Thursday, January 20, 2011

Labour's last link to reality resigns

Well, well, well. I heard the news about the resignation of Alan Johnson as Shadow Chancellor whilst I was stuck in a traffic jam after today's Gateshead Council meeting. One kilometre down the road I got the best news of the day: Ed Balls is to be his replacement. If the Conservatives had John Redwood, the Vulcan, Labour's very own alien from outer space is Ed Balls. Alan Johnson served a useful purpose for Ed Miliband. He kept Balls out of the role of Shadow Chancellor. Now the blockage has been removed, Balls has bounced into the post.

Balls is an economist who is unable to speak the same language as ordinary people. Yet, despite his undoubted knowledge of economics, he offers an economic alternative that carries massive risk of long term collapse under the weight of ever increasing debt. The position he promoted during the Labour leadership election was one of no cuts at all. For a highly educated economist to have such an economically illiterate position is, to say the least, very interesting. Nevertheless, his views will chime with all the other economically illiterate members of the Labour party who believe there is a pain free way out of the economic mess in which we are in.

Balls is much more aggressive as a politician as well. Politics will now be a battle between those who know action needs to be taken to sort out the problems of the economy and those who think a spend, spend, spend approach will solve everything. My own feeling is that the British people hate the mess the country is in but they know that it can't be solved without pain.

And finally, don't forget who was City Minister in 2006 when the excesses of the banking sector were at their height. It was Ed Balls who defended "light touch" regulation of the City. He is heir to Brown, he had his hands all over the failed economic policy of the Blair Brown years. The leaflets write themselves.
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Saturday, January 15, 2011

On the road to Damascus

If you want to know why my blog has been a bit quiet in recent weeks, this video is part of the explanation. I've been touring Syria and Lebanon, visiting Phoenician, Roman and Crusader sites, plus brief tours around Damascus and Beirut. The video covers most of the sites visited.

Friday, January 14, 2011

My first video to reach 200,000 viewings on YouTube

I have reached a video milestone. This is my first video to reach 200,000 viewings on YouTube. I filmed this in a former Soviet submarine base in the Crimea on the Black Sea. It was dug out into the base of a cliff. Until the early 1990s no westerner was allowed to visit this area. Now it popular was a destination for cruise ships.

The next YouTube milestone I expect to reach is one and a half million viewings of all my videos. Should be there in a few days.

Thursday, January 13, 2011

Ending forced retirement

Ed Davey seems to be quite busy at the moment. He is the minister responsible for transferring Royal Mail to the private sector to ensure it has a strong future rather than the slow death it has been undergoing in the public sector. But today he has been leading on the proposals to end forced retirement at the age of 65.

With an aging population, this is the right move. Back in my policy unit days at the Lib Dems, scrapping forced retirement at 65 was one of the proposals I included in the business and employment paper I wrote. The policy working group looking into the issue concluded that the loss of productive and often skilled older workers from the workforce was damaging to the economy and increased the burden on the remaining workforce which was shrinking as a proportion of the population. An increase in the number of economically inactive older people left younger working people to pick up the bills.

In addition, many people have not made adequate provision for their retirement and therefore forced retirement for them at 65 is a financial disaster.

What we need instead of the sudden move from full time work to full time retirement is a transition period, allowing people to move gradually into retirement. That will need some changes to the pension system to allow people to work and receive part of their pension at the same time. This sort of flexibility is going to be more important as the population continues to age.

So Ed Davey has moved employment policy in the right direction today. There's plenty more to do but the plans today are a step forward.

Wednesday, January 12, 2011

PMQs: Cameron ahead on points

Parliament is back in session after the Christmas break and that means PMQs is back as well. So what did the weekly cockpit punch up bring us this time? As expected, bank bonuses were at the top of the agenda. Miliband Junior tried to lay some punches by taking up this issue. He had mixed results. He scored a hit when he was able to quote Cameron's remarks in opposition about the need to clamp down on bonuses. It wasn't a knockout blow but it could have been damaging if Cameron hadn't beaten him back with Miliband's own record, and that of Labour in office.

Most Labour members I speak to seem to believe that history began on the day the Coalition was created. That conveniently allows them to ignore their own record. It allows them to ignore the fact that Fred Goodwin was allowed to leave RBS when they nationalised the bank with a payoff so large it puts nearly every likely bonus in 2011 in the shade. It allows them to ignore the fact Labour knighted Fred The Shred for services to banking. It allows them to ignore the fact that the bonus culture became the norm in banking under Labour. And it allows Labour to ignore the fact they they too did little to stop bonuses.

Cameron however was able to throw all this back at Miliband. Cameron won on points. Nevertheless, it was a rather tetchy performance by both of them.

Tuesday, January 04, 2011

If it's not a VAT rise, what are the alternatives?

It's VAT Rise Day today. The Opposition, the self-appointed "Taxpayers' Alliance" and the Beer Retailers Association have all made noises opposing the rise. So what are the alternatives?

The first is to do nothing. This may be comfortable for some commentators and is often a line adopted by some in the Labour Party. It saves their having to put forward an alternative and proffers the scenario of there being no problem so there's no need for pain. The simple problem is that instead of being a "do nothing" option, it amounts to a "put off the evil day" option. And as we all know, the longer a problem is left to fester, the bigger it gets. If nothing is done to address the deficit now, cuts in the future will be much greater to pay for the additional interest on growing government debt. Those who promote the "do nothing" option should tell us what services they will cut or which taxes they will put up in future just to cover the additional debt charges. And for good measure, they should also tell us what measures they will introduce to eliminate the structural debt.

The second option is to make the banks pay for the deficit. This is an attractive option for those who feel obliged at least to put forward an alternative, no matter how shallow. It is popular with those who realise there is a problem but feel they can get away with offering a no pain solution (ie no pain except for the banks). This option has an unintended consequence. Taking £12 billion (the amount raised by increasing VAT) from the banks in a single year will mean £12 billion less capital available from the banks to invest in business or to lend to retail and mortgage customers. Given the difficulties businesses have getting affordable finance from the banks, an excessive tax on financial services could massively reduce the capital available to invest in British jobs and companies. A £12 billion levy on the banks would also not be a one off. The VAT rise will rais revenue year in, year out until such time as it is reversed. A £12 billion bank tax would have to be applied every year. Such a gigantic tax on one sector of the economy would end up undermining the banks in the medium term. Do we really want the banks to come close to collapse, repeating the events of 2008, especially as the public sector is now the biggest individual shareholder in the banking sector?

It is right that the banks should pay a levy and the Coalition has introduced such a tax. However, it has to be set at a level that does not undermine the rest of the economy. There is a fine balance and the government has set the level of the levy accordingly.

The third option is an increase in income tax or national insurance contributions. Well, the latter are going up anyway by 1% (a decision made by the last government but retained by the Coalition.) I've already had a letter from the Inland Revenue telling me I will be paying more class 2 contributions. Novertheless, a further rise in income tax and NICs would undoubtedly raise additional revenue for the government. The problem is that higher rates on people on low and middle income act as a disincentive to work and often lock people into poverty by making them better off on benefits than they would be if they worked. NIC and income tax rises also shift more of the tax burden onto the working population. VAT however spreads the burden across the whole of the population.

No one likes a tax rise. All the options have drawbacks. They all have unintended consequences. Those who argue against the VAT rise have every right to remain silent about what they would do instead (Labour remained silent about their plans to raise VAT to 19% until Peter Mandelson let the cat out of the bag). Nevertheless, it would be interesting to hear from those making the most fuss (largely Labour) as to what their alternative is. Labour claim to be against any VAT rise now (another Labour uturn, but are exercising their right to remain silent over their own alternatives.)