The Great Debate UK

UK high-flyers should brace for bad news

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

Election first, manifesto afterwards. While there may be a Conservative prime minister in Downing Street, quite a few among the millions who voted for David Cameron will have a shock when they see the price they are paying for his pact with the more left-leaning Liberal Democrats.

Nobody seriously expected the current 18 percent rate for capital gains tax to last. But the plan to raise it to “rates similar or close to those applied to income” could imply a top rate of 50 percent. The question now is whether it will apply from the date of the emergency budget, promised for 50 days hence, or only from next year.

The Conservatives’ crowd-pleasing pledge to raise the threshold for inheritance tax to a million pounds had already been downgraded to an aspiration. Now that’s gone, at least for this parliament. Meanwhile, “unacceptable bonuses” in banking are to be subjected to “robust action”.

High earners will also get thwacked by changes to income tax and National Insurance, a second income tax. Although there will be a “substantial increase” in the amount individuals can earn before they start paying tax, that will be focused on the lower paid. The give-away will be funded by increasing NI contributions from the better paid. The new effective top rate of tax will be 52 percent.

Tax credits for higher earners will also be reduced. Quite how the proposal will mesh with the impenetrable tangle of these credits that the last Labour government created is left for another day.

At least, those reaching 75 will no longer be obliged to buy an annuity with their pension pot, for which relief much thanks. The bankers are also spared the LibDems’ “mansion tax” on their Chelsea homes, but the proposal to tax planes rather than passengers cannot be good news for their private jets. It’s going to be even tougher at the top.

New UK coalition deserves 7 out of 10

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

The new UK coalition deserves 7 out of 10. The pact between the Conservative and Liberal Democrat parties, led by David Cameron as the new prime minister, seems determined to address the country’s most important problem — the deficit. This is vital given that the euro zone debt crisis could still prove contagious. It should also be positive for sterling.

Some good ideas are also emerging on tax and spending. But other plans for tax and banks look odd — and there are doubts about whether these bedfellows will be able to work together. After all, Britain has not had a coalition government since World War Two.

Some will be disappointed that George Osborne, who has not been impressive as the Tories’ finance spokesman, will be Chancellor of the Exchequer. But the overall policy stance looks promising. The new government clearly sees dealing with the mess in the public finances as its top priority. The LibDems, led by Nick Clegg, have signed up to Cameron’s plan to find 6 billion pounds in efficiency savings in the current financial year.

This is, of course, only a pin prick given that the deficit is expected to top 160 billion pounds, or 11 percent of GDP. But it is reinforced by several other measures: an as-yet vague promise to significantly accelerate action on borrowing; an emergency budget within 50 days; and plans to involve both the Bank of England and a new Office of Budget Responsibility in vetting budget plans. Asking a bunch of technocrats for advice could give the new government the necessary alibi to implement more savage cuts than the Tories indicated during the election campaign.

The specifics on tax — insofar as they have been revealed — are more mixed. On the positive side, there will be a move to equalise capital gains and income tax rates. That will both raise cash and prevent the tax arbitrage encouraged by the current system. The Tories have also downgraded a promise to increase inheritance tax thresholds.

Unfortunately, there are also several expensive tax promises. In the horse-trading over the coalition, the LibDems have won backing for their plan to raise the income tax threshold to 10,000 pounds. Meanwhile, the Tories are sticking to their plan to scrap the former government’s decision to raise employers’ national income contributions (NIC). The best thing that can be said about these plans is that the former will be phased in while the Tories are at least keeping the planned NIC increase for workers.

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.

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

Subject of Europe set to trip Liberal Democrat Nick Clegg

- Jane Foley is research director at Forex.com. The opinions expressed are her own. -

Over the past week the British electorate has taken a shine to Liberal Democrat leader Nick Clegg.

Based on just one television appearance the popularity of the leader of the UK’s third main political party has surged to such a degree that the press could not resist the opportunity to draw comparisons with the support attained by orator, statesman and former Prime Minister Winston Churchill.

Clegg’s rise from the political sidelines, while remarkable, does pose at least one problem.  Its speed suggests that the electorate may like the man, but is probably not too familiar with the policies of the Liberal Democrat party.

Among other things, the LibDems are committed to taking the UK into European and Monetary Union.

Not surprising, given the economic crisis in Greece, the party manifesto concedes the current time is not right for such a move.

That said, the party pledge remains that it is in Britain’s long-term interest to be part of the euro.  The UK currently runs a budget deficit/GDP ratio of similar proportions to that of Greece.

UK political parties take mixed approach to social media

- Rachel Gibson is a professor at the Institute for Social Change in the University of Manchester. The opinions expressed are her own. -

The three main parties have clearly moved into full battle mode since the UK election campaign starting gun was fired on April 6th. And while the pounding of pavements and pressing of doorbells will no doubt be crucial in producing the swings needed in key marginal constituencies, the online technology driving these targeting efforts seems to have advanced a step or two since the last election.

Taking a leaf out of the Barack Obama presidential campaign management handbook, the Labour Party, the Conservative Party and the Liberal Democrats have all set up ‘hub’ sites on the web to recruit volunteers and spread their messages virally.

Labour’s effort – membersnet – and the more self-referential myconservatives and Lib Dem Act are all variants of the MyBarackObama.com or ‘MyBO’ website as it was more affectionately known, launched in early 2007 by the then U.S. Democratic presidential candidate.

While the value of MyBO in terms of votes and dollars delivered is still the subject of some debate, it clearly represented something new and different in the field of campaign management, offering ordinary voters a do-it-yourself toolbox to help their candidate.

With only a little technical know-how but sufficient enthusiasm MyBO users could set up blogs, personal profiles and groups within the site to connect with like-minded others.

Emails could be personalised and sent on to friends outside the site to persuade them to support Obama. For the most enthused there were opportunities to sign up to host fund-raising events and house parties and even access party databases to download contact details of likely local Democrat voters to phone and canvass.

Leaders’ debate could play out in favour of Libdems

- 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. -

It’s time for the second leaders’ debate on Thursday evening. This one will focus on international affairs, so it’s likely Prime Minister Gordon Brown will be on the defensive when talking about Afghanistan, Iraq, and the continued need for cold-war era nuclear weapons, such as Trident.

Those issues play straight into the sweet spot of the Liberal Democrats. Anti-war and anti-nuclear since before anyone can remember, Nick Clegg has a golden opportunity to further boost the image of his party and fuel the ‘Cleggmania’ that has swept the UK since the first leaders’ debate last week.

I’ve had email from as far afield as the U.S. and India asking me about Clegg, so foreign correspondents have done a good job informing the world that this election is not just a two-horse race.

But the prime minister should have received a rougher ride than he got in the first debate. Clegg’s style won the day, but some of the Brown substance the Labour party tells us about did shine through. And it forced Conservative leader David Cameron into a box.

The ITV ‘worm’ was tracking voter sentiment in real-time and Cameron’s strongest support was when he was tough on immigration, taking a hard-line on the ‘British jobs for British workers’ debate.

But that’s what the former Tory leader Michael Howard used to do. Preach traditional Tory values and play to the party membership. Cameron was the breath of fresh air, the leader who could make the Conservatives electable.

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.