Economy

Tuesday

Matt Cavanagh

Why the immigration cap isn’t biting — and why that is good news

From our UK edition

The government’s official advisers on immigration, the Migration Advisory Committee, have today published a report into the restrictions on skilled migrant workers from outside the EU. Turns out that the much-vaunted ‘cap’ on skilled workers has only been half taken up — with numbers likely to be around 10,000 against the cap of 20,700 — and that this is offset by the high numbers of workers, around 30,000, coming to the UK on ‘intra-company transfers’.

Peter Hoskin

A tax battle that the government won’t be able to avoid

From our UK edition

The government is very pleased with itself today for closing a couple of tax loopholes such that Barclays will have to pay £500 million more to the Exchequer. And little wonder why. Not only does it support their rhetoric about a ‘tougher approach’ to tax avoidance, but — on the principle that ‘every little helps’ — it also hammers another few chips from the deficit. Broadly speaking, this sort of action is uncontroversial. In the battle of wits over taxation, the government is well within its legal rights to close loopholes, just as companies are well within theirs to exploit them.

Monday

James Forsyth

The private sector must be revived in Northern Ireland

From our UK edition

One quirk of the welfare reform debate is that many of the reforms won’t automatically apply in one of the parts of the United Kingdom with the worst welfare problems: Ulster. As Owen Paterson, the Northern Ireland Secretary, points out in a speech tonight, ‘Northern Ireland has proportionately one third more households living on out of work benefits as the rest of the UK’. He also notes that 1 in 10 of the population there are on Disability Living Allowance, double the UK average. But the Work Programme doesn’t apply in Northern Ireland and any welfare reform there will have to be done by the Executive. Paterson is now campaigning to make the case to local politicians for reform, for maintaining parity with the rest of the United Kingdom.

Clarissa Tan

Will bankers turn against bankers?

From our UK edition

Today brings the news, distressing to some quarters, that HSBC is paying its chief executive Stuart Gulliver £7.2 million — making him the highest-paid banker in the UK for the financial year so far. The remuneration comes on the back of a 28 per cent jump in full-year profits, which means HSBC has bucked the dismal trend of other British banks.   Still, as you might expect, it’s the buoyant figures denoting Gulliver’s pay — and those of the top 170 members of staff — that are making the headlines, with calls for HSBC to explain itself. This is part of the regular drumbeat against financial ‘fat cats’ that’s been going on for months, so in that sense it’s nothing new.

James Forsyth

Tories question Lib Dems’ commitment to post-election cuts

From our UK edition

The mood of this morning’s ‘Growth Forum’ hosted by the Free Enterprise Group of Tory MPs and the Institute for Economic Affairs was summed up by Kwasi Kwarteng’s introductory remark that to meet the OBR’s ‘ambitious growth targets’, the coalition ‘can’t just bumble along’. The headline news coming out of the event is Andrew Tyrie, the influential chair of the Treasury Select Committee, calling for it to be made clear that the government’s ambition is to get state spending down to 40 per cent of GDP. David Ruffley also caused a stir by saying that BIS and, possibly, DCMS should be abolished.

Sunday

Fraser Nelson

Raise the tax threshhold and let youth prevail

From our UK edition

Youth unemployment is approaching crisis levels in Britain. For almost two decades, Britain’s more flexible labour market had favourable effects on youth employment. But the re-regulation of the British economy has narrowed the difference between our jobs market, and that of the continent. Meanwhile the British poverty trap has been strengthened by a dysfunctional welfare state: British workers can in some circumstances keep as little as 5p in every extra pound they earn if they find work. Who would break their back for less than 50p an hour? We’re paying people not to bother, so little wonder that most of the employment rise — in the last government, and under this one — is accounted for by a rise in foreign-born workers.

Peter Hoskin

Europe’s latest tonic could worsen Osborne’s political problems

From our UK edition

Seems that the latest plan to fix the eurozone involves cooking up a pot of alphabet soup. Over in Mexico, G20 finance ministers are currently discussing whether to blend two existing eurozone bailout funds, the EFSF and the ESM, with some extra money from the IMF. They hope that this EFSF-ESM-IMF mix will add up to about £1.25 trillion of ready cash for failing eurozone economies. ‘Look at the size of our fund,’ they will then say, as they try to settle nerves across Europe and beyond. Details are lacking, but some things are already worth noting about this potential mega fund. First is that it seems to be coming about with permission from Germany.

Friday

Jonathan Jones

Which tax cuts would be best for the economy?

From our UK edition

With all these tax cut suggestions kicking about — and with the British economy desperately in need of some oomph — it’s worth asking: which would help growth the most? It’s not of course the only consideration, but it is clearly an important one as we struggle to find our way out of recession.   Fortunately, the OECD is on hand with two recent reports to help answer our question. The first, ‘Tax Reform and Economic Growth’, divides taxes into four broad categories and ranks them on how harmful they are to growth: This suggests that the Centre for Policy Studies is right — on growth grounds at least — to focus on cutting corporation tax.

Tuesday

Clarissa Tan

The hurdles facing Greece

From our UK edition

Greece’s problems are far from over. As Pete said this morning, the €130 billion bailout hardly means the country is out of the woods, or that it won’t still be ejected from the eurozone. Standard Chartered have released a handy guide to the many obstacles Greece faces. Here are some highlights: 1. The first hurdle is the private-sector debt swap due to take place March 8-11. This is when private creditors are supposed to swoop in and save the day. But, to be enticed to do so, Greek bonds will likely have to come with collective action clauses (CACs). Here’s where it gets technical — if these CACs are invoked, payouts on credit default swaps will be triggered and the impact on financial markets is highly uncertain.

Peter Hoskin

Greece saved at last? Nope…

From our UK edition

Greece sorta defaulted last night. That's what you need to remember when reading of Greek Prime Minister Lucas Papademos's ‘happiness’ at the €130 billion deal reached by eurozone finance ministers in the early hours. Sure, the country will now be able to pay off its creditors when various loans mature on 20 March. But the concurrent ‘voluntary’ haircut of 53.5 per cent for private bondholders will still be seen as a ‘restricted default’ by credit rating agencies. And it could feasibly get worse if those private bondholders decide not to play along and instead trigger a credit event, either manageable or messy.

Monday

Jonathan Jones

Obama breaks clear

From our UK edition

The rejuvenation of Barack Obama’s re-election hopes continues apace. He’s added seven points to his approval rating since November, improving it from the low 40s to around 50 per cent now. After months of polling neck-and-neck with Mitt Romney, he now boasts a six point lead. Just four months ago, the bookies thought he was more likely to lose the election than win it. Now Intrade gives him a 60 per cent chance of victory. Nate Silver has a great article on Obama’s chances in this week’s New York Times Magazine. He’s built a model to forecast the election results based on the three most important factors at this stage: Obama’s approval rating, his opponent’s ideology and economic growth.

Friday

Peter Hoskin

Miliband’s NHS pledge

From our UK edition

Ah, there he is! With the coalition — and David Cameron — dominating the political news on every day of this half-term week, Ed Miliband has finally caused a ripple in the national consciousness. He's appearing before nurses in Bolton today to make a pledge: ‘Before he became Prime Minister, David Cameron concealed his plans for creeping privatisation of our National Health Service. So people didn’t get a vote on these plans at the last election. But I give you my word that if he goes ahead, they will be a defining issue at the next.’ Put aside the rhetoric about ‘creeping privatisation’ (which would surely make Tony Blair shudder), and it's understandable why Miliband is stressing this point.

Wednesday

Peter Hoskin

Post-Moody’s, King backs Osborne

From our UK edition

Moody's doubts might not be making much difference to the actual economy, but they could make a good deal of difference to the political battle being waged over it. George Osborne, of course, is citing this as further proof of the need for fiscal consolidation. Ed Balls, meanwhile, is redoubling his call for a ‘change of course’ — and somewhat misleadingly too. But what does Mervyn King think? Thanks to his comments in a press conference this morning, we don't have to guess.

Jonathan Jones

How can employment and unemployment go up at the same time?

From our UK edition

The employment level has risen since the election, according to today’s figures — albeit only slightly, from 29.0m to 29.1m. But unemployment’s up too: from 2.46m to 2.67m. So how come we’ve seen both more jobs and lengthening dole queues? Well, that’s because the ‘economically active’ population (people who are in work or ‘have been actively seeking work and are available to start work if a job is offered’) has grown faster than employment has. There are now 31.8m people in the UK who fit that description, an increase of 320,000 since the coalition came to power. But with only a 110,000 rise in employment, that means the number of folk unemployed has risen by 210,000.

Tuesday

Jonathan Jones

How Obama’s new budget fits into the UK debate

From our UK edition

Yesterday, Barack Obama set out his budget for ‘Fiscal Year 2013’ – that is, for the year beginning October 2012 (in the US, the fiscal year runs from October to September, rather than April to March as it does here). Of course, the federal budget has to be passed by both houses of Congress before being signed off by the President, so the final version will look very different to this one. It is better thought of as a statement of Obama’s intent, and his starting point for the negotiations between Congress and the White House. Nevertheless, it throws up a few interesting points, not least in how it relates to our own economic debates in the UK: 1. Deficit reduction.

Art Laffer and Others

How to kick-start the economy

From our UK edition

This morning's news is a stark reminder of the desperate need to get the UK's economy growing faster than the 0.9 per cent it managed in 2011. So far, George Osborne's seemed short of ideas in this area, so, back in November, we asked a select group of economists and politicians to suggest some for him: Cut the 50p tax Arthur Laffer, Chairman, Laffer Associates Reducing the burden which government places on the economy, through tax cuts, is the surest way to promote growth. I have never heard of a country that taxed itself into prosperity. Yet Britain last year raised the top rate of income tax from 40 per cent to 50 per cent. For more economic growth, and more tax revenue, this rate should be lowered immediately.

James Forsyth

Inflation falls as the VAT rise drops out

From our UK edition

Late last year, the Tory party’s brains trust found that the inflation numbers corresponded directly to whether or not people thought that the economy was on the right track. When inflation was going up double-quick, the ‘wrong track’ numbers went up. But when the pace of inflation slowed, the ‘right track’ numbers increased. It is for this reason that the Tories are quietly confident that this year will see an uptick in economic confidence. They expect the inflation rate to fall steadily throughout the year as the VAT rise drops its way out of the calculation and the effects of the oil shock recede.

Peter Hoskin

Labour’s plan would have cost us our AAA rating

From our UK edition

For Ed Balls this morning, there is only one conclusion to be drawn from the news about our credit rating: ‘A change of course is needed.’ But to what? Balls no doubt means a shallower course of deficit reduction — less far, less fast. But Moody's are clear that we have been placed on a negative outlook because of doubts that our fiscal consolidation will continue strongly enough. Specifically, they say that, ‘Any further abrupt economic or fiscal deterioration would put into question the government's ability to place the debt burden on a downward trajectory by fiscal year 2015-16.’ So how would Labour have fared? We already know that they didn't propose to put debt on a downwards trajectory back then (see my post here).

Peter Hoskin

Moody’s puts UK’s AAA rating on negative outlook

From our UK edition

‘It's now clear that Britain's economic reputation is on the line at the next general election, another reason for bringing the date forward and having that election now ... For the first time since these ratings began in 1978, the outlook for British debt has been downgraded from stable to negative.’ So said George Osborne when S&P placed Britain's AAA credit rating on a negative outlook in May 2009, when Labour were in power. But guess what? Another credit-rating agency — Moody's — has just done the same to our rating this evening. Given how much Osborne made of Britain being a ‘safe haven’, it's rather a tricky one for him.

Monday

Peter Hoskin

Project Merlin may not wield a magic wand

From our UK edition

Are Project Merlin's lending targets just a myth? On the basis of today's figures it's still rather hard to tell. The arrangement between the government and the banks did yield £214.9 billion of gross lending to businesses in 2011 — against a target of £190 billion, and a 20 per cent increase on 2010. But net lending also declined in every quarter of the year. And the target for lending to small businesses of £76 billion was missed by £1.1 billion.  The banks have put this shortfall down to fewer small businesses coming forward for credit — and there's actually some truth in that. This survey suggests that small businesses did indeed withdraw their begging bowls as the year progressed.