Tag: Conservative led Gvt

Cameron didn’t learn from Lamont on recession – early sharp cuts hurt

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The real mistake was not getting the forecast wrong, but getting the economics wrong. Look back to the last recession.

guardian.co.uk, Friday 4 May 2012 10.00 BSTNorman Lamont

‘Norman Lamont said that he would not raise taxes or cut spending right away, thus allowing the recovery to take hold.’ Photograph: Martin Argles for the Guardian

The UK economy fell back into recession in the first quarter. But talk of a double-dip recession misses the bigger picture – we’ve now had 18 months of essentially no growth, and more than four years after the start of the recession, the economy is well over 4% below its pre-crisis peak. The latest forecast from the National Institute of Economic and Social Research isn’t for another deep recession, but for no growth this year, and that we won’t get back to pre-recession levels until some time in 2014 – six full years on. Already, this is this is the slowest recovery on record, comparing poorly with what happened after the Great Depression.

The official forecast at the time of the June 2010 “emergency budget” was that we would now be growing at over 2.5%, with unemployment falling sharply. This was hopelessly optimistic. But getting the forecast wrong was not the government’s main mistake. Everyone gets forecasts wrong – we were too optimistic as well, albeit not by nearly as much. The point is that the government got the economics wrong. What the last 18 months has given us is as clear a test as you could ask for (in the messy real world of economics) of two competing worldviews.

The first was that, as the chancellor said then, “reducing the deficit is a necessary precondition to growth”: cutting the deficit quickly would restore consumer and business confidence, and allow lower interest rates, which would lead to growth. In other words, you can’t spend and borrow your way out of a recession.

The second, advocated by the likes of Martin Wolf and Paul Krugman, was the view that this was precisely wrong: the government deficit was the counterpart of excess private sector saving, as households tried to reduce their debts and businesses – knowing that the demand wasn’t there – held back from investment. Cutting the deficit too sharply would just make things worse. In other words, you can’t cut, tax and save your way out of a recession. As for low interest rates, they too were the result of a depressed private sector, trying to save too much and invest too little.

What have we seen since then? Not just low growth, but also, as a direct result, continued very high deficits. Indeed, in the past year, the deficit on current spending hardly changed, with almost all the reduction in the total deficit coming from cuts in investment spending. Hardly surprising therefore that it was the construction industry that was the biggest drag on growth in the latest figures.

But despite this continued high borrowing, long-term interest rates have remained very low, the result, as even a quick look at the data reveals, of a lack of investment opportunities far more than “confidence”. The markets have indeed spoken. As Wolf says, “they are saying: borrow and spend”.

What should the government do? There are plenty of alternatives, none of which involve abandoning the necessary medium-term goal of fiscal sustainability. Boosting investment spending now would boost growth, create jobs and would have no direct effect on the government’s primary fiscal target. Alternatively, or additionally, a “balanced budget expansion”, as advocated by the Social Market Foundation and the IMF, could achieve the same objectives. Either way, with long-term government borrowing as cheap as in living memory, with unemployed workers and plenty of spare capacity and with the UK suffering from both creaking infrastructure and a chronic lack of housing supply, not investing now is simply to ignore the most basic principles of economics.

The prime minister, of course, is not listening: his response to the GDP figures was to reiterate that “the solution can’t be more debt”. But perhaps he should look back to the last recession. In the then-chancellor Norman Lamont’s recovery budget of 1993, he famously, and controversially, raised taxes. But not immediately. He explicitly said that he would not raise taxes or cut spending right away, thus “allowing the recovery to take hold”. In fact, the government didn’t start cutting the structural deficit at all until 1994-95; by which time the economy had been growing for 18 months, by then at a very healthy pace of over 3%.

So Lamont grasped the basic economics, and got the timing right. I should know: I was his (civil servant) speechwriter. So should David Cameron: he was his (political) special adviser. Sadly, he appears to have learned the wrong lessons.

FactCheck: Is Lansley misleading us over the NHS?

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The claim

“This meeting deplores the government’s misleading and inaccurate talking down of health outcomes in the UK in order to justify its White Paper reforms and Health Bill in England.”

British Medical Association (BMA) Special Representative Meeting to debate NHS reforms in England, Motion 10, March 15, 2011

By Emma Thelwell

The background

Doctors charged the Government today with feeding the public “deliberate unashamed misinformation” in its bid to push through radical NHS reforms.

Almost 400 doctors gathered at the BMA’s first emergency meeting in almost 20 years to vote against the Health and Social Care Bill – and to vote on three separate motions of no confidence in Health Secretary Andrew Lansley.

Mr Lansley, who lost the support of his Coalition partners over the weekend at the Lib Dem conference, has insisted that patients are at the heart of the reforms.  He argues that the NHS needs reform on the basis that it lags behind Europe, specifically with poor death rates in cancer and heart disease.

But is the NHS really the sick man of Europe? FactCheck investigates.

The analysis

The whole of Europe “could do better” in the health care stakes, according to latest analysis from the Organisation for Economic Co-operation and Development (OECD).

While no one’s been issued a clean bill of health, the OECD’s summary of the UK’s battle against cancer and heart disease isn’t all bad.

Take breast cancer. It’s the most common form of cancer among all women in all EU countries – accounting for 31 per cent of cancer incidence and 17 per cent of cancer deaths among women in 2008.

The UK screens more women for breast and cervical cancer than most other developed countries and in the OECD’s 2010 Health at a Glance, we ranked third for cervical cancer screening and fifth for mammography screening over the period 2000 to 2008.

Survival rates, however, are less healthy. For both cancers, the UK dips below the European average – the 5-year survival rate for cervical cancer during 2002-2007 was 59.4 per cent – versus an OECD average of 65.7 per cent; and for breast cancer the rate was 78.5 per cent, slightly lower than the OECD average of 81.2 per cent.

But, the OECD points out that survival rates for different types of cancer is improving in the UK.

And data from the Office for National Statistics (ONS) rubber-stamps this; with latest figures showing that the UK survival rate for most of the 21 common cancers improved – for both men and women – over the period 2003-2007 compared with the period 2001-2006.

Furthermore, ONS stats show that the five-year survival rate for women diagnosed with breast cancer during 2003-2007 was 83.3 per cent. This was 1.3 per cent higher than for women diagnosed in 2001-2006

As for heart disease, the official Ministerial briefing for the Bill claimed that, despite matching the French for healthcare spending, our rate of death from heart disease is double theirs.

This claim was repudiated a few months ago by the Kings Fund’s chief economist John Appleby. He said the comparison was made over just one year of OECD figures, and with France – a country with the lowest death rate for “myocardial infarction” – or heart attacks – in Europe.

Mr Appleby pointed out: “Not only has the UK the largest fall in death rates from myocardial infarction between 1980 and 2006 of any European country, if trends over the past 30 years continue, it will have a lower death rate than France as soon as 2012.”

http://blogs.channel4.com/factcheck/factcheck-is-lansley-misleading-us-over-the-nhs/5993

Dr Chaand Nagpaul, the GP representing Edgware and Hendon at today’s BMA meeting, tabled the first motion against Mr Lansley. Dr Nagpaul could not accept  what he called the Government’s “plain ignorance” on the NHS’s record.

“Did they really not know that heart disease mortality has fallen more sharply in the UK than any other European nation…Did they really not know that the UK leads Europe in the reduction of breast cancer mortality rates, and that lung cancer death rates in men is actually lower than those in France?,” he said.

The verdict

Since kicking off his case for the “liberation” of the NHS in July, Mr Lansley has repeatedly claimed that “compared to other countries” the NHS has achieved poor outcomes in some areas.

But as he stated himself, the notably poor performances are in areas such as diabetes and asthma – confirmed to FactCheck by the OECD.

The OECD does say that most other European countries achieve higher survival rates for different types of cancer.

Yet, it also acknowledges that our cancer survival rates have improved. Plus, the organisation also tipped its hat to the UK for having a lower number of hospital admissions for congestive heart failure and hypertension than the rest of Europe.

Dr Nagpaul accused the Government of being “so bereft of national pride” that it totally ignores such facts, as well as the findings of the Commonwealth Fund.

FactCheck however, won’t be falling foul to that charge – we’ve read the 2010 Health Policy survey by the US health think tank, which pits the UK against Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland and the US.

The UK scored highest on confidence in NHS treatment and second only to New Zealand on the quality of care from doctors – with 79 per cent of those questioned rating the care they’d received in the past 12 months from their doctor as very good or excellent.

The NHS isn’t a picture of health, but we’re hardly the worst in Europe. So why is Mr Lansley being such a hypochondriac?

To us, it’s an obscure shift of tax law. To the City, it’s the heist of the century

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To us, it’s an obscure shift of tax law. To the City, it’s the heist of the century | George Monbiot | Comment is free | The Guardian.

n David Cameron we have a leader whose job is to quietly legitimise a semi-criminal, money-laundering economy

  • George Monbiot

    • ‘I would love to see tax reductions,” David Cameron told the Sunday Telegraph at the weekend, “but when you’re borrowing 11% of your GDP, it’s not possible to make significant net tax cuts. It just isn’t.” Oh no? Then how come he’s planning the biggest and crudest corporate tax cut in living memory?

    If you’ve heard nothing of it, you’re in good company. The obscure adjustments the government is planning to the tax acts of 1988 and 2009 have been missed by almost everyone – and are, anyway, almost impossible to understand without expert help. But as soon as you grasp the implications, you realise that a kind of corporate coup d’etat is taking place.

    Like the dismantling of the NHS and the sale of public forests, no one voted for this measure, as it wasn’t in the manifestos. While Cameron insists that he occupies the centre ground of British politics, that he shares our burdens and feels our pain, he has quietly been plotting with banks and businesses to engineer the greatest transfer of wealth from the poor and middle to the ultra-rich that this country has seen in a century. The latest heist has been explained to me by the former tax inspector, now a Private Eye journalist, Richard Brooks and current senior tax staff who can’t be named. Here’s how it works.

    At the moment tax law ensures that companies based here, with branches in other countries, don’t get taxed twice on the same money. They have to pay only the difference between our rate and that of the other country. If, for example, Dirty Oil plc pays 10% corporation tax on its profits in Oblivia, then shifts the money over here, it should pay a further 18% in the UK, to match our rate of 28%. But under the new proposals, companies will pay nothing at all in this country on money made by their foreign branches.

    Foreign means anywhere. If these proposals go ahead, the UK will be only the second country in the world to allow money that has passed through tax havens to remain untaxed when it gets here. The other is Switzerland. The exemption applies solely to “large and medium companies”: it is not available for smaller firms. The government says it expects “large financial services companies to make the greatest use of the exemption regime”. The main beneficiaries, in other words, will be the banks.

    But that’s not the end of it. While big business will be exempt from tax on its foreign branch earnings, it will, amazingly, still be able to claim the expense of funding its foreign branches against tax it pays in the UK. No other country does this. The new measures will, as we already know, accompany a rapid reduction in the official rate of corporation tax: from 28% to 24% by 2014. This, a Treasury minister has boasted, will be the lowest rate “of any major western economy”. By the time this government is done, we’ll be lucky if the banks and corporations pay anything at all. In the Sunday Telegraph, David Cameron said: “What I want is tax revenue from the banks into the exchequer, so we can help rebuild this economy.” He’s doing just the opposite.

    These measures will drain not only wealth but also jobs from the UK. The new legislation will create a powerful incentive to shift business out of this country and into nations with lower corporate tax rates. Any UK business that doesn’t outsource its staff or funnel its earnings through a tax haven will find itself with an extra competitive disadvantage. The new rules also threaten to degrade the tax base everywhere, as companies with headquarters in other countries will demand similar measures from their own governments.

    So how did this happen? You don’t have to look far to find out. Almost all the members of the seven committees the government set up “to provide strategic oversight of the development of corporate tax policy” are corporate executives. Among them are representatives of Vodafone, Tesco, BP, British American Tobacco and several of the major banks: HSBC, Santander, Standard Chartered, Citigroup, Schroders, RBS and Barclays.

    I used to think of such processes as regulatory capture: government agencies being taken over by the companies they were supposed to restrain. But I’ve just read Nicholas Shaxson’s Treasure Islands – perhaps the most important book published in the UK so far this year – and now I’m not so sure. Shaxson shows how the world’s tax havens have not, as the OECD claims, been eliminated, but legitimised; how the City of London is itself a giant tax haven, which passes much of its business through its subsidiary havens in British dependencies, overseas territories and former colonies; how its operations mesh with and are often indistinguishable from the laundering of the proceeds of crime; and how the Corporation of the City of London in effect dictates to the government, while remaining exempt from democratic control. If Hosni Mubarak has passed his alleged $70bn through British banks, the Egyptians won’t see a piastre of it.

    Reading Treasure Islands, I have realised that injustice of the kind described in this column is no perversion of the system; it is the system. Tony Blair came to power after assuring the City of his benign intentions. He then deregulated it and cut its taxes. Cameron didn’t have to assure it of anything: his party exists to turn its demands into public policy. Our ministers are not public servants. They work for the people who fund their parties, run the banks and own the newspapers, shielding them from their obligations to society, insulating them from democratic challenge.

    Our political system protects and enriches a fantastically wealthy elite, much of whose money is, as a result of their interesting tax and transfer arrangements, in effect stolen from poorer countries, and poorer citizens of their own countries. Ours is a semi-criminal money-laundering economy, legitimised by the pomp of the lord mayor’s show and multiple layers of defence in government. Politically irrelevant, economically invisible, the rest of us inhabit the margins of the system. Governments ensure that we are thrown enough scraps to keep us quiet, while the ultra-rich get on with the serious business of looting the global economy and crushing attempts to hold them to account.

    And this government? It has learned the lesson that Thatcher never grasped. If you want to turn this country into another Mexico, where the ruling elite wallows in unimaginable, state-facilitated wealth while the rest can go to hell, you don’t declare war on society, you don’t lambast single mothers or refuse to apologise for Bloody Sunday. You assuage, reassure, conciliate, emote. Then you shaft us.

    • A fully referenced version of this article can be found on George Monbiot’s website