UK News

from The Great Debate:

Britain’s austerity experiment is faltering

It was the Welsh sage Alan Watkins who remarked that a budget that looked good the day it was delivered to the British Parliament was sure to look terrible a week later, and vice versa. The avalanche of new information dumped by the Treasury is simply too much to grasp at a single sitting, and governments tend to bury bad news in a welter of statistics. And so it proved with finance minister George Osborne’s budget served up last week.

The immediate headlines stressed that rich Brits would pay less income tax – down from 50 percent to 45 percent – but it only took a day before even traditional Conservative cheerleaders like the Daily Mail were condemning Osborne for funding tax breaks for bankers and billionaires by stealing from those living in retirement. The paper’s cover screamed: “Osborne picks the pockets of pensioners.”

Osborne insists he is sticking to his “Plan A” to reduce the public deficit by sharply cutting state spending by 25 percent over the five-year parliament and imposing severe austerity. Because he believes his “Plan A” is on target, all he needed was a touch on the tiller. He therefore designed his budget to be fiscally neutral – that is, for every tax cut there was a corresponding tax increase. He put up tobacco and alcohol duties and sliced a little off corporation tax.

Osborne’s broader economic experiment, however, is fast faltering. If it were a drug trial, doctors would be urgently taking patients off the snake oil and feeding them the placebo. In 2010, he inherited from Gordon Brown’s Labour government a fast-rising recovery in economic growth, but now, after two years, GDP is headed south, and Britain is teetering on the edge of a government-inspired double-dip recession. In the last quarter of last year, GDP shrank by 0.3 percent.

As predicted, “Plan A” is not working. The number of jobless is 2.67 million (8.4 percent) and rising, the highest rate for 17 years, and the cost of paying the unemployed to do nothing is soaring. Inflation is running at 3.7 percent. Most galling of all, no doubt, for Cameron and Osborne, who were rushed into taking drastic measures when Bank of England Governor Mervyn King spooked them into believing the markets would punish them if they did not tackle the deficit right away, the rating agencies Moody's and Fitch have warned that notwithstanding the debt-reduction efforts, Britain could soon lose its AAA status.

Far from spurring the British economy to greater things, the Cameron coalition’s slash-and-scrimp policies have moved the government sector even deeper into debt. According to the latest Treasury figures, in February the current budget deficit rose to £11.1 billion. Borrowing rose to £15.2 billion. And the net public debt was £995 billion, or 63.1 percent of GDP. Critically for the coalition, even by the Treasury’s optimistic estimates, public-sector net debt as a percentage of GDP will continue to rise for another two years, maxing out at 76.3 percent just in time for Cameron to call a general election.

Debt reduction and austerity may be popular with the financial markets and Austrian economists, but British voters are fast beginning to tire of hard times. Cameron’s cry of “We’re all in this together” sounds a little hollow when he and his multimillionaire colleagues, such as Osborne – 23 of the 29 members of the Cabinet are worth more than $1.6 million – are so conspicuously not consuming the gruel they are feeding the rest of the nation. Cameron took five expensive high-profile family holidays last year, four of them abroad, all dutifully recorded in detail by Fleet Street’s finest.

from The Great Debate:

Should Obama mimic David Cameron’s austerity?

By Nicholas Wapshott The opinions expressed are his own.

In medieval times, a key member of a monarch’s retinue was the food taster, a hapless fellow who ate what his master was about to eat. If the taster survived, the food was deemed safe for the king’s consumption. President Obama has a taster of sorts in David Cameron, the British prime minister, who has embarked upon an economic experiment that echoes the recipe of wholesale public spending cuts and tax hikes needed if both sides in Congress are to agree to raising the federal government debt ceiling. How the British economy is faring offers Obama an idea of what a similarly radical policy of cutting and taxing here would mean to the American economy.

Cameron’s election in May 2010 coincided with the start of the Greek debt crisis. The Bank of England governor Mervyn King warned him that the public debt in the UK was so large that Britain, too, might see its lending become impossibly expensive, so Cameron decided that there was no time to lose in putting the fiscal books in order. He decided to slash public spending by 25 per cent over four years and immediately raise value added tax on goods and services from 17.5 to 20 per cent. Such a radical remedy found favor with the rump of British Conservatives who felt that Margaret Thatcher’s free-market, small government, “sound money” policies of the Eighties had not been pressed to their limit. In turn, Thatcher’s prescription to reduce the size of the state derived from her favorite thinker Friedrich Hayek, the author of “The Road to Serfdom,” who believed like many Tea Party supporters that government intervention inevitably leads to tyranny.

Cameron’s experiment in applying a radical cure to the British economy caught the attention of a number of conservatives here, among them George W. Bush’s speechwriter Michael Gerson, who wrote in the Washington Post, “If Cameron’s approach works -- dramatically cutting deficits without stalling economic growth -- it will be an obvious, powerful example for America.” “If only the Obama administration and the U.S. Congress had been so courageous. Instead, they are choosing to put off these big decisions,” moaned Matthew Bishop, New York bureau chief of the Economist, in a piece co-authored with Michael Green in the Wall Street Journal. Even Treasury Secretary Tim Geithner thought the British experiment worth trying. “I am very impressed, as one man’s view looking from a distance, at the basic strategy [Cameron] has adopted,” Geithner told the BBC.

So, how is the British economy doing? Under Cameron’s Labour predecessor, Gordon Brown, Britain fell into depression, with the economy shrinking during the worldwide banking meltdown to minus 2.1 per cent in the last quarter of 2008 and the first quarter of 2009. By the time of the general election in May 2010, however, growth had slowly climbed to 1.1 per cent per quarter. With Cameron taking the reins and announcing his radical economic plan, the economy slumped back to minus 0.5 per cent in the fourth quarter of last year, before returning to growth of 0.5 per cent in the first quarter of this. But the latest economic growth figures, released this week, show a slowdown in economic activity, to a miserable 0.2 per cent growth between April and June. Cameron’s chancellor George Osborne has blamed the poor figure on widespread partying that accompanied the wedding of Prince William and the effects of the Japanese tsunami. The double-dip recession that Cameron’s critics predicted has not yet taken place, but the figures are clearly headed in the wrong direction.

What exactly is causing the slowdown in Britain is not clear. The cuts have only just begun. The total spending reduction over four years will amount to no more than 1 per cent of government expenditure, though even that Osborne believes will put 1.3 million public sector workers out of work by 2015, though he hopes private companies will create 2.5 million new jobs to make up. The faltering economic recovery suggests he is being optimistic. The independent Office of Budget Responsibility estimates that the decision to raise VAT will cause economic growth to fall by 0.3 per cent in the fiscal year 2011/12. The tax hike has already dampened consumer confidence, leading in turn to a wave of retail store bankruptcies.

In his address on Monday, Obama suggested cutting government spending “to the lowest level it’s been since Dwight Eisenhower” coupled with new taxes on “millionaires and billionaires.” He assured Americans “the cuts wouldn’t happen so abruptly that they’d be a drag on our economy,” though that is plainly wishful thinking. Looking across the Atlantic, it seems that he, like Cameron, may be too optimistic about the true cost of slashing government spending and raising taxes at a time when the economy is still recovering from the Great Recession.

from Blogs Dashboard:

Claws out

Russia and Britain are rowing over how to respond to Iran's nuclear programme, MPs are scurrying to push through legislation for a referendum on changing the UK voting system and inflation is twice the Bank of England's target.

But one yarn towers over them all on this miserable, wet Tuesday.

David Cameron has got a new cat.

The Westminster bubble ran through the whole range of gags when it was discovered that Cameron's Downing Street residence in central London was infested with rats.

Unsurprisingly, the recruitment of a stray cat called Larry as the hard-nosed enforcer to deal with the problem has triggered another wave of bad jokes and cast all other stories, no matter how grave, into the shadows.

After all, the hard-working British taxpayer has a right to know...

Had Larry been vetted? Was there enough money in the "kitty" for a rat-catching expert in this age of austerity? Would the tabby be employed as a political special advisor or as a neutral civil servant? Is Larry just another "fat" cat from the city?

from The Great Debate UK:

Taking power from the powerless

-Clive Stafford Smith is the founder and director of Reprieve. The opinions expressed are his own.-

It may be the most mean-spirited thing that David Cameron has yet said since he assumed the mantle of Prime Minister: “It makes me physically ill even to contemplate having to give the vote to anyone who is in prison.” It makes me physically ill to hear an elected official say such a thing.

On which tablet that Moses carried down from Mount Sinai does it say that prisoners should lose the right to vote?  The European Court ruling condemning our practice does not pull its conclusion out of thin air: countries across Europe and around the world allow prisoners to vote.  Even China only takes the right away from those condemned to life in prison, or to death.  Because a prisoner is so often a person who has dwelt on the margins of society, he is the person who most needs the franchise.

Felony disenfranchisement -- as the practice is called in the US -- has ever been employed to take power from the powerless. When slavery was abolished, some states rushed to deprive convicts of the vote, as a proxy for race.  They similarly imposed literacy and property requirements. Only the felony rule survives, and it serves its original, racist purpose. Whites make up 74% of drug users, but only 19% of drug prisoners – nationwide, African-Americans are seven times as likely to lose their right to vote.  George W. Bush would never have been president, but for the racist removal of the vote – fully one third of black citizens cannot vote in Florida.  The rule in Britain is similarly discriminatory against minorities. Perhaps the Conservative PM was well aware of this when he made his comment.

“Frankly,” Cameron continues, “when people commit a crime and go to prison, they should lose their rights, including the right to vote.” To be sure, they lose their liberty, perhaps the most precious of all rights. What further Dickensian abuses does Cameron propose? Should prisoners lose their right to petition the government for redress? Should they lose their right to be free from torture?

Cameron is pandering to the worst instincts of his party’s extreme wing, turning the issue into an anti-Europe, anti-Human Rights Act rant when the real question is how he can justify disenfranchising those who most need a political voice. It is the British who are out of step.  The courts of Canada, Israel and South Africa have agreed with the European Court that the British rule marginalises the people who most need integration.

Cameron’s disdain for the victims of this law is also hypocritical.  Various members of his cabinet have described their youthful abuse of drugs; perhaps they have now told the full truth, perhaps not.  But presumably, if only they had been caught, they would have fallen into the “revolting” class whose exercise of the franchise makes the PM so ill.

from FaithWorld:

British police avert clashes at Luton anti-Islamist rally

(An English Defence League supporter with effigy of Osama Bin Laden mask during a rally in Luton, February 5, 2011/Paul Hackett)

About 1,500 far-right protesters marched through the centre of the British city of Luton Saturday to rally against "militant Islam," requiring a heavy police presence to avert clashes with 1,000 anti-fascist demonstrators. A sixth of Luton's population is Muslim, and past marches by the English Defence League have led to conflict with their opponents. The city centre turned into a virtual ghost town before the rally, with shops boarded up and pubs closed.

But police and community activists averted large-scale violence, making only eight arrests on a mix of assault, drugs and weapons charges. There were no serious injuries.

Tensions ran high as EDL leader Stephen Lennon told marchers to reject the influence of Islam in British public life. "Every single one of you are on the forefront of the fight against militant Islam," he said, as supporters chanted the EDL's name and nationalist songs based on those more usually associated with English football games.

The EDL, which says it is not a racist organisation, welcomed a speech by Prime Minister David Cameron earlier Saturday, where he told international leaders that his country had been too tolerant of British Islamists who rejected Western norms. Multiculturalism has failed and left young Muslims vulnerable to radicalisation, he said in Munich.

The private sector vs. definitions of fairness

– Ingrid Smith is Business Planning Editor,  Reuters Consumer Television –

Sitting in the auditorium of the London School of Economic’s Old Theatre earlier this month, I listened to Lord Turner pose the question – in rich societies is there a clear correlation between increased wealth and human well being?

An apt question indeed from the chairman of the soon-to-be-defunct UK Financial Services Authority, in light of the UK coalition government’s austerity review.

On the international stage, the OECD has described the spending review as “tough, necessary and courageous.”

In other quarters it is viewed as excessive by political pundits, such as Scottish Finance Secretary John Swinney. He argues the cuts are almost twice the level recommended by the International Monetary Fund for developed countries.

The predication by David Cameron’s government – and to a lesser extent Nick Clegg’s – that fairness was and is at the centre of their economic and welfare management of the country poses the unavoidable question – how is fairness being defined?

Lord Turner argues the average worker views economic fairness from a relativist’s perspective i.e. — ‘I’m happy to earn X for the work I do until I find out someone else is earning Y (where Y is more!).’

from Breakingviews:

Britain’s unkind cuts may help growth sprout

It was billed as a bloodbath, and it is. By slashing public spending by 81 billion pounds over five years, Britain's coalition government is reversing the big increases of previous years. The plan is billed as necessary pain to secure the country's financial future, but it is also ideological. The aim is to move from unaffordable levels of public employment and welfare to private employment and a balanced budget. The danger, however, is that the economy stalls.

The cuts to the civil service are drastic and will cause distress, even though most departments' budgets over the life of the parliament have been reduced by a fifth, not the threatened quarter. The BBC, the foreign office, the police, even the royal family: none have been spared. The government wants services to be delivered more cheaply -- which means by fewer people.

Britons know the public sector is not short of fat cats, and some fat cuts won't be the end of the world. Nevertheless, losing half a million public sector jobs is a heavy toll. If the private sector cannot absorb these workers, total UK unemployment may rise to a very high three million.

Taking the axe to many departments has allowed the government to lift health spending and maintain the schools budget. In welfare, however, it risks looking harsh. Ending child benefit for better-off families saves 2.5 billion pounds by 2015. But most of the overall 7 billion pound fall in welfare spending hits the least well off. Though the intention is to get people to swap welfare for work, the danger is greater social division.

The big macroeconomic risk is that the cuts cause a return to recession, thereby wrecking the government's fiscal calculations. That risk is real: house prices have not yet finished falling, and consumers are still deleveraging.

The Bank of England is likely to do its bit by cranking up the printing press and making money as cheap as possible. Nevertheless, tough years lie ahead. A country that was living far beyond its means now faces simultaneous big spending cuts and tax rises. The government will hope its decision brings clarity and a swift climb in private investment. A happy outcome is far from assured. But the decisive start is probably for the best.

Best of Britain: Power players

Whether they’re pumping up the crowd, or getting ready to cut people down, this week’s Best of Britain photos are about power players. Whether it’s bodybuilder-turned-governor Arnold Schwarzenegger joking with David Cameron, Liverpool chairman Martin Broughton greeting excited fans, or defending WBA heavyweight champion David Haye training for his next bout, these are people that mean business.

Also included are photos of a re-enactor at Hastings posing as if to cleave off the photographer’s head, smoke bombs at a demonstration, a soldier’s homecoming, and the Queen looking at a painting of her likeness as she tours a new liner, also bearing her name.

Best of Britain: In the lead

This week’s Best of Britain photos are about people in, or trying to take the lead, whether it’s David Cameron laughing during the Conservative party conference or a streaker proudly strutting through the greens of Celtic Manor. There’s also photos of former Pakistani President Pervez Musharraf talking about his potential return to Pakistani politics as well as European team captain Colin Montgomerie proudly displaying the Ryder Cup after his team’s win.

Also included are photos of a paper Buckingham Palace model, tourists watching the changing of the guard at Clarence House, and the tragic suspected arson fire which destroyed much of Hastings Pier.

Is there a Plan B for the government?

Our Reuters/Ipsos MORI poll is likely to make cheery reading for Britain’s Labour party.

For the first time since January 2008, they are level pegging with the Conservatives in terms of popular support; for the first time since May’s general election, more people are dissatisfied with the government than are pleased with it, and – perhaps most heartening of all for the opposition – three-quarters of the public would rather see slower public spending cuts than swift ones. And all that without Labour even having a leader.

Of course, it’s early days for the coalition – and no one would expect a government that’s spent almost every day since it was formed talking about cuts, austerity and tough times to be wildly popular. Conservative Prime Minister David Cameron and his Liberal Democrat deputy Nick Clegg can certainly take solace, for example, from the data showing their personal approval ratings remain high. (Although interestingly – and highly unusually – Clegg remains more popular with Conservative voters than with his own party).

Professor Philip Cowley, a political scientist who is writing the definitive guide to the general election and who will be speaking at our debate on the spending review on Friday, argues government is unlikely to be too troubled by the findings. “Rather than leading to the downfall of the coalition, polls like this make its survival more likely, because they give neither partner any incentive to split away,” he told me, pointing out several historical examples – including after the May 1979 election – when Labour pulled ahead of the Conservatives following a national vote.

“No Conservative strategist will need reminding that the 1979 contest ushered in the longest period of one party-rule since Britain became a democracy,” Cowley noted.

True. But the findings of the political monitor show the government has not yet secured the buy-in for its economic policies it needs to retain popular support if things go awry in the economy. Voters are currently giving the government the benefit of the doubt. They would like to see the pace of spending cuts to be slow rather than swift, yet at the same time they believe the current government’s policies will improve the state of Britain’s economy.