Economy

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”.

So are Vince Cable's public spending cuts his own, or are they Lib Dem policy?  In his Straight Talk interview with the Lib Dem treasury spokesman this weekend, Andrew Neil tries to get to the bottom of it all.  The result?  Well, according to Cable, Nick Clegg "approved" his pamphlet for the think tank Reform, and some of its contents could find their way into the party's manifesto: "A lot of it is already Lib Dem policy, a lot of it already is, the rest of it will have to be considered and we’ll go into an election with a manifesto, we have a due process.  Maybe because of who I am a lot of it will be there, but some of it may not be, it has to be agreed with my colleagues of course.

After Michael Fallon's claim last week that the shadow cabinet hasn't got "the faintest idea" of the commitment necessary to tackle the debt crisis, this anecdote from Benedict Brogan's column should act as another warning to David Cameron: "Whitehall is gripped by short-termism, yet in a world dominated by the targets culture introduced by Labour, is this any surprise? When ministers themselves prioritise short-term results that can be ready for the Six O'Clock News or the autumn conference, how can the Civil Service hold out for the long view?

There’s a good article in the New York Times today about how little has changed in the way Wall Street does business since the collapse of Lehman—employment in the sector is only down eight percent, Goldman employees will earn on average $700,000 this year and derivatives are still not being traded on an open exchange. Indeed, the new Tory guru Nassim Taleb, the author of The Black Swan, thinks that the system might be riskier now than it was when Lehmans collapsed: “Mr. Taleb warns that the system has grown riskier since last fall. The extensive government support that began after Lehman collapsed will lead investors to assume that governments will always prevent major banks from collapsing, he said.

Peter Mandelson’s warning of a double-dip recession is in pretty much all the papers today. There’s no doubt that there is a risk the recession could turn into a W shaped one because the underlying problems in the financial sector have not been properly dealt with. But it also plays into Labour’s political strategy which is to argue that the situation is still so serious that it remains no time for a novice. ‘Don’t let the Tories ruin it’ or ‘Don’t let the Tories throw it away’ are both being mooted as possible Labour election lines. Brown apparently believes that Churchill’s fate shows that the people must not think the danger has passed if he is to win re-election.