Economy

I’d forgotten what it felt like to read positive news about the British economy. To be honest life is full of much more thrilling experiences, but my lack of enthusiasm is partially explained by the fact that a 6,000 employment rise is not proof of recovery. That half the population of Cranleigh have found employment over three months is seen as salvation puts Britain’s economic reality firmly into perspective. If you delve into the Labour Market Statistics the picture becomes clear. Unemployment was expected to rise and will continue doing so, but the employment figure is an anomaly. Britain is still visibly contracting, albeit at a decelerating rate. Vacancies fell by 1,000 and have never been at a lower level since records began in 2001.

It is another black day for Gordon Brown. The financial news from America, contrasted with continuing decline here, indicts Brown’s recession strategy. Playing the long game, Osborne is being vindicated, and Guido is correct that the ongoing UK recession negates Labour’s attack line on Osborne: the novice has trumped the alleged master. More damaging though is the resurfacing of Damian McBride and the ‘omerta’ of Brown’s inner circle, with its sordid and cynical connotations. The news that Nadine Dorries will receive £1,000 from McBride reflects poorly on the Prime Minister. Worse still, there is possibly more to come – Dorries has two suits outstanding, against Number 10 and Derek Draper respectively.

Most people expected this morning's official GDP statistics to show that the economy has come out of recession.  But they didn't.  In fact, they had the economy shrinking by 0.4 percent in the third quarter of this year.  So the downturn continues – and it's the longest on record. We've always maintained on Coffee House that coming out of recession won't do much good for Brown.  But, obviously, staying stuck in one has far more dangerous implications for him (not to mention the country).  Obviously, the government won't be able to deploy the green shoots strategy now.  But with other major economies already out of recession, they'll struggle to deploy it in future.  You imagine the Tories will have a field day with this.

In contrast to David Brooks’ optimism about Conservative economic policy, is Oliver Marc Harwich, former Chief Economist at Policy Exchange, who described George Osborne’s plans as “timid and unimaginative”. In a speech to the Centre for Independent studies, Dr Harwich remarked: “To be fair to the Tories, at their last party conference in Manchester George Osborne finally spelt out that a future Conservative government will be cutting public spending. But even the £23 billion over the next five years that Osborne announced amounts to little more than a rounding error in Britain’s public finances. Even in the face of the greatest economic crisis that Britain has experienced in decades, Tory policy remains timid and unimaginative.

What is the true price of Gordon Brown’s economic incompetence and inept bank regulation? The soaring national debt is one. And if you own a mortgage, you’ll find that you’re paying another. The gulf between the Bank of England base rate and the average mortgage rate is now at a huge high – as banks rip off their customers, trying to fill the hole in their balance sheets. This is an under-discussed topic. The “action we have taken” (a phrase Brown uses to try to lay claim to the Bank of England’s base rate reduction) would have a far greater effect on the economy if the UK banking system was not (still) so badly broken. The below graph, from Citi, shows spreads (ie, gap between base rate and retail rate) on key UK mortgages from 1995.

So what is George Osborne really up to? If Coffee Housers are feeling depressed at the paucity of ambition in his speech (his ‘cuts’ package  would shave just 1% off government spending) then take heart. In the magazine today, James Forsyth lists the far-more-radical changes that are being discussed by the Cameroons – but kept under wraps. The full piece is here, and the main points are…   1)   Corporation tax cuts. No mention was made of a growth agenda in the speech, but there are plans to cut Britain’s company tax rates quite aggressively with Ireland’s 12.5% as a lodestar.

For such a Big Beast, Ken Clarke’s speech this afternoon was very pedestrian. Admittedly, the subject matter, cutting red tape for small businesses, was unlikely to inspire a carnival of Churchillian wit and verve. However, Clarke did provide activists with a whiff of red of meat: he trashed Mandelson’s come back. "Yes, I agree with him - responsibly and in the national interest - agree with him on the future of Royal Mail.  We agreed with him when he took his Bill through the House of Lords.  And what happened?  That weak and dithering Prime Minister – Gordon Brown - has stopped him bringing his Bill into the House of Commons.

Vince Cable’s caricature of Tory economic policy was so disingenuous that it failed to hit its target. He said: “The Tories propose cuts, carried out in secret behind closed doors after the election, if they win.” The Conservatives have pioneered the cuts debate and the other parties have followed. Although I’d like to see more detailed plans of Tory cuts, the party has been upfront about the necessity for and extent of cuts and where they might be made. Then, Cable contrasted Tory secrecy and centralisation with Liberal openness and localism: “We want an open, democratic debate about priorities. They want to control everything from Whitehall – just like Labour. We believe in local government.

An interesting spat is just breaking out over cuts. The Conservatives have a leak from the working of the Budget showing detailed projections in government revenue to 2013-14 covered by all the main Sundays. This suggests income tax rising from £140bn this year to £191bn in four years' time. The Tories say this is not explained by economic growth and that the gap - £15bn - is equivalent to 3p in the basic rate of income tax. Liam Byrne is pushing back, saying Osborne is trying to "mislead the British people" (as if the government would try to do such a thing) and that the increase was accounted for “the economy returning to growth, no more, no less”.