A New Economic Model: Part 7

A New Economic Model: Eight Benchmarks for Britain.

This is my analysis of George Osborne's economic policy should the Conservatives win the next election.

6 Reform public services to deliver better value for money

The Conservatives plan yet more "reforms" of public services. Some of these "reforms" are simply to return public services policy back to where they were in 1997 (for example GP fundholding) or to introduce policies that have been rejected by the public at previous elections (for example, the Patients' Passport proposed for the 2005 election). These reforms are at best a petulant reaction from the Conservatives, but they would mark a return to the dilapidated services run down by Thatcher and Major.

The details:

"We will raise productivity growth in the public sector in order to deliver better schools and a better NHS."

This is a vague platitude. Governments always try to raise productivity in public services and it is erroneous to suggest otherwise. The fact is that the Conservative plans for health and education are to outsource the services. Outsourcing means that someone else has the responsibility, and that someone else has to be financially rewarded for taking on that responsibility. That profit is money that will not be spent on the service.

"We will raise public sector productivity by increasing diversity of provision, extending payment by results, giving more power to consumers and improving financial controls."

"Our health reforms will empower patients, making service providers accountable for results, bring in new providers, and use payment for results to incentivise quality, outcomes and value."

This is the NHS privatisation plan. The plan of "increasing diversity of provision" means less funding for NHS providers, which means less money for your local NHS hospital. This is a cut in funding for NHS providers to produce money that is given to private providers. Cuts and privatisation.

"Our radical school reforms will break open the state monopoly on taxpayer-funded education by removing the obstacles that prevent new providers setting up the new state schools that parents want."

In fact the "draft manifesto" on education does not have any "radical" reforms. The details of the much touted Swedish "free schools" programme was left out. If we assume that Gove's plans will be enacted, it will result in the closure of publicly-run schools and the creation of new schools by education corporations and special interest groups. If you are unlucky you may find that there will be an end of secular education in your area as "faith groups" opening schools in your area mean that the previous, secular, state schools close due to lack of funding. There is one thing that is fopr certain, there will be huge unheavals in education planned for the next few years if the Conservatives gain power.

"We will cut the cost of bureaucracy in Whitehall and quangos by one third over the course of a Parliament."

A cut of a third is huge, this is a promise that they will not be able to keep, and I am surprised that George Osborne's nose did not grow half a metre when he announced this.

A New Economic Model: Part 6

A New Economic Model: Eight Benchmarks for Britain.

This is my analysis of George Osborne's economic policy should the Conservatives win the next election.

5 Ensure the whole country shares in rising prosperity

This sounds good: a redistribution of wealth? Not at all. When they say "the whole country" they mean "the private sector". When they mean the private sector, they mean wholesale privatisation. The level of privatisation that the Conservatives plan will give us fewer services which will ultimately mean that we will have to pay for the services that we get at the moment from the public sector. The poor will be covered by basic service provision only and will be badly hit by this. The middle classes, who have sufficient funds, will end up paying more because they will "top-up" the basic services provided by public providers, or even replace them entirely, by paying for private sector services.

This "benchmark" is closely associated with the following "benchmark": "6 Reform public services to deliver better value for money", so I will give more analysis when I cover that "benchmark".

The details:

"We will raise the private sector's share of the economy in all regions of the country, especially outside London and the South East."

"Too many areas of the UK lack a vibrant private sector and are too dependant on public spending."

The details are somewhat vague. The pledge to "raise the private sector's share" means cutting regional aid and privatisation of services. When you consider that the two main areas of public services are health and education, then this is a blatant pledge to privatise parts of the NHS and schools. Not only will this give us fewer services at a lower standard, but it will ultimately cost all of us more.

A New Economic Model: Part 5

A New Economic Model: Eight Benchmarks for Britain.

This is my analysis of George Osborne's economic policy should the Conservatives win the next election.

4 Make Britain open for business

It is clear the only way to pay off the national debt is to increase tax revenue, and the only sustainable way to do that is to boost business. However, the vital point is how do you do this? The Labour policy is to support and nurture the economy until it can grow. Remember that Gordon Brown was a debt cutting Chancellor, during his time in the Treasury he cut the national debt, and under Brown the UK finally paid off its debt to the United States (the Lend Lease scheme that financed the UK's war effort). The alternative, proposed by Osborne, is to cut the national debt by making swingeing cuts to public services and the stimulus to the economy, and hope that business will recover on its own. This plan will surely sink the country into a double-dip recession but at least it will give Cameron the smaller state that he's been calling for ever since he became Conservative leader.

The details:

"We will improve Britain's international rankings for tax competitiveness and business regulation."

"Because we believe in low taxes, we will ensure that by far the largest part of the burden of dealing with the deficit falls on lower spending rather than higher taxes."

Tax cuts and cuts in public spending. Tax cuts benefit most the rich. Public spending cuts affect the poor the most, but they also affect significantly the middle classes. Osborne's plans are to hammer the middle classes and to hammer them hard.

"we will cut the headline rate of corporation tax to 25p or lower and the small companies' rate to 20p, funded by reducing complex reliefs and allowances."

This is another tax cut, but this time it is costed. You have to ask: how many of the middle classes or working classes own companies? Such tax cuts are aimed to benefit the rich who own corporations. According to LeftFootForward this tax cut will cost "£3.2 billion in 2011-12 and £3.7 billion in 2012-13". LFF explain that the cuts will be paid by "abolishing the £50,000 annual investment allowance; reducing general plant and machinery capital allowances to 12.5 per cent; and reducing long life plant and machinery capital allowances to 6 per cent" and they say that this will have a catastrophic effect on investment in businesses, and investment is the key to boosting the economy.

"We will make the UK a more attractive location for multinationals by simplifying the complex Controlled Foreign Companies rules … we will consult… we will consult…"

In other words all consultation, no action

There are also pledges to cut red tape ("one in one out"), and to make it easier to set up a company (and presumably more difficult to track rogue directors). However, the figures given by Osborne on red tape appear to be made up. If this is so, then who can trust a Chancellor who does not understand figures?

A New Economic Model: Part 4

(Graphic: Left Foot Forward)


A New Economic Model: Eight Benchmarks for Britain.

This is my analysis of George Osborne's economic policy should the Conservatives win the next election.

3 Get Britain working

Conservatives, reduce unemployment? Is this a dream? The fact is that the Conservatives record on unemployment is not very good. They get into power, they cut whatever they can and then unemployment goes up. Conservative policies rely on cheap labour and the only way to guarantee cheap labour is to increase unemployment. The problem, of course, is that the electorate do not like unemployment, hence the reason why Osborne is repeating their 1979 election campaign that "Labour Isn't Working". After the Conservative victory in 1979 unemployment shot up, so it is a warning to us all: don't believe a Tory about unemployment. The graphic above (from Left Foot Forward) shows what a recession under Conservative rule means. For the current recession unemployment returned to the level before the recession after seven quarters, for the Thatcher recession it took 21 months. Who knows what heights unemployment will go to, or when it would fall back to the current level during a Cameron recession.

The details:

"We will reduce youth unemployment and reduce the number of children in workless households as a key part of our strategy for tackling poverty and inequality."

Of course, this is government policy already, so yet again the Conservatives are saying they will continue with the Labour policy while making cuts.

"[Removal of the planned rise in] employer and employee National Insurance by 1% in 2011."

"Any new business started in the first two years of a Conservative Government will pay no EmployerNational Insurance on the first ten employees it hires during its first year."

"We will work to reduce the very high marginal tax rates faced by many people on low incomes who want to return to work or increase their earnings."

No one likes tax rises, but to avoid swingeing cuts the only possibility is that taxes have to rise. Cuts in taxes (or removing rises) have to be costed and the money found from elsewhere, and yet there are no concrete plans about what will fund these tax cuts.

The other details of this "benchmark" are to create training places (Labour has already pledged training for all young people); a vague and curious pledge to "set further education free… where government funding follows the learner" which sounds suspiciously like a pledge to privatise higher education and a pledge to "build a network of business mentors" which is uncosted and has no benchmarked figures and no indication of any possibility of sucess.

The verdict:

Other than the figures of the number of training places (which are less than Labour will create) and pledges to cut some taxes and not to implement other taxes, there are no real benchmarking figures here and no mention of what will happen if the benchmarks are not achieved. Again, this is not a benchmark.

A New Economic Model: Part 3

A New Economic Model: Eight Benchmarks for Britain.

This is my analysis of George Osborne's economic policy should the Conservatives win the next election.

2 Create a more balanced economy

What is a "balanced economy"? Get a group of economists together and each one will give you a different recipe for what they think is balanced. So we have to accept that "more balanced" here means according to Osborne and his privatising cronies.

The details:

"We will create the conditions for higher exports, business investment and saving as a share of GDP."

The Tories are somewhat obsessed by the low level of savings and the high levels of personal debt. The problem is that if you want a growing retail economy people have to spend money. And when people spend money, and fill their homes with consumer goods, they are happy. Retail therapy is the nation's number one pastime and Parsimony George and Austerity Dave want to remove that pastime from us. Not much of a vote winner, eh?

"We will make Britain Europe's leading hi-tech exporter with the help of Sir James Dyson's taskforce."

What? Do you mean the same Sir James who exported the manufacturing of his vacuum cleaners to Malaysia? The same Sir James who axed a third of the jobs at his R&D plant at Malmesbury? Sir James is hardly the person to be advising anyone about manufacturing in the UK (although, the Malaysia government may want to access his considerable skill at increasing their manufacturing). Bad choice George.

"We will restore our savings culture and encourage people to save more for retirement. We will work with employers and industry to support auto-enrolment into pensions for those on middle and lower incomes."

So after the Thatcher reforms that de-regulated pensions, allowed asset strippers to walk off with pension schemes, and removed company pensions from most people, now Osborne wants to force us to contribute to the third-rate pensions that his friends in the pension companies want us to have. The one lesson that we learned from the pension miss-selling scandal of the 80s was that the only people who gain from selling private pensions are the pension companies, but at least then we had the option to say No! Osborne wants to take that option from us.

"We will raise the Inheritance Tax threshold to £1 million"

They really cannot get away from their obsession with inheritance tax, can they?

The verdict:

Again, there are no lines in the sand, there are no figures, no dates and no penalties: so how can this be a benchmark?

A New Economic Model: Part 2

A New Economic Model: Eight Benchmarks for Britain.

This is my analysis of George Osborne's economic policy should the Conservatives win the next election.

1 Ensure macroeconomic stability

That's a bit of a mouthful, don't you think they could have come up with a "benchmark" in terms that most people can relate to? Say: "Ensure a stable economy"?

The details:

"We will safeguard Britain's credit rating with a credible plan to eliminate a large part of the structural deficit over a Parliament. Our fiscal policy will seek to help keep interest rates lower for longer."

Well, if the credit rating is so important, why have you been talking down the economy for the last year? Why have you taken every opportunity to say "we are going to lose our AAA credit rating (nudge, nudge, wink, wink)"? You know damned well that these credit ratings are based on confidence in the economy and constant rumours undermine that confidence. 

Update (23/2/2010): Mervyn King the Governor of the bank of England, and someone key to Osborne's economic plan, says that the country's credit rating is not under threat.

"'I don't believe the rating agencies are concerned, in the sense that they are not re-rating the UK and I would be very surprised if they were to do so,' he said. He said that ratings agencies would remain somewhat 'uncertain' about the fiscal outlook for the UK economy, but the UK's AAA-rating wouldn't be down-graded."

With this evidence made public, would Osborne and Cameron now stop talking down the economy?

"A Conservative Government will hold an emergency Budget within 50 days of taking office to set out a credible plan to eliminate in large part the structural current budget deficit over a Parliament. …the case for starting early to establish credibility is overwhelming."

Clearly this document was printed before Cameron and Osborne's U-turn after Davos, ("We're not talking about swingeing cuts.") An emergency budget is by definition for an emergency, and hence will mean taking drastic measures. Osborne's original benchmark document suggests that there will be emergency measures (ie swingeing cuts), but Cameron's smooth talking to the public says something different. Cameron's U-turn is partly electoral: the public do not want to see early, swinging cuts at a time when they could force the country into a deeper recession. But the main reason is that influential economists are warning Cameron of the folly of Osborne's plan. Nobel prize winning economist, Joseph Stiglitz calls the Conservative party’s economic policy “crazy” and “out of touch with reality”.

The odd thing about this pledge (to maintain the AAA credit rating) is that the accountability is not to the British public, but to the credit rating companies. In my last post I said that Osborne's pledge to be "accountable" is hollow because it merely says that we have a one chance every five years to hold him to account, but at least we have that power. Osborne making the AAA credit rating a "benchmark" is giving that power to the credit rating companies. Hardly democracy, is it? Hardly accountable to us, is it?

Who are these credit rating companies? Well the first thing to say is that they are self appointed. We haven't appointed them. There are several agencies (for example, Moody's, Standard & Poor's, Fitch Ratings), the fact that there are several means that one company is not necessarily correct: that's what a free market is for, to give you a second opinion. So which will Osborne use? If he chooses one then there will be an obvious moral hazard, and Osborne could just choose the rating agency that gives the result he wants. Such details are not given in Osborne's "New Economic Model". 

Further more, Joseph Stiglitz says about the Conservative claims that the country could lose the AA rating: “I think it’s fear mongering and I think the notion that the rating agencies, which did such a terrible job over rating all these these products, that we should show deference to their judgement of good economic policy seems outrageous.” Of course, George Osborne does not have a Nobel prize in economics, so  how can you expect him to understand details like this?

In effect this pledge is simply electioneering.

"The independent Bank of England will continue to target 2% CPI inflation and will use its new role in prudential supervision to preserve financial stability."

Who made the Bank independent? Who gave the Bank that responsibility of keeping CPI to 2%? So basically Osborne is saying: carry on as the Labour government is doing now? Well not quite. All of this talk of the Bank of England being independent is yet another platitude. The truth is that Osborne wants to control the Bank because his economic model is based on keeping interest rates low, and therefore he has to ensure that the Bank's Monetary Policy Committee always votes for the interest rate that Osborne desires.

The verdict:

Where is the benchmark, what is being measured? Well, there is the credit rating, but Osborne did not outline which rating agency will be used, so there is clearly room for selective metrics. Note that since the credit rating will affect the cost of government borrowing, the current Labour government will already be making sure that the rating is protected. There is also the inflation rate, but this is already a "benchmark" for the current Labour government. There is nothing new in this policy.

Where is the accountability? After five years of a Cameron government the country can choose if they want to continue with Cameron and Osborne. In other words, the accountability is the same as it is at the moment.

As a benchmark, this fails miserably.

A New Economic Model: Part 1

A New Economic Model: Eight Benchmarks for Britain.

Wow, something from the Conservatives to challenge Marx, Keynes, Friedman? No. Not a new economic theory, nor a new economic model, just Osborne's plan if he gets into the Treasury. The Conservative policy makers like to play with words, and they are definitely having fun with this title.

A "benchmark" gives you an impression of a horny-handed artisan crafting an exquisite and intricate item and placing it on the work bench in front of him while his apprentices look in awe and with ambition: they know that if they too can create such a beautiful item, showing that they too have such skill, they will become an artisan. So Osborne has presented eight benchmarks that show the skill and imagination of a Tory government? Something that future governments can use to compare their effectiveness? No. Unfortunately this 24 page document is merely a series of platitudes and aspirations. The "benchmarks" simply list the aspirations that Osborne has for the economy.

Before we examine the "henchmarks" we first have to cover what a "benchmark" is.

0 Benchmarks?

bench·mark (bench'märk) n.

1. A standard by which something can be measured or judged

To be judged by a benchmark there has to be some metrics. This means that Osborne's "benchmarks" must have a series of figures (dare I say, targets?) and a series of deadlines for when those achievements have occurred: "By 2012 the national debt will be…" You would expect lines in the sand. You would also expect some penalties (what is the use of a benchmark if there is no penalty?), for example: "The Chancellor will resign if benchmark x, y, or z is missed; we will call an election if benchmark a, b or c is missed." Indeed, George Osborne agrees on this point, he says:

"And for the first time, the British people will have eight clear and transparent benchmarks – Benchmarks for Britain – against which they can judge the success or failure of their Chancellor and their government over the next Parliament. We will be accountable."

So how will you be accountable, Mr Osborne? Oh yes, I know, we get one chance, once every five years to express our opinion. So that is the same as at the moment, right? If Osborne is claiming that he will be more accountable he has to outline how he will be called to account. Yet again, he fails to produce anything new.

Here is the list of "benchmarks":

1 Ensure macroeconomic stability
2 Create a more balanced economy
3 Get Britain working
4 Make Britain open for business
5 Ensure the whole country shares in rising prosperity
6 Reform public services to deliver better value for money
7 Create a safer banking system that serves the needs of the economy
8 Build a greener economy

Well, they are not particularly catchy are they? If I was to create a list of benchmarks I would make each one simple, with a metric and deadline. Curiously, the Conservative policy document on health outcomes shows how to do this properly, for example here are three:

Five-year survival rates for cancer in excess of EU averages by 2015
Premature mortality from stroke and heart disease below EU averages by 2015
Premature mortality from lung disease below EU averages by 2020

These are benchmarks, you know when you have achieved them, you know when you have failed. Osborne's list are not benchmarks, they are merely a series of economic policies. It appears to me that one group of policy writers created the bulk of the document and then the PR department looked at the rather dull paper and thought "how can we make this a bit more exciting?" and bolted-on the concept of "benchmark". The concept is inappropriate, of course, but the word is catchy and it gets headlines, and that is all that the document needs to do. These eight are not benchmarks, they are not lines in the sand, they are simply platitudes.

In the following blog posts I will go through the eight and examine each one in more detail, to see what the benchmark is, how it is measured and what the penalty for failure will be. Don't get too excited because as I will show, much of the document is a list of policies already announced by the Conservatives, reassertions of existing Government policy and some unobtainable aspirations added simply to bulk out the document.