growth continues to surge ahead, and stagnant real incomes start to catch up, Mr Cameron and Mr Osborne will get to serve a decade in their respective jobs.

But when and if that happens, it will have been a matter of luck and cynical opportunism, not economic judgement or planning. The only consolation is this: like Harold Macmillan in 1961-63 and Margaret Thatcher in 1988-90, they'll be left to face the consequences of their own overheated mess.

Friday, 24 January 2014

University tuition fees in England: pricier and pricier

What was is that 'Public Policy and the Past' said three years ago, when we came to consider the debacle of the Government's reform of English higher education? Well, let's just recap, shall we? 'The new system bids fair to completely bankrupt the Exchequer, while delivering very few quality or efficiency gains. It's a slow-motion car crash - a system that won't work and can't work'.

The result? Well, now it's confirmed - a system that will probably cost the Exchequer about the same as the old one. That's because universities have been 'freed' to charge a lot more than they used to bill the taxpayer, because their costs keep quite naturally going up (despite a period of pay restraint among most staff), but most of all because the money's being pumped into a very leaky pipe indeed.

The terms of the new loans are pretty generous, and most students will never pay off the £27,000 in tuition fees that there'll have forked out for. Once they get to thirty years (and they're probably 51!) they'll get a letter saying 'thanks very much, we don't need any more of your cash'. What's worse, the pretty heroic assumptions about graduate earnings that were made in 2010 have turned out to be too optimistic - again, you might have read about that here first. Throw in European Union students who can't be chased and can't be made to pay, and a lot of other people who'll probably disappear from the system altogether, and you're now looking at approaching half the taxpayer's money disappearing like condensation on a window.

We used to be told that the Resource Accounting and Budgeting Charge - the amount that would leak out in this way - was just under 30 per cent. Then it rose to 35 per cent. Then 40. The other day the relevant Select Committee was told that this might rise to 50 per cent - the moment at which the taxpayer starts being worse off than just leaving things alone and only charging students £3,300 in the first place. By the way, if you're reading this and you're a UK taxpayer, bear in mind that for every one point rise in the RAB charge, you get stung for £100m. So that little tiny accounting number in the footnotes? It just cost you £2bn - quite a sizeable chunk of all the income tax, National Insurance and Value Added Tax that you, your family and everyone you've ever known will every pay.

The Department of Business, Innovation and Skills is fighting a rearguard action right now to appear even halfway competent with some pretty basic sums - and having to admit that its failure to control places at private universities might well involve cutting funding for Widening Participation initiatives. This is the last thing David Willetts, the Minister for Universities (above) needs, most of all because it's all been predicted for so long. The idea that held sway between the early 1960s and the mid-1990s - that Higher Education was a critical national priority that should be thought of as investment in human capital - has been torn up, and replaced with, well... No-one's really, sure, actually.

Here's a cliche that seems relevant: you couldn't make it up. How could anyone invent a system that charged the taxpayer and the student more, but delivered no appreciable rise in teaching quality? How is that even possible?

Answers on a postcard, please.

Sunday, 19 January 2014

The SNP's unconvincing White Paper


Forgive us for only catching up with news in the Scottish independence debate very tardily, but the holiday period caused a tail-back of issues. The Scottish Government's White Paper on what independence might actually look like was published back in late November, and 'Public Policy and the Past' has only just had time to take a proper look. There was no point commenting closely without looking at the detail.

Or at least there wouldn't be if there was any detail. For the document is rather unsuccessful in sketching in anything other than a series of aspirations - which is fine for a potential state that is bound to look hazy at first, but hardly much of a guide for voters.

Several of the assertions in the document are also tenuous at best, and highly misleading at worst. Take three areas that this blog talks a lot about: the public finances; currencies and international diplomacy; and the European Union. mIn every area the Scottish National Party basically says 'don't worry, everything will be fine, things will pretty much go on as normal'. Except that they might not, with disastrous consequences for both Scotland and the remaining 'Rest of the UK' after independence. You can read the whole lot here, but we'll just limit ourselves to these three areas for now.

First, the public finances. The White Paper says that 'independence will provide us with the opportunity to manage our public finances more securely and to create a more vibrant and resilient economy'. Hmm, well excuse me if that seems like a best-of-all-possible-worlds scenario, but the respected Institute of Fiscal Studies says that this is a bit of a misrepresentation, to put it mildly. Basically, Scotland by leaving would lose between £3bn and £10bn a year in public spending, even on relatively optimistic assumptions about oil revenues. Where do we get any outline of this at all, amidst all the talk of Scotland's relatively high tax revenues rather than its spending numbers? Er, nowhere.

Let's move on to the currency. The SNP has now ditched its once-fervent adherence to the Euro, for obvious political reasons: now it wants the new country to remain part of the sterling area, at least for the foreseeable future. So far, so good: this is a compromise that makes sense for a new country which will have to keep worried investors onside. But the White Paper exhibits a head-in-the-sand attitude to how this might actually work. It says that 'monetary policy will be set according to economic conditions across the Sterling Area with ownership and governance of the Bank of England undertaken on a shareholder basis'. Well, perhaps Scottish members will be asked to sit on the Monetary Policy Committee; perhaps account will be taken of Scotland's particular monetary policy needs. But maybe they won't. It'll be up to the Rest of the United Kingdom to decide what happens to the currency - not a newly-independent Scotland, which might well have lost a good deal of its influence in London.

Lastly, let's have a look at Scotland's links with the European Union. The country can't hope to compete internationally without being a member, and will be much better off in the Union than outside (an argument that holds for the UK as a whole, by the way). But the independence White Paper says that this will just happen as of right - that Scotland will negotiate 'from the inside', and that 'we will not be taken out of the EU against our wishes as may turn out to be the case if we are not independent'. There's a truth there: Scotland may have to leave (whatever its own views) if the whole of the UK votes to come out during the next Parliament, assuming there's a Conservative-led government at Westminster. But to say that Scotland cannot 'be taken out' against its will simply is not true. It will have to negotiate as an accession country; it may have to agree to open borders and to eventual Euro membership; countries with their own nationalist movements (particularly Spain) may veto its membership. Remember: any single one of all of the other EU presidents and parliaments can scupper the process. Any single one.

This level of opacity and evasiveness is not much of a mandate for anything - which means that we're likely to see a lot more wrangling, and possibly a second referendum on the actual terms of any treaty, even if there is a 'Yes' vote in September. Here's another good rule when you're making policy: make some sharp and believable promises. Don't print off a great big long wish-list that nationalists could have written at any time in the past thirty years.

Thursday, 16 January 2014

The UK General Election: a damn fine close run thing?

Regular readers of 'Public Policy and the Past' will know that this blog has been hugely underwhelmed by the UK Labour Party's poll showing and electoral performance since it lost power in 2010. Despite all the Government's near-farcical blunders - the tuition fees that willcost more than they save, the badger cull, the impending collapse of Universal Credit - the main Opposition has struggled to break away. Its poll lead has, if anything, slowly deflated over the last year. Now comes intelligence that the Party is scaling down its marginal seat effort to hold on to some of those it holds by only slender margins. And with every day that passes a quicker-than-expected economic recovery is eating away at the whole rationale of changing governments in the first place. For if things are going well, why should the voters seek to fix them?

The most important element in this equation is real wage rises. If real wages are still falling early in 2015, it is very hard to see most citizens thinking that the Coalition's boasts of better times mean anything at all. Most families have seen their real incomes retreat over this Parliament: if that's still the case at the end of this year, Labour's campaigns on the 'cost of living crisis' will have been well designed. If real wages are rising, even quite weakly as inflation falls, that cry will have much less salience.

The evidence is mixed at the moment. Some experts think that real wages will still fall this year. Certainly the UK's grotesquely bad productivity performance, endemic labour problems, investment numbers and current export record would seem to say that no-one should have a pay rise for years to come. The public sector, of course, will also be kept on a very short rein. Despite all the ridiculous recent talk of an end to the cost of living problem, prices even on the most benign measure are still going up twice as fast as pay packets are. But Britain's unbalanced economy has long slipped the moorings of earned reality. Rising house prices, more consumer spending and a rundown in the savings ratio - to be fair, the first indicators of economic spring in most recoveries - will probably push wages up however hard Britons are (or are not) working. A rapid economic recovery does seem likely to filter through to people's pockets sooner or later. From late summer of autumn, money coming in to households will probably start to move ahead of price rises for the first time since 2009.

That'll lift Conservative numbers. It'll make them electorally competitive in an extremely harsh electoral climate. But the electoral geography might still see them struggle, even in areas that are hardly thought of as electoral battlegrounds. It's very hard to imagine a scenario in which real wages will be rising in (say) Wales by the spring of 2015 - and although there aren't many Conservative-held seats there, three or four are very vulnerable indeed. If that Party is searching for a majority, it simply won't happen under those circumstances.

Rising real wages may well come to their rescue. But they're leaving it very, very, very late.

Monday, 13 January 2014

Retoxifying the Conservative brand

Do you remember when David Cameron (above) was quite popular? Go on, you do - when he was a fresh-faced, floppy-haired blast of fresh air after years of hiding under the bed from Gordon Brown's scowling? When he promised a little bit more understanding, and a little bit less condemning? When he wanted to 'hug a hoodie'? Go green? Share the proceeds of economic growth? Stop more runway building at Heathrow? End his Party's long obsession about Europe?

Yes, it all seems a long time ago, now - leaving behind an electorate that just feels it's been conned.

Now prison sentences are to head inexorably upwards again. Now Mr Cameron himself rages against the 'green crap' that he pretends is causing the UK's rising fuel bills. And announces public sector austerity all the way through to 2018/19. Now his government has commissioned a report that's pretty favourable to a third runway at Heathrow - and is bigging up the illusion of a new 'deal' in Europe that is just pandering to the completely unrealistic demands of his backbenchers. Stay in a single trade zone, without any of the Single Market consequences (including the free movement of peoples)? Yes, and the moon really is made of green cheese.

Anyway. Not all of these u-turns are his fault. Many of them are perfectly understandable - in particular, his attempts to shore up the vote on his Right against an insurgent United Kingdom Independence Party that has succeeded in yoking the issues of immigration and the European Union tightly together.

But taken together, they're potentially fatal. Because they leave the lingering impression - whether it's right or wrong - that the Prime Minister didn't mean a word of it. For a leader once compared by this very blog to the Conservatives' emollient and centrist inter-war bromide of a leader, Stanley Baldwin, that's a very, very long way to fall. For what is the point of Mr Cameron if not as the compassionate, pragmatic centrist type of good egg he liked to pose as during his years as Leader of the Opposition?

Rule number one of selling anything, including political parties: never trash your own brand. Gerald Ratner can tell you about that, if you really want. As a former advertising man himself, you'd think Mr Cameron would know better.

Apparently not.

Wednesday, 8 January 2014

Mr Gove among the historians

The Education Secretary, Michael Gove (above) has recently looked increasingly out of his depth when wading into academic conflicts. His latest howler - saying that 'left-wing' teachers use TV's Blackadder and other fictional representations of the Great War to push a version of history actively hostile to Britain, even to 'denigrate virtues such as patriotism, honour and courage' themselves. 

Now this is, of course, nonsense - a fact so patent and so obvious that even his Conservative colleagues have started to mutter and laugh about him behind their hands. He appears not even to have read the original source he was quoting from, let alone thought more deeply or read more widely. A long and involved historiographical debate has long (and quite properly) raged about whether Britain's generals might have done better with the hand that they were dealt. Whether all the muddy slog, all the killing and all the dying, might have been cut short - and even whether it was all worth it in any case. But a left-right struggle over patriotism? Where has Mr Gove been all these years? Silly me: I had thought it was often conscious right-wingers who had questioned the skills of the generals and the wisdom of fighting the Kaiser in the first place. All my History studies and degrees, all my training and learning and teaching, must have been for nothing.

Anyway. This blogger's major thought was actually nothing to do with any of that. It ran like this: has Mr Gove been watching the same series as I did, all those years ago? The Daily Mail's original coverage of his ruminations peddled the myth that Edmund Blackadder is portrayed in increasingly 'gutless' attempts to avoid the fight. Well, that's true up to a point; but the final fade of this serial seems him fight and probably fall all the same, and it resolves into a field of poppies that couldn't be more respectful, more proud and - yes - more patriotic if it tried. For an Education Secretary to so misrepresent a piece of art - one used to stimulate debate in schools, as pointed out by one of its stars, Sir Tony Robinson - is as disappointing as it is ludicrous.

As the hundredth anniversary of the outbreak of the First World War approaches, we're going to see a lot more of this.

It'll all be bilge. All this blog can advise is: go ahead and read some good books on the conflict. Don't listen to self-serving politicians who don't seem to grasp the most basic tenets of A-Level History.

And that is all there is to say on the subject - for now.

Monday, 6 January 2014

Four lessons from England's Ashes debacle

So England's cricketing agony in this Australian summer's Ashes is over. They'll be glad of it, because they've been kicked around an entire continent for over a month, and at some point the bloodletting had to stop. They've been hammered. Marmalised. Battered. Smashed. Slice it any way you like: it's been a horror show on an even greater scale than their 2006-2007 whitewashing. Grim doesn't cover it.

But what can we learn from all this, and what does the historian's long view grant us that other experts maybe miss? It's no good just cowering (or cursing) under the duvet - as every middle-of-the-night smartphone update confirmed. Let's try grouping our top four takeaways under four bullet-point headings:

Attack is the best form of defence. England were in at least four of the five contests at one point: in some parallel universe, they've just easily retained the Ashes. They reduced Australia, again and again, to pitiful totals of around about 100 for five or six wickets down. The difference then? Their attacking wicketkeeper, Brad Haddin (above), playing along the lines England used to enjoy with Matt Prior before his alarming dip in form, and some more-than-capable tailend batsmen prepared to chance their arms, trust their eyes and indulge their talents. The result? Australia's last five batsmen scored more than all of England's. It's not that they started swinging and slogging - England tried more than enough of that - but that controlled, clear-eyed aggression carried the day.

A lot of everything is written about a lot of nothing. Pundits are now all lauding Australia's coach, Darren Lehmann, to the skies - which is only right and proper given the absolutely crushing nature of his triumph. But consider how easy he had the mood music. He came in to find an entirely disillusioned group of players who were a laughing stock in their own land (and something worse and less printable abroad). He just said 'I'm an old-fashioned sort of bloke, let's have a great time easing up on all the "discipline" you've been subjected to'. He prepared, prepared and prepared, including upping fitness levels, it's true: but he also eased up too. Over-inflating his role would be a mistake based on ex post facto reasoning. Had he lost this series, he'd be blamed for a laid-back and 'backward' attitude, indulging players' egos, while England's apparently closed but 'modern', scientific and planned approach, which even encompassed a diet book, would be all the rage.

Don't go changing. When England lost or dropped some of their top players, they didn't seem to have much of a well-worked-out answer. They chopped and changed for the sake of it - bringing in a new wicketkeeper-batsman, for instance, who seemed no better (and was probably a little bit worse) than the incumbent. And they 'blooded' (given the circumstances, an entirely appropriate term) a new middle-order batsmen and a young leg-spinner in the malstrom of a Sydney Test they were almost certainly going to lost anyway - and lose badly. The lesson? You change if you want to - but you need to have a route-map to do it with. Change for change's sake is just panic.

Sequencing matters. Historians are good on this one. The temporal factor - the order in which things happen - is the key here. England had a good first day of this Ashes. They were pootling along on the second day, in their now-accustomed relative complacency. Then mistakes let Australia in - as they did in Adelaide, when a series of fielding howlers let Australia off the hook. Yet again. The landslide set in motion was of epic sporting proportions. A series of errors led to worse ones; then to disillusionment with the whole tour; and then to the inevitable, unavoidable impression that the English team just wanted to get the hell out of there as quickly as they possibly could. Turn it all round - see James Anderson or Stuart Broad catch fire on day two, or all the catches stick in Adelaide - and all the pressure would have been back on Australia.

By the way, this isn't just nationalistic bombast: this blog said exactly the same thing about Australia's comically inept tour of England, which they eventually left with a little bit of credit. Big events don't need big causes - though analysing them requires an awareness of the types of causes that are likely to effect change.

Oh, and Happy New Year, by the way.