The Great Debate UK

Cameron tasked with changing Brits’ expectations

– Mark Kobayashi-Hillary is the author of several books, including ‘Who Moved my Job?’ and ‘Global Services: Moving to a Level Playing Field’. The opinions expressed are his own –

After thirteen years, it’s all over. The New Labour project is dead. Or is it? Tony Blair brought British politics to the centre-ground and ensured that a single party could support free-market economic policies as well as social justice.

And that’s what most people want today, a government that can help the citizen without hindering the economy through the dogma of dated ideology. The old notion of socialists waging war on small-government-right-wingers feels somehow quaint. Clearly Tony Blair knew that David Cameron would be his successor in the New Labour project, but nobody told Gordon Brown.

Now the back room deals have been done between the Conservatives and Liberal Democrats, and the cabinet post announcements are being released from Downing Street, the real work has to begin. I don’t just mean the public sector cuts. Any new government would have to cope with the deficit, though many in Labour are probably grateful that it’s the Tories who are going to be seen slashing public services.

I mean that we need to change the attitude of a generation that has only known affluence, constant growth, and easy borrowing secured against property that has only ever increased in value. British people are going to have to spend within their means, no matter how unfashionable that might seem in a society obsessed with the latest dress or jewellery worn by Cheryl Cole.

The boom of the eighties led to a mighty recession, yet memories of that time feel mild compared to recent events. Many high street banks in the UK remain in public hands and when they are returned to the private sector will they ever really be private again, or will they continue to operate safe in the knowledge that the government safety net will always be there to stop their fall? It seems that banking may have changed forever.

And don’t forget that much of the nineties now resembles a dream. A popular American president, the emergence of a popular British leader, the growth of the Internet, and constant economic growth that had apparently led to the death of the boom and bust cycle. The dot com crash felt like a blip to most property owners.

Full-time results: they all lost the election

– Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

Could there have been a worse outcome to Britain’s General Election?

The result was disappointing for all concerned. The three main parties all did worse than expected, as did the nationalists. On the lunatic fringe, only the Greens have reason to rejoice – none of the others were anywhere near winning a seat.

In the meantime, Britain is fortunate that the financial markets have plenty of other countries to worry about. The only thing stopping a collapse in the pound and panic in the gilts market is that, for the moment at least, investors cannot see a more attractive (or less unattractive) alternative.

The Eurozone is in chaos, Japan appears to be in long term decline with the constant threat of a descent into chaos under its erratic new government and, as for the U.S. – it is hard to have much confidence in a country which has all of Britain’s problems writ large, plus near-bankrupt subnational (i.e. state and city) governments and, worst of all, no apparent appetite for actually doing anything (certainly not anything the slightest bit painful) to remedy the situation.

Perhaps the worst aspect of the UK post-election scenario is the focus it has already given to the question of electoral reform. This is disastrous because the last thing we need now is a debate on our constitutional arrangements, instead of concentrating on the economic situation.

One of the ironies of the current predicament is that, in spite of a disappointing outcome both in terms of votes and seats, the Liberal Democrats are living the dream. They have emerged as kingmakers, a situation which will of course become the norm if they manage to extract a commitment to proportional representation (PR) as the price of their support for a future Tory or Labour government.

Eerie calm before Britain’s election

– James Saft is a Reuters columnist. The opinions expressed are his own –

To look at sterling and gilts, you would hardly know that Britain is sailing into a general election which will likely deliver a weaker government with a diminished ability, if not will, to grapple with high debts, an uncertain role in the global economy and an aging population.

It is impossible to say what will be the result on Thursday, nor what deals may be made between the surging Liberal Democrats, a bedraggled Labour party which will still have a significant wodge of votes and the Conservatives, who must be both hoping that their hour has arrived and that that hour does not prove to be Monday morning at 8 a.m., pouring with rain and all the trains are late.

There is a huge range of scenarios — a weak minority or majority government or a coalition of some form — but the common denominator across almost all likely outcomes is that all raise the risk of a weak government unable or unwilling to push through aggressive deficit-reduction measures.

And an aggressive, credible and clearly enunciated plan is exactly what is needed. Even before the horse trading and compromising begins, all three parties’ plans lack either scope or specificity. Specificity about what will be cut or who will be made to pay more may well arrive, but it is likely to be at the expense of scope. Unless of course, Britain gets a sharp goading, as did Greece and the euro zone, from the financial markets.

Although pat comparisons between Greece and Britain cannot be made — Britain can devalue the pound and set its own interest rates — on some significant measures Britain is in a worse situation than Greece’s. Britain’s fiscal deficit is forecast at 13.3 percent of GDP in 2010, according to the Bank for International Settlements, worse than Greece, Ireland or any other major country you care to name.

Investors are reassured by the fact that Britain has an average debt maturity of 14 years, and appear to be betting it has time enough to work its way through its issues. Unusually, uncertainty this time does not seem to be unsettling investors. It is not hard to see that changing once the results are in.

Breaking up banks is no silver bullet

– Hugo Dixon is a Reuters Breakingviews columnist. The opinions expressed are his own –

Breaking up the banks is no silver bullet. Politicians on both sides of the Atlantic — including two of the party leaders fighting the UK election — want to separate so-called casino investment banks from utility lenders. But such simple rules would create arbitrage opportunities and rigidities without curbing excess risk-taking.

In the last of the UK’s election debates, the Liberal Democrat and Conservative leaders vied with one another to see who could be tougher on banks. As a soundbite, the notion that nasty, risky investment banking should be split from nice, safe retail banking may well be a winner. Gordon Brown, the Labour leader who has a more nuanced position, was left looking like a defender of big banks.

The politics are similar in the United States, where the Obama administration has proposed the so-called Volcker rule, which would prevent banks from engaging in proprietary trading. Some version of this rule may yet emerge in the financial regulation bill now going through Congress.

But these initiatives ignore the fact that excess risk-taking was a feature of all types of financial institutions during the credit bubble. Utility lenders — such as the UK’s Northern Rock or Washington Mutual of the United States — bit the dust. So did casinos like Lehman Brothers.

Politicians also risk missing the main target. Take the Volcker rule. It wouldn’t do anything to curb “non-proprietary” trading, where banks trade but not on their own account. What’s more, as soon as the regulators define proprietary trading, banks will find ways of doing the same business under a different nomenclature.

The other problem with structural separation is that it would create rigidities. This is most obvious in the type of “narrow banking” proposed by John Kay, the British economist. Under his scheme, deposit-taking institutions would only be allowed to invest in government securities. While this might appeal to governments that need to fund their deficits, it could gum up the flow of savings to industry — and it won’t give savers a good deal either.

from Matt Falloon:

Brown soldiers on

If a car slams into a bus stop just yards away as you launch a last-ditch election offensive, you might be forgiven for thinking that the gods are not on your side.

But even after the nightmare week British Prime Minister Gordon Brown has had, such portents of doom have little visible effect on the self-proclaimed underdog in this, one of Britain's most closely fought parliamentary elections for 25 years.

Brown and his cabinet colleagues, unveiling campaign posters in a windswept car park on Friday when the sound of screeching brakes made everyone jump, ploughed on with their attack on the centre-right Conservatives, warning that a vote for the opposition would put British economy and families at risk.

"You have got to have this inner reservoir of resilience to fight back when anything happens to you," the Labour leader told students later in an athletics hall at Loughborough university. "That's what I've got to do in the next few days anyway."

Even a man who has survived two coup attempts from within his own party since taking over from Tony Blair in 2007 could not have expected such bad luck in the days before the May 6 election.

Behind in opinion polls for much of his three-year tenure at the top, this was meant to be the week Brown fought back.

The third, and final, televised leaders' debate was on the economy -- a godsend for a man who helped spearhead the response to the global financial crisis and served as finance minister for a decade before taking over from Tony Blair in 2007.

Gordon Brown is in serious trouble today

- Mark Kobayashi-Hillary is the author of several books, including ‘Who Moved my Job?’ and ‘Global Services: Moving to a Level Playing Field’. He is participating in the Reuters Election 2010 politics live blog during the leaders’ debates and on election night. The opinions expressed are his own. -

A pensioner, Gillian Duffy, complained to Gordon Brown about the number of immigrants coming into the UK – amongst other things. It’s a familiar complaint the prime minister will have heard many times before, but this time he made a private comment about her in his car just after the event – calling her a ‘bigoted woman’ – and Sky News had left their radio microphone on his suit … so the private comments were recorded and replayed to the world.

It was a private comment, and many would credit Brown with telling the frank truth. But many online discussions are already calling this a watershed moment, with the implication being that anyone who is concerned about immigration is now tarnished as a bigot by the prime minister.

Any sensible observer would see that Brown was just making a private comment about a member of the electorate who was allowed to let off steam in front of the media machine, but this could be a disaster for Labour.

The immigration question is one of the hardest for our politicians to deal with because they never seem to quite get it right. The Labour Party at present has made it almost impossible for unskilled workers to enter the UK, encouraged people with specific skills to come using the Highly Skilled Migrant Worker programme, simplified visa approvals using a points-based system, and made it far harder for foreign students to work and overstay their visa.

We have heard all of this discussed in the leaders’ debates over the past two weeks.

When you list the measures Gordon Brown has presided over, it looks quite tough on immigrants, but the public perception is that ‘Johnny Foreigners’ continue to flood into the UK. The reality is that immigration is reducing – mainly because of the economic downturn and fragile recovery – but again, why ruin perception with reality?

Election reality that dare not speak its name

– Neil Collins is a Reuters Breakingviews columnist. The opinions expressed are his own –

Since Labour came to power in 1997, it has pursued a policy of expanding the numbers employed by the government or its agencies. The result is that today 6.1 million people are on the state payroll, an increase of about 900,000 in 13 years.

They are also paid, if not well, then at least comfortably. The Office of National Statistics calculates that pay in the public sector is now higher than in the private sector (462 pounds and 451 pounds a week respectively). It’s also rising faster (3.7 percent, against 1.8 percent).

Add in greater job security and the final salary pension schemes which are almost extinct everywhere else, and it’s easy to see why those in a recession-wracked private sector are resentful. Yet in over 60 constituencies, more than a third of the workforce is on the state payroll. Apprehensive politicians see public sector employees, along with their families and their client base of welfare claimants, as a block vote.

The last budget sketched a path back towards fiscal stability, but published no individual spending department limits beyond next March. Behind the scenes, departments are planning for draconian measures, while Labour is hoping nobody will notice the mismatch between this silence and its plan to cut 37 billion pounds from public spending by 2014.

Scrapping aircraft carriers, IT systems, ID cards and other follies would hardly dent the problem. Cuts in school building and roads will help, but serious money saving requires frozen and means-tested benefits and, say, a 5.5 percent cut in public sector pay. Even these contentious measures save only 15 billion pounds according to an Financial Times analysis, much less than half the amount required.

No politician has dared admit that public sector cuts of this order are inevitable. The televised debate on April 29 provides almost the last chance to face reality before the vote on May 6, but the numbers are so horrible that the viewers will probably be spared them. After all, there’s an election on — although given the outlook, it’s hard to see why anyone would want to win it.

from UK News:

Will a hung parliament create a serious hangover for British business?

Election day is fast approaching and with the poll gap narrowing between the Conservatives and Labour, there is a very real probability that the UK will end up with a hung parliament. For the first time since 1974, the UK may be left without clear political leadership.

- What will this really mean for British business? - How will the markets and sterling react? - Will a hung parliament scare off international investors? - Could the economy survive a second general election within a year?

Thomson Reuters has put together an expert panel that will look at the real and practical implications of a hung parliament on the UK economy and what this will mean for British business.

Angela Knight: Chief Executive, British Banking Association

Bobby Duffy: Managing Director, Public Affairs, Ipsos MORI

David Owen: Chief Financial Economist at Jefferies International

Professor Philip Cowley: Parliamentary and constitutional expert, Nottingham University and co-author of The British Election 2010

Tight UK election is bad news for bankers

– Peter Thal Larsen is a Reuters Breakingviews columnist. The opinions expressed are his own –

Britain’s bankers were already braced for an uncomfortable election. But the U.S. fraud allegations against Goldman Sachs, combined with the rise of the Liberal Democrats, have given bank-bashing renewed impetus. The popularity of the attacks means they could resonate well beyond the current campaign.

The immediate focus is on Goldman. Though fraud charges against the Wall Street bank were filed in the United States, one of its alleged victims was Royal Bank of Scotland, which lost $841 million on toxic debt securities sold by Goldman shortly before it was bailed out by the British government in the autumn of 2008.

The UK’s Financial Services Authority has launched its own, belated, investigation into the affair, and opposition politicians want the government to ban Goldman as an adviser. The bank’s first-quarter earnings, due to be published on April 20, could also revive the controversy over bonuses. This would be bad news for all investment banks.

The surging LibDems are another concern. So far, the ruling Labour party and opposition Conservatives have been relatively restrained in setting out anti-bank policies. This has allowed the LibDems to seize the populist initiative. They have proposed capping cash bonuses at 2,500 pounds, and naming every banker who takes home more than the 200,000 pounds earned by the Prime Minister. They also want to separate retail and investment banking, and whack an extra 10 percent tax on banks’ profits.

These policies are probably unworkable. It’s hard to see how a government could restrict bankers’ bonuses without limiting payouts in other industries. If implemented, the LibDems’ ideas would risk driving away large parts of the UK’s financial services industry.

The LibDems will only form a government in coalition with one of the other parties, probably Labour. Their policies would undoubtedly be watered down. But arguing over policy detail misses the broader point, which is that the LibDems are riding high in the polls and have made banker-bashing one of the main thrusts of their campaign. The other parties cannot risk being portrayed as defending bankers. They will probably have to respond. The UK climate is set to become even less friendly to bankers — not only during the election campaign, but afterwards.

Fears of UK hung parliament may be overstated

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

Fears of a hung parliament following the UK’s general election may be overstated. With Nick Clegg, leader of the Liberal Democrats, Britain’s third largest party, performing well in the first prime ministerial debate, sterling has received a mild knock. Investors do not like the uncertainty that goes with a hung parliament. While many European countries are used to coalition government, the UK is traditionally a two-party system – with government swinging between Labour and the Conservatives.

Added to this uncertainty is the fact that none of the three parties has come up with a credible plan for cutting the government’s deficit, which stands at 12 percent of GDP. One fear is that valuable months could be lost in horse-trading over forming the next government. Another is that a minority government could embark on a populist, but expensive, programme to prepare the ground for a second election later this year.

The hung parliament scenario is really two sub-scenarios. In the first, the party with the largest number of seats would govern on its own. This is probably what would happen if the Tories were the largest party. Such a government might well be unstable.

The second sub-scenario is a majority formed through a coalition with the LibDems. This is more likely if Labour emerges as the largest party. That’s because it has offered to change the system for electing MPs – something the LibDems and their predecessor parties have wanted for decades. Indeed, during Thursday’s debate, Labour’s Gordon Brown several times dangled this olive branch.

A formal “Lib-Lab” pact would still need to come up with a credible deficit reduction plan. But arguably this would be easier with a coalition that had been supported by over 50 percent of the electorate. What’s more, if it did not have overall power, Labour would have a ready-made excuse for abandoning pledges made in its manifesto, which would otherwise tie its hands in confronting the deficit.

If there is a hung parliament, it will be better to hang together than hang separately.