Economy

Thursday

James Forsyth

Bankers need to realise that things have changed

In a speech tomorrow, Ed Miliband will call for ‘one nation banking’. The Labour leader will argue that banks have to show that they are part of the society in which they operate.   But, perhaps, most interesting is Miliband’s point — previewed in the political column this week — that the behaviour and pay structures of banks are fair game for parliament because they are ‘either directly or indirectly supported by the taxpayer.’ Labour will, indeed, propose a vote on the broader bonus culture. The clear target of this motion will be Barclays and Bob Diamond.   Before the bailouts it would have been easy to dismiss all this as left-wingery gone mad.

Wednesday

Matt Cavanagh

The MoD wastes another opportunity

Today’s White Paper on defence procurement makes disappointing reading for the UK defence industry — and for anyone who believes that one of the lessons of the last few years is that we need a more active industrial policy. IPPR set out the case in a recent report on globalisation, arguing for sustained support for industries, like defence, which have high potential for growth, for exports, and for high-skill manufacturing jobs. We need robust safeguards on the sale of defence equipment to repressive regimes, as well as greater transparency on government lobbying to avoid a return to the bad old days of the Pergau Dam — or minor embarrassments like David Cameron’s attempt to rebadge an export drive in the Gulf as a tour of the Arab Spring.

Peter Hoskin

Your six-point guide to the Green Budget

As promised earlier, here's my more detailed supplementary take on today's IFS Green Budget. I've distilled it down into six points, but obviously there's much, much more in the actual document itself. I'd recommend that you read the chapters on public sector pensions and pay, the 50p rate, and child benefit, in particular, if you're so minded — as they're very good summaries of some complicated fiscal areas. Anyway, here are my points: 1) The scary graph. As it does every year, the IFS has produced what I call the ‘scary graph’. It shows what our debt/GDP ratio would look like for decades hence under various circumstances.

Peter Hoskin

The view from the Institute for Fiscal Studies

It's the halftime coffee break here at the launch of the Institute for Fiscal Studies' Green Budget, so I thought I'd send CoffeeHousers a quick update. But first, just to be clear, that's green meaning green, not green meaning environmental. This is the IFS's annual, different-hued version of the Treasury's Red Book. It's their overall take on the economy and public finances. So far, there has been little that will surprise or disconcert George Osborne as he prepares his own Budget: the picture is expectedly grim. As John Walker, chairman of Oxford Economics, put it in his warm-up routine on the general economy, 2011 was ‘disappointing’ and 2012 will be ‘another difficult year’.

Tuesday

James Forsyth

Fred shredded down to size

The removal of Fred Goodwin’s knighthood serves the coalition’s political purposes. It shows them being tough on a bad banker and reminds everyone that these problems happened on the last government’s watch and that Alex Salmond was cheering on RBS’s bid for ABN Amro. There are even some in government who are up for a fight over clawing back part of his pension or past bonuses believing it would put both Goodwin and the human rights act in the dock. This is not to say that the removal of his knighthood was not merited. Goodwin didn’t do much of a service to banking, after all. There’s another lesson in this: honours shouldn’t be awarded to people when it is too early to know what they have actually achieved.

Jonathan Jones

The Tories are extending their lead on the economy

It looks like Dave’s still made of Teflon. Even after the economy shrank by 0.2 per cent and the unemployment rate rose to its highest point since 1995, the public still think his party is better at handling the economy than Labour. And the Tories’ lead on what is by far the most important issue to voters hasn’t just survived all this bad economic news — it’s actually grown. Before Christmas, 31 per cent said the Tories would best handle the economy, against 27 per cent for Labour.

Monday

James Forsyth

Modernisation 2.0

One of the flaws of Tory modernisation was that it was never interested enough in pounds and pence. Social issues, the environment and public service reform were what the modernisers specialised in, not economics. But tonight’s Macmillan lecture by Nick Boles, one of the most intellectually influential modernisers, is devoted to the subject of how Britain’s global competiveness in the global economy can be improved. His argument is that: ‘What really threatens the general wellbeing of the British people is the stalling of productivity growth and the certainty that the next 20 years will expose them to competition that is vastly more intense than anything we have ever seen.

Sunday

Peter Hoskin

The government’s Hester problem intensifies

First there was Fred Goodwin, now there's Stephen Hester. The chief executive of RBS is fast becoming the bête noire of the British banking system, thanks to his roughly £1 million share bonus which, we learn in the Sunday Times (£) this morning, may be topped up with an extra £8 million over the next few years. Little wonder that Iain Duncan Smith admitted on the Marr show earlier that there may be a severe public backlash, and that the government could suffer from it. He suggested that it would be better, for all concerned, were Hester just to forego the million. It's one of those debates where it's easy to see and understand both sides of the argument.

Saturday

James Forsyth

Alexander identifies Labour’s problem

Douglas Alexander may sometimes hide the meaning of what he says under a layer of jargon but he remains one of the more interesting political strategists on the Labour side. Alexander, a Brown long-marcher turned Blairite, saw before many of his colleagues the need for Labour to level with the public on cuts. He privately thought that Gordon Brown’s attempt to fight the last election on a reprise of the investment versus cuts strategy of ’01 and ’05 was a mistake. So, it is no surprise that Alexander, now shadow Foreign Secretary, is trying to use the opportunity created by Ed Balls’ acceptance of the need for a public sector pay freeze to try and move Labour into a better fiscal place.

Friday

James Forsyth

When one euro is worth more than another

Faisal Islam has a very interesting report from Davos on how at least one bank no longer believes that a euro from Ireland, say, is worth the same as one from Holland or Germany. He writes that: ‘A leading European bank has begun to account for euros differentially, by nation state. That is to say, they are differentiating a risk to euros that originate in a potentially defaulting country from that of a euro-cert. They, in effect, have invented the concept of a German, Greek and Irish euro. Now we accept that government debts from these nations are different. The idea that a bank treats cash differentially, is an incredible development.

Fraser Nelson

Osborne needs to come up with radical growth policies, and soon

When it comes to defending the free market, and making the case for fiscal sanity, there's scarcely anyone better than David Cameron. He was on superb form in Davos yesterday, giving much-needed blunt advice to the continentals. ‘Eurozone countries must do everything possible to get to grips with their own debts,’ he said. And he's right. The snag, as I say in my Daily Telegraph column today, is that Cameron's definition of getting to grips with debt involves increasing it more than Labour planned to, more than France, Germany, Italy or Portugal. On the first sign of trouble, his government gave up on its deficit reduction timetable – it will now halve the deficit over five years, whereas Darling promised to do it in four.

Thursday

Jonathan Jones

Clegg echoes Obama’s message

Nick Clegg, this morning, advocating closing loopholes for the rich to pay for raising the income tax threshold: ‘Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households. Right now, Warren Buffett pays a lower tax rate than his secretary.’ Oh, all right, that wasn't Clegg. That was Barack Obama, in his State of the Union address on Tuesday night. But it's remarkably similar to what Clegg just said in his speech at the Resolution Foundation this morning.

Wednesday

Jonathan Jones

The recession: four years and counting

It is now four years since recession hit the UK. It took just over three years for GDP to return to pre-recession levels in the much milder downturns of the ‘70s and the ‘90s. Even after the Great Depression of the 30s, the economy had fully recovered by this point. By contrast, economic output in 2011 Q4 was still 3.8 per cent down on 2008 Q1. And it’s going to take a while longer to get back. The OBR’s projections suggest the economy won’t have fully recovered until the end of 2013. Other forecasts are gloomier still. But even if we do manage it by then, it’ll have taken us two years longer than it did to recover from the Great Depression.

Lloyd Evans

Miliband delivers for once, but Cameron’s left unharmed

Incredible events in the chamber today. An absolute sensation at PMQS. For the first time since last summer, Ed Miliband got through the session without triggering talk of a leadership crisis. There was gloomy news aplenty to dwell on. Debts soaring; growth flat-lining; dole queues snaking back through blighted high streets and bankrupt business parks. The Labour leader chose to wallop Cameron with a well-prepared attack on the NHS. Quoting the prime minister’s vow, ‘to take our nurses and doctors with us’, he asked why the government had stopped listening. The prime minister’s reply was frivolous and desperate. He giggled and smirked like a teenager at the despatch box and tried to make light of his loathed policy.

James Forsyth

Both leaders left smiling after PMQs

Today was one of those PMQs when you sensed that both sides were fairly happy with how it had gone. Ed Miliband turned in one of his stronger performances, cleverly splitting his questions and so allowing himself to have a go at both the economy and the coalition’s troubled NHS reforms. Cameron, for his part, got through what was always going to be a difficult session for him after this morning’s negative growth numbers.   Strikingly, there were four planted Tory questions on the benefits cap. The Tories know that Labour’s vote against it compounds one of their biggest vulnerabilities, the sense they are the party for people on benefits and not those in work.

James Forsyth

Europe gives Osborne the context he needs

The political implications of today’s growth numbers are complex. On one level, a contraction in the economy should provide Miliband and Balls with an opportunity to make their economic case against the government. Indeed, Balls is already out with a statement calling the GDP figures a ‘damning indictment of David Cameron and George Osborne’s failed economic plan’. I suspect that Miliband is also looking forward to PMQs rather more than normal.   But on the other hand, as long as Cameron and Osborne enjoy a big lead on the economy — 18 points in the last ICM survey — bad economic news will reinforce voters’ tendency to stick close to nurse for fear of something worse.

Peter Hoskin

Bad news doesn’t have to be surprising

I'm still of the mind that Westminster fusses too much about these quarterly growth figures, particularly when parts of the country have been in economic decline for decades. But there's no doubting that they have the capacity to shift the political mood, both here and around the country. There is something disheartening about the idea that the economy returned to shrinkage in the final quarter of last year (even if today's preliminary figure of -0.2 per cent might be revised upwards, or downwards, in due course). You can expect Ed Miliband to make much of it in this afternoon's PMQs. The politics of the situation are not stacked entirely against George Osborne, though. His major consolation today is that everyone expected this sort of minor contraction.

Peter Hoskin

Obama delivers his pitch for a second term

A Romney-seeking missile. That was what much of Barack Obama's State of the Union Address amounted to last night. He didn't mention the Republican presidential challenger by name, of course. That would have been too obvious. But he did dwell on those sorts of issues around taxation and jobs — including his ‘Buffett Rule’, by which, we learn, millionaires should pay at least a 30 per cent tax rate — that have been causing Romney trouble. To underline the point that ‘a billionaire [should] pay at least as much as his secretary in taxes’, Warren Buffett's secretary was even among the Obamas' guests for the evening. Obama's ploy, when presenting all this, was to be upfront about his own privilege.

Tuesday

Fraser Nelson

Osborne owes Darling an apology

Britain's national debt rose to over £1 trillion last month, and will never return below this threshold. George Osborne is increasing net debt by 61.5 per cent in real terms over this parliament, more than the 59.9 per cent which Labour proposed when it fought the last election. Here's how the OBR's current projections for debt contrast with what Darling proposed in his last Budget: At the time, Osborne said Labour's debt plan was reckless and unsustainable. I think he owes Alistair Darling a generous apology. Then, Darling said he'd halve the deficit over four years. Too slow, said Osborne. Now, he's taking five years to do it – as the below graph shows: Osborne has kept to his spending plans, which cut departmental totals by 2.