Away again...

'Public Policy and the Past' is now on a short - what do they call it on American TV? - 'hiatus'.

It'll be back on Wednesday 5th March. Look for more then!

Until then - take care!

Are real wages about to surge ahead?

The squeeze on real wages that has gone on for longer than modern Britain has ever known is about to come to an end. Don't take my word for it. Look at recent wage data, which has been strengthening slowly, and the latest Consumer Price Index inflation numbers, which have been nuding down towards the former figure for some months.

When the lines cross, and pay packets start growing faster than price receipts, people will start to feel wealthier. The so-called misery index that takes into account inflation, unemployment and raw Gross Domestic Product (though this version contains data on the national debt as well) will start to fall even faster than it is at the moment. That sunny moment isn't far away now - at least in theory. It might well come in the late summer or autumn, but it might change the whole dynamics of the economy, and the very changeable electoral weather with it. As 'Public Policy and the Past' has noted on many occasions, rising real wages might save this government from ejection at the polls in May 2015. It didn't help the Major government much in 1997 but, hey, it's something to hang on to. An end to a historically-unusual economic ice age is something to celebrate - for everyone.

But look a little closer and all may not be what it seems. Today's relatively disappointing jobs data might herald rather slower gross wage rises in the months to come. That's certainly what the Bank of England thinks, signalling for all its worth that historically low interest rates will be with us for a year or so yet - and very low rates for some time after that. And lots of what employment growth there is has been in self-employment - now at record levels. Almost all of that's been full-time work, it's true, but that sector of the economy is notorious (registration required) for sucking up underemployment and marginal workers that'd rather get out there and do something - however unprofitable - than sit around at home. About half of the jobs being created are in the South-East of England and London, too, hardly helping the red-hot boom conditions there - or the rest of the country.

And remember that the CPI figure isn't all there is to it. The Retail Price Index figure - including rent and mortgage costs - actually edged up a little, thus meaning that the lines between household incomings and outgoings wasn't really closing. Given that the UK has failed to build enough houses for about forty years now, that's little surprise - but it might seem like a hollow joke to be told about the good times ahead when you're struggling with the rent or the interest repayments on your absurdly-overpriced bricks and mortar. Neither of those figures seem likely to cave in any time soon - though they may well edge down to 1.5 per cent or similar - so any rise in real earnings will be gradual at best.

The upshot? No-one is going to feel richer in 2015 than they did in 2010 - or 2008, the first year of the financial crisis (see above for the story since then). Ed Miliband will still be able to look square into the camera during any Prime Ministerial debate and say (as Ronald Reagan once did, long ago) 'are you and your family better off than when this government came to power?' The answer will be 'no', but also 'we're feeling a little better than we did, thank you very much'. A great deal rests on how people feel about that equivocal answer.

There's little doubt that the numbers will show us quite robust real wage growth by the end of the year. But what that means - how it will feel, and impact on politics? Well, that's much more uncertain. Only time will tell.

Scottish independence: it might need two votes

The last few days seem likely to be decisive for the Scottish independence campaign, and the moments ahead to seal its fate - one way or the other. Not only has the Westminster government decisively ruled out a formal currency union with any new state, but the outgoing President of the European Commission, Jose Manuel Barroso, has voiced the truth that dare not speak its name until now: Scotland might not be able to join the European Union.

These are not insurmountable problems for the pro-independence case. They might argue that this is all just a bluff, and that the damage to the UK's economy would be such that they would have to be allowed to use the pound. But the point is the fatal uncertainty that has been created, and the effect on the bond and debt markets that will cause. Let's just suppose that a new UK government did accept the case for a currency union: there is absolutely no way they would do that without a fiscal union alongside it - the lack of which nearly killed the Euro, and without which the increased potential transaction costs of changing your notes at Carlisle and Berwick pale into insignificance. That's called, well, a United Kingdom in all but name. Scotland would not be independent anyway.

And the EU? Well, frankly, the Scottish Government's timetable looks absurdly optimistic - eighteen months? Really? While negotiating with London on the terms of independence? EU officials have been briefing that the Netherlands alone will take eighteen months just to ratify any new treaty, and that from the moment the ink is dry after the negotiations close, not before. And you know what we learnt today, from the Scottish constitutional expert Professor Sir David Edward? The European Union may well only recognise the Westminster government as a negotiating partner, so it'll be David Cameron or Ed Miliband who'll have to shuttle round Europe drawing up the deal as the representative of the only actual state that'll be involved until the day of secession. And what interest would they possibly have in doing a good deal? You're right - zero.

This looks more like a three or four year project - at least - and one that might see a UK Prime Minister dump Edinburgh with some pretty rum terms. Remember that it took twelve years for the UK to get in the first time - after two Gallic 'nons'. Now, that might have the benefit of pushing Scottish independence within the EU back towards the date of the next UK General Election but one - 2019 or 2020 - but it'll again be a funny sort of indepdendence.

Let's be clear: Scotland is a dynamic, relatively successful and innovative economy that could do pretty well on its own. But two leaps in the dark at once is likely to break one of the economy's legs - at least.

More important politically, no-one now knows what they're voting for or about. The whole thing's a shadowy stairwell tussle in the dark. Would Scotland be inside or outside a currency union? Much more seriously, could she hope to join the European Union on anything like decent terms? If she can't, then independence would be a much, much harder road. With neither London nor Brussels to guarantee her enormously out-of-kilter banking system, border checks possible, and the potential for visa requirements among Scots working in England, it'd be a reckless gambler indeed that took Edinburgh towards the fate of an Iceland rather than a Norway. We don't say it couldn't be done. But 'Public Policy and the Past' thinks that such a route would be risky, foolhardy, potentially catastrophic - and just downright wrong.

It's a mess - one that the Scottish Government, which has been thinking about this vote for many a year, should have anticipated.

None of this was a problem when the last fundamental breach occurred in these islands, of course - an assembly in the South of Ireland, elected by the great majority of what became the Free State's citizens, simply negotiated a treaty with 'the British' themselves. The constitution of the state that emerged was then eventually accepted by the Dáil, sitting as a constituent assembly. That was that. Things are much more complicated today. The views of voters have to be taken into account; the web of laws and regulations are much more complex, much denser and much more difficult to disentangle. Above all, the public have to be listened to, and demand a vote. Their mood now? Well, as far as one can tell, in general minded to vote 'no', but increasingly frustrated at what they perceived to be the obfuscations and scare stories spouted by both 'yes' and 'no' campaigns.

It is becoming clear that there is only one answer to this Gordian knot: a second referendum, as proposed by Sunder Katwala yesterday, in which the actual terms of any final settlements in London and Brussels are endorsed by Scottish voters. Only then can Scots say that they actually know what they're voting for; only then can all the uncertainties about the pound, the EU, borders, ballots and taxes be cleared up.

Two plebiscites? You read it here first.

Britain's European re-negotiation: ever feel like we've been here before?

 

Prime Minister David Cameron's hopeful traverse of the European diplomatic landscape is surrounded by the uncanny feeling that we've all been here before. All because, well, we have.

Mr Cameron's trawl through the usual cables and cabals is unlikely to get all that far. The French have already told him as much, and his own party is becoming restive at the prospect. The basic flaw in his reasoning is this: he's allowed the word to get about that he wants major concessions. He wants Britain to be able to change immigration rules within the European Union. He might like separate UK trade delegations at major international conferences - and some rights to sign whatever customs treaties a Westminster government might like to enter into. He might want Parliament to be able to exercise a veto over specific laws the House of Commons doesn't like. But he's not got the slightest chance of securing any of those really big outcomes. They were all on the wish list the last time the British wanted to stand at the European door, heckling and throwing bread rolls: between 1955 and 1963, when successive Conservative and Labour governments tried to negotiate a wider, baggier, looser form of union than leaders in Bonn and Paris thought wise.

Where did that get them? Vetoed out of the whole thing by General de Gaulle (above). Twice. Continental Europeans correctly divined that, without a single trade policy and a single Common External Tariff, the whole adventure was going nowhere. The British would just institute whatever policies they wanted, and let the goods and services flood in (or out) - punching hole after hole the walls around a burgeoning single market that might then not then get off the ground at all. Canny old de Gaulle would have been proved right about the British after all - they really were 'fundamentally different' from other Europeans.

Since then, of course, the single market has been 'completed' - though it's far from working perfectly, riddled as it is with non-tariff barriers to trade and investment, and with some corruption. But the logic is the same. If the UK is allowed to have its own trade policy, and an a la carte approach to legislation, the project might fall apart everywhere. This simply just means that it won't happen.

Although, come to think of it, maybe that isn't so much of a flaw after all from Mr Cameron's point of view. What that'll mean is that the Foreign Office will be able to broker some much more watery agreement - on fisheries, perhaps, regional aid, the EU budget, external migration barriers and the like. Then he'll declare 'game, set and match' to Britain, come home to Parliament, recommend the deal to the public and win his projected 2017 referendum. It's exactly what Harold Wilson did in 1974-75, and it worked a treat then, too. Polls show that, were the Prime Minister to recommend a 'yes' vote after a renegotiation, voters would probably follow his lead. Without any changes, it'd be a damn fine close run thing indeed. So this way, he gets to win a referendum, not upset the European apple cart all that much (since he needs other leaders to back wider reforms), and look a bit Eurosceptical into the bargain.

Cynical? Us? Well, maybe a bit.

UK politicians' slippery grasp of the truth

'Public Policy and the Past' has attacked UK politicians' use of numbers many, many times (not that such corrections ever seem to get us any closer to veracity, but still). The misuse of numbers is an epidemic these days, not only in public policy - but in partisan politics too. Remember all those people who said that Mitt Romney's polling position was being understimated by liberal journalists and statisticians? Yes, well, the Romney Presidency would be over a year old by now if they'd been right. Which they weren't.

The recent flooding of the Somerset levels (above) is another case in point. The Government has been taken to task - yet again - for some tricksy graphic representation of their flood defence spending which purported to show they laying out nearly as much money as on energy and transport. Look closer at the charts, though, and they're not - entirely reasonably in some ways, but (as ever) the governance problem is with the dissembling, not the actual policy.

This slippery grasp of the truth is bleeding into just about everything that Ministers say these days. Take the issue of dredging Somerset's rivers, the subject of a powerful and emotional campaign by stricken locals who believe that this would alleviate their suffering. Communities Secretary Eric Pickles put all the blame on the Environment Agency on Sunday's news programmes, saying that Ministers had been badly advised, and that they should have ordered more dredging, more quickly.

The problem with this argument? The fact that you can't find many experts to say anything good about an idea which would bring more water into a low-lying area, more quickly. And that the riverbanks and beds would adjust to very, very quickly anyway. Sure, dredging might be one solution in certain very confined areas, or key points: but it's not the solution to the Levels' problems, nor anything close to it.

We've proposed a 'three strikes and you're out' policy before - that Ministers would be given a green, amber and red card by the Statistics Authority. That alone might stop Iain Duncan Smith, the Work and Pensions Secretary, forcing his officials to release highly misleading press notices. That wouldn't be of much help here, because the dredging question's a matter of opinion. At the moment, much more powerful and investigative Parliamentary Committees, a much fiercer response from independent bodies traduced by politicians (now just starting to emerge), and a stronger code of conduct for civil servants might help.

It's not much, but it's a start.

Don't panic when you read the polls

The recent news of shock UK opinion polls showing the Labour Party only one or two points ahead of the govenring Conservative Party, and a sharp swing towards a 'yes' vote on independence in Scotland, sent commentators scurrying for the superlatives. 'Gamechanging'; 'massive'; 'huge': these were the sort of words bandied about.

Except that they weren't so huge. Labour soon posted some nine or ten point opinion poll leads less than a week after their polling Black Monday, and the most recent Scottish independence polls show nothing like the rapid change that showed up in the last ICM survey.

That's not to say things aren't changing, of course. Labour's UK lead is very, very, very slowly deflating - from double digits a year ago to medium single digits today (above, you can see UK trends since 2010). At this rate the next General Election will be close in terms of seats: something that readers of 'Public Policy and the Past' always knew anyway. And in Scotland? Well, there's a gradual change there, too, with 'yes' climbing and 'no' holding relatively steady. But 'no' was so far ahead - by over thirty percentage points in a few polls during last summer - that some change just had to take place. There was no way that such a landslide was ever deliverable, especially as Scots are haunted by the idea of another five years of UK Conservative government they never voted for in the first place.

But the numbers are changing gradually. It's inherently unlikely that in a week or a month or two, five to ten per cent of voters are going to say 'that nice Mr Cameron, what I really want is five more years of him', or 'you know what, I always thought that Scotland should be an independent country'. Things don't work like that. Parties (and referenda campaigns) draw their numbers from the don't vote, won't vote, might vote either way camps - small, wary and sometimes all over the place, as is their very nature. Throw in the way pollsters change their raw numbers all the time these days via various weightings, and you're looking at a complex picture in which you can't put all that much store by one set of numbers.

So here's a tip: don't get too excited when you read that you very much like (or dislike). Look at lots of polls. Look at the trendlines. And take the long view.

Things are going to get very hot over the next fifteen months: don't get your own self too hot under the collar, will you?

Whatever happened to the 'austerity Chancellor'?

The last few years have seen economic debates conducted around the idea of 'austerity'. Back at the start of this Parliament, some of us warned that we'd never seen anything like the spending cuts we were going to get - that they were going to make living in Britain fundamentally different to what we'd experienced before.

Now the experts tell us that the cuts, while real and large, might be a little smaller as a share of Gross Domestic Product (if anything) than those the Government imposed in the 1980s. They're still massive if we're talkin raw cash, of course - even in real terms, they're larger than anything we've seen in peacetime since the 1920s - but that's partly because the economy's much bigger.

So what explains the difference between rhetoric and macroeconomic 'reality'?

Well, for one thing, the British state is a very different thing to that which carried through massive cuts in the early 1920s and the early 1940s. Military spending, for instance, forms a much, much smaller share of the budget than it used to, and the public sector in the UK has basically become a service and a welfare provider - transfer payments to citizens and the National Health Service being two massive slices of the budget. What that means is that protecting hospitals and schools from the cuts feels very, very harsh elsewhere - particularly in local authority budgets that are falling fast. So the overall austerity can be only a bit harsher than previous bouts since the Second World War, but that 25 per cent quoted in the summer of 2010 can still go through and amount to 'unprecedented' spending restraints in some areas that voters really care about - youth clubs, libraries, or elderly care, for instance.

But here's the major reason why the warnings of 2010 are not entirely borne out in the numbers as crunched in 2014: the Chancellor, George Osborne (above) didn't go through with lots of his promises. He turned aside from his 'fiscal mandate'. Faced with slowing growth and a looming economic disaster, he let out his austerity waist-line. He'd promised to get to budgetary balance in one Parliament, leaving aside the effect of temporary downturns and the like, and that debt would be falling by 2015. Those targets would have seen the really savage cuts that we warned of in 2010. But first he started talking about 2017. Then 2018. Now 2020 is mentioned.

In other words, make us virtuous, Lord: but not yet.

So the apparently intemperate language at the start of this Parliament might have been a bit overheated. With hindsight, the protection granted to schools, the NHS and the international aid budget (and, in practice, benefits for elderly Britons) means that the 25 per cent cuts outside those areas look a bit less radical than they did when we look at the picture overall - which isn't to say that they're not hurting, and reshaping the way we live our national life, because they are.

And some of the numbers bandied around in the Treasury were as unrealistic as their opponents' fears. They didn't materialise because they weren't capable of delivery.

Austerity is still there. It's just a bit more of a matter of humdrum grimness and endless greyness than doomsday. Which is not much of an accolade, when you come to think about it.