Yet more indications today of Britain’s radically altered political landscape. Some irony that the Labour left’s long-desired aim to cancel a raft of multibillion pound defence contracts will, in all probability, be realised by a Conservative chancellor responding to the costs of a crisis in capitalism.
I can’t get across enough how much this crisis has made all sorts of certainties about how Britain’s economy is run, well, completely uncertain.
It’s not just the fact that the Sir Fred Goodwin memorial 50p tax rate is basically not actively opposed by George Osborne. A policy of this kind has been politically unthinkable for a decade-and-a-half.
Now, following months of remuneration rage, pension pot-pique, and banker-baiting, nearly 60 per cent of the nation backs tax rises on the richest 350,000 earners.
So what is the game plan for UK plc now that the bonus-addled bankers, and even Sir Michael Caine, are to be taxed off the island? I thought our whole business model was in servicing the world’s super-rich and promoting banking as “the goose that lays the golden egg”.
Well, last week’s budget was more than a calamitous set of numbers, it was surely the failure of an entire economic mindset.
As I’ve said before, the carnage inflicted the public finances are of an order associated with a world war, and I cannot imagine a better subject for parliamentarians to investigate than how we have got into this mess.
As many of the commenters on this blog have also suggested, there are profound questions about the shape of our future economy. The government had a stab last week.
Roger Bootle, the celebrity economist who predicted the death of inflation, has just put out a paper examining where the economy goes from here.
“It would be misleading to talk about when things ‘get back to normal’. After all, what is normal?
“The economy surely cannot return to how it was before. The economy over the next ten years will look significantly different to the economy of the last ten years,” he says.
He expects a decade where consumer spending growth underperforms growth in the economy. So hello Nescafe society, and goodbye £3 lattes.
And talking of froth, have a look at this article by Stephen Green, the chairman of HSBC. Britain’s senior banker has a devastating line in there about Britain’s economy, I’ll blog about it later.
In the meantime, do you have any idea how to reshape Britain’s economy? I’m thing of holding a Dragon’s Den-style pitch for Britain’s New Business Plan…
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One of the political consequences of the downturn should be a reorganisation of the political landscape. There is clearly a need for a centre right party and a centre left party in the UK political landscape with power alternating between the two. However, there are no rules which say that the Labour Party has a right to occupy the centre left mantle. At the next election the position of the Labour Party should be taken by the Liberal Democrats (whether in power or not). The Labour Party in bringing us to the point of oblivion has forfeited the right to ever be considered as a serious contender for government again.
Well deregulation by the prior Conservative government (seemed like a good idea at the time) enabled the demutualised banks and banks offering mortgages and those buying huge, huge amounts of nicely wrapped up american sub prime, to load up with assets of huge volatility and thus destabilise the whole world of capitalism and bring us to our knees. How on earth do we make banks less dependent for their finance and assets on highly volatile housing? – as soon as housing assets seem a good investment, be that still a while yet, banks will be in there again for quick gains, balance sheets will soon rise again quickly – as soon as housing bounces back it will be irresistable, for a while that is and then (like moths to a flame?) down we go again, maybe even further. And its not just housing that has such massive cyclical swings, we all saw grain prices and oil go up and down wildly. Hedge funds live off such fluctuations and inadvertantly (or otherwise) encourage it. In fact one could argue the whole of the stock market thrives on such peaks and troughs – another source of instability is short term profiteering. Maybe tax these profits much more than long term investments to make long term investments more worthwhile, or link up long term investments with short term to make them synergistic. Maybe we could try and separate out the housing assets in to housing banks once these assets have risen in value, bring back the mutuals, separate housing from the rest of the banks that keep the rest of the economy going. Housing banks may well still go in to cyclical huge losses, but housing always eventually recovers, and as long as the rest of the economy is kept going with investment, and demand is kept going because comapnies havent laid everyone off because they cant borrow, we avoid depression. And maybe we should force companies to preferentially introduce reduced hours to workers rather than full sacle redundancies that dramtiacally effect the economy (and individual) in another negative feedback, forcing up borrowing. Maybe we should force the bailed out banks to pay us back once they start to make their massive profits again, with large dividends ‘repayment dividends’ to their new major shareholder instead of their disgusting huge payments to bankers; pay back HMG, helping to reduce the massive national debt. Maybe a whole new set of investment banks, with charters to force them to invest (wisely) into the economy, and not housing, even when we are in facing recession, maybe these could be created or separated off from the new banking giants and forbidden from housing investment. The system is unstable, in fact we could say that instability is now the stable state because of so many negative feedback effects and built in volatility, it needs to be flipped back. Maybe every bank should be forced to save as a % of its profits with the bank of England..for its own future rescue in long term depsoit accounts. And the same globally. And how about a set of ‘back up banks’ which can come into play, financed by companies that have remained highly profitable and now wish to invest into the economy, maybe that could be encouraged. Because I dont think we could do another set of huge rescues again should the next down big dip come by soon. Banks will just go under. And then so do we.
The British economy continues on the path of self-destruction until we get the General election out of the way.
Labour seem to have a “Torch and Burn” policy at the moment, accumulating a huge debt that will seriously compromise their opponents in future. By doing this now, they might lose the next election but they improve their prospects for 2015. This is because the period from 2010-2015 will be a nightmare and everybody will hate the Conservatives again by 2015. Labour are therefore playing politics, rather than putting the long-term interests of the country first…!
Conservatives seem to have a much more sensible, pragmatic approach, actively trying to manage the problem of debt.
Millions of households around the country are actively trying to do that themselves, using the cash saved on interest payments to reduce the capital on their mortgages. I’d do so too if I had a mortgage. If debt is a problem, reducing it is obviously the right thing to do. Spending even more if you’ve got a problem debt is foolhardy…
So I’m afraid that until we get the election out of the way the economy is accelerating into a cul-de-sac with a brick wall at the end of it.
The statement “reshape Britain’s economy”, with its centralist overtones, is a dangerous idea to begin with!
However, we may well be at a point where recalibration is happening any way.
The first step in any reshaping has to be to forget any irrelevant noise. I include in this the idea that it was “the rich” who caused the problem and therefore deserve punishment etc etc. I would also try and exclude politics completely. It is mostly irrelevant. Governments can only make the cycles better or worse for a small portion of the population.
Government is becoming ever more intrusive and totalitarian, which always goes hand in hand with centralising control of an economy. If we, as a country, want to retain our hard earned freedoms, then we need to reduce government to dealing with essentials, not wish lists. This would reduce the currently enormous burden the state places on the economy and would be a good first step in reshaping the economy as a whole.
The maths are simple. A public sector job costs the tax payer the wage, the pension liability, the expenses and benefits. In return, we get a bit of income tax, national insurance and VAT back. Net, we pay. A private sector job costs the tax payer nothing. In return, we get the same revenue. Net, we have something in the kitty. Either can do, generally, the same job.
This suggests to me that we should pay for essential parts of public services: front line doctors and nurses, more police on the beat, income support for the genuinely distressed, world class schools and teachers, the armed forces and that is about it. The rest can be pared down to provide employees for the productive sector.
Simplify the tax system. The huge irony is that lower tax burdens always produce higher revenues for the exchequer. Complex systems require huge wasteful bodies to administer them. I don’t know where the line can be drawn, but the lowest earners should not be taxed at all. Thereafter, have a flat rate, which would be adjusted depending on the budget position. Top earners can pay the same rate, but there would be no tax breaks.
MPs receive a flat salary (taxable). Their pay rise each year is formulaic:
GDP minus Inflation plus budget surplus.
The rest can be left to the economy itself. OK, so I generalised a bit.
Why are we in this Economic and Banking mess? People at the top were not living in the REAL WORLD. Aloof from what was happening in the streets.
I would say Nothing has changed. The man who bought the buy to let house, hands the keys back and walks away saying ” Not my problem anymore”, the Banker walks away saying the same.
As for the MP,s ” They are doing very well, thanks”.
Time for a radical change?
Somebody once said to me, a very long time ago, that you’ve got to be of “dubious parentage” in order to get on in this world…
There’s certainly a lot of supporting evidence for that theory at the moment…
Did I hear Alistair Darling say that building hospitals and schools was a ‘one off’ cost? The implication was that it had been done. But isn’t it the fact that many have been built under PFI and so are yet to be paid for?
Q:Where next for Britain’s uncertain economy?
A: HYPERINFLATION aka SUPER HIGH INTREST RATES!!!! aka ZIMBABWE!!!
Those printing presses at the Bank of England are nothing but a TICKING TIME BOMB!!! Stop them NOW!
Go to eutruth.org.uk and Learn BEFORE its too late!!
Q; Where next for Britains uncertain economy?
A: Build the manufacturing industry up again.
Big isnt beautiful, so we should have small banks and encourage small manufacturing firms.
Regulate the fake economy. ( Hedge funds, short selling, leveraged buyouts) as they can destroy our economy.
I am sorry but we cant all be in the service sector and / or be employed buy the Government and the councils either.
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