Thursday, 19 August 2010

Albert Owen, without irony, declares Coalition 'bankrupt'

In yesterday's Daily Post, our MP Albert Owen was given a bully pulpit to pen his verdict of the first hundred days of the new coalition government. As we are in the dog days of August and there doesn't seem to be much else happening, here is my review of Albert's review:

"The decision to increase VAT is deeply unfair and unjustifiable. Even the Lib Dems said as much during the election campaign. They were right to call it a regressive tax, because unlike Labour's tax proposals it disadvantages people at the bottom of the pay scale most."

I think it is pretty much accepted that the deficit needs to be cut, therefore the issue is how to fund that cut. It is possible to argue both ways whether a 2.5% rise in VAT is "fair" or not - however we should note that certain 'essential' purchases are 'zero-rated' for VAT and therefore are not affected. Those items include food (not from restaurants though), young children's clothing and footwear, public transport, books and newspapers and so on. Accordingly raising VAT will not effect the price of those essential items – however what Albert Owen fails to mention in damning the 2.5% VAT rise is that ALL products and services are affected by inflation which is currently running at 3.1%. Why is inflation so high? Because the previous Labour government ran up the biggest deficit in Britain's peacetime history and then resorted to printing money (or "quantitative easing") in order to fund its operations. What happens when huge amounts of extra money is pushed out into the economy? Prices rise to reflect the reduced value of money, i.e. inflation. If Albert Owen is so keen to protect "people at the bottom of the pay scale" then perhaps he might have condemned at the time his own Government's annually growing deficit and policy of quantitative easing which inevitably leads to run away inflation, and, unlike VAT, affects those on lower pay without exemption.

"Just yesterday, it was revealed that the NHS in Wales will be given a £20m VAT bill as a result of the Tory and Liberal tax hike. That is money that could have been used for vital equipment and more trained nurses."

There has been a lot of scaremongering regarding this figure in the last few days so firstly lets put that £20m VAT bill into context. The total Welsh Health and Social Services budget is £6bn. Therefore this £20m rise represents a minuscule 0.3% of the total budget (£20m/£6bn). Personally the question I would ask is why is the NHS paying VAT anyway?  If this extra £20m VAT bill for a 2.5% VAT rise rankles Labour so much, surely by extension the NHS has been paying an extra £140m ((17.5%/2.5%)*£20m) a year in VAT all the time that VAT has been set at 17.5%. If Ann Jones AM and Albert Owen are so concerned, why didn't Labour exempt the NHS from paying VAT during its 13 years in power?

"People say ideology does not play a strong role in politics any more, but when you look at the decisions being made by David Cameron and the equally fiscally conservative Nick Clegg, those decisions are based on deeply held but outdated, bankrupt beliefs"

Firstly considering the current size of the deficit, "bankrupt" is probably a word best avoided by members of the Labour Party if they wish to avoid ridicule. Secondly, which "outdated, bankrupt beliefs" is Albert referring to? Is it an "outdated" concept to suggest that the Government should live within its means and not burden current and, more importantly, future generations with huge debt? As Paul Myners, Labour's former City Minister said recently, "there is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation".

"Independent economic experts have already said that the Government's budget will reduce anticipated growth in the economy. That is bad for business, bad for jobs, bad for our communities"

As already discussed, in order to avoid saddling our children and our children's children with our debt, we have to act to reduce it now. That means bearing some pain in the short term in order to improve the country's finances and prospects of future growth in the long term.

"But the macho political desire of this Government to slash public spending outweighs those considerations".

Macho? Its worth noting that even with the spending revisions proposed the Coalition, it will not pay down a single penny of national debt by 2015 - the date of the next election. Furthermore, believe it or not, in cash terms, government spending will actually continue to rise over the next 5 years from £600 billion to £700 billion. So during the length of this parliament, the only thing being cut is the deficit, i.e. the rate by which the national debt rises each year - not the actual debt itself.

"...the June budget is estimated to put an extra 150,000 people out of work - people the experts say would still have a job under Labour"

Albert is talking here mainly about public sector workers. Although any job losses are unfortunate and regrettable, this country needs to move to a more sustainable economy. State jobs which, due to the massive deficit, are purely supported by by taxation on your children and your children's children are not sustainable. As even Peter Mandelson said earlier this year: "First and foremost we need to foster a new climate for enterprise in Britain. There is no substitute for this – no substitute for the drive and ambition that it brings … it is the single most important engine of economic progress. The recovery cannot be driven by consumer debt or public spending. It will be driven by private sector investment and private enterprise". Of course Albert Owen was part of Gordon Brown's cabal therefore probably uninterested in the utterings of Mandelson.

"The Future Jobs Fund helped thousands of young people in Wales find real work and under Labour it would have helped thousands more - it was one of the first things the Tories and Lib Dems axed"

I have said everything I have to say about the 'Future Jobs Fund' here.

"I take no pleasure in forecasting difficulties for our communities, but the coalition is taking the wrong course of action"

As opposed, I suppose, to the right course of action taken by Labour over the last 13 years... [here, unlike the unselfaware Albert, I am employing irony]

28 comments:

Anonymous said...

Good afternoon Druid, it would seem that jobs do not matter, not UK jobs anyway. You have clearly shown one view above, the other is the action of our Dept First Minister but for us Our Elected AM who has killed off ny enterprise by exporters It appears our AM guided WAG into deep activity involving The Environment, as most env products and equipment are imported we seem to be giving jobs abroad so, our miney is making a one way trip. I was always taught the country needs to export to be ahead. Never mind, if we make pans we can all do down them.

AI

James D said...

Agreed, the coalition did a bad job on the presentation of the VAT hike, but it isn't actually their fault (this is actually understandable — it wouldn't exactly curry favour with Tory voters for their man in Number 11 to admit to being a powerless implementer of EU policy). The last government failed to veto the draft directive on "simplifying" the EU rules on VAT collection, and this is why Alastair Darling refused to deny that he would have done the same thing when Lord Mandelson made a related allegation in his book. So which is it: is Albert Owen simply ignorant of the commitments made by members of the government he supported to our European partners, or is he indulging in shameless hypocrisy?

Anonymous said...

I voted Labour at every election bar the last one for over 30 years and was a member for 25. I will admit I held my nose a bit after Iraq and I always had my doubts about New Labour, but tribalism dies hard.

I will never ever vote New Labour ever again. They are absolutely clueless. They don't know how they got us into this mess, have nothing sensible to say about getting us out, have allowed workers rights to be all but destroyed, have allowed business to ruin workers pensions and have hamstrung the Trades Union movement with one hand whilst holding out the begging bowl with the other.

I sincerely - with hand on heart - hope the proposed changes to constituency sizes, the reduction from 650 to 600, the proposed changes to the electoral system and above all the proposed changes in party funding - destroy the farce that is New Labour.

the outsider said...

Today's blog from The Druid is a good lesson in economics. The last Labour Government clearly believed that it was possible to go on increasing the size of this nations debt indefinately. The countries, banks, international money markets etc are not so stupid, they know we will have to stop spending other people's money eventually because no one will be prepared to lend to the British Government unless they are confident the British Government can and will repay its loans.

The Government can only repay the debt by raising taxes.

At the moment the LIB CON Government is paying back most of, but not all of, the interest on the Government's debt. But as it is not paying all the interest due the debt is still growing each year, just as it did during the last Labour Government.

Can someone please explain this basic stuff to all those young people on Anglesey and elsewhere so they can understand how our Government works, where it gets its money from, and that if it overspends today's young people will have to pay it back with compound interest.

Ok you then need to explain about currency valuations, money markets, soverign wealth funds, pension funds etc. But basic lessons in economics in our secondary schools would go a long way to contributing to tomorrows voters being equipped to partake meaningfully in our democracy, and hopefully vote for a Government that won't bankrupt the nation.

Groundhog Day said...

Another effect of the mess that Bliar and Brown have created over the last 13 years will be the trade unions' reaction to the coalition's attempts to bring this country back into the black. I have no doubt that neanderthals such as Bob Crow Tony Woodley and Mark Serwotka will be demanding all out strike action and we may well see scenes like the 70s when we had rubbish piling in the streets and people unable to bury their dead while the country sinks even lower in the mire. It would not be a bad thing if legislation could be passed for any strike action to be declared illegal until such time as we are on a steady footing once more whereupon the laws could be rescinded. Whether we like it or not we need laws similar to those passed by the Thatcher government to prevent the trade unions from bringing the whole country down which is what I predict they will do. Desparate times need desperate measures however undemocratic if may seem.

TGC said...

Don't public services get to reclaim VAT?

Prometheuswrites said...

TGC: Public services cannot claim back VAT.

At least that was how it was when I used to sub-contract to the civil service.

Organisations that are not VAT registered have a default 20% advantage when tendering for work.

Prometheuswrites said...

Outsider:

"The Government can only repay the debt by raising taxes"

I'm sure a sensibly graduated income tax would help reduce the deficit. The trick however is getting (some) of the highest earners to contribute.

"Might they (tax paying Sun readers)also support the government in going after those entrepreneurial parasites who deprive the exchequer "on an industrial scale" by exploiting a network of tax havens in order to pay the absolute minimum in each of their host countries"

Private Eye No. 1269 pg 6 (latest edition)

Anonymous said...

Groundhog Day Whether we like it or not we need laws similar to those passed by the Thatcher government to prevent the trade unions from bringing the whole country down

Thatcher's Laws were never repealed by Blair/Brown, they are still in force today.

And Union leaders don't call strikes, they call ballots and the membership vote yes or no. Shoddy amateurish management is usually the cause of strikes such as in the recent case of BA.

The Druid of Anglesey said...

The Outsider - you make a good point. In my opinion as the world becomes more complicated, "all politics is becoming economics". In addition to better economics lessons in schools, we also need politicians who have a far better grasp of the basics and a working knowledge of the various opposing economic schools of thought. That would surely produce more sane policy and a better national debate than what is currently happening.

TGC - as Promo has already written the NHS is treated as a government department with regards to tax, though I understand it can claim back VAT for out sourced services, and some equipment can be exempted if it is bought through charitable NHS trust for example. Far better to give the whole NHS charitable status in my view. There is little point in forcing a public behemoth to pay VAT and then funding it partially from the same taxed revenue. Craziness.

Prometheuswrites said...

I've always thought that the right to withdraw ones labour was a fundamental hallmark of a democratic society.

Otherwise we move towards modern forms of indentured labour.

Something many of our graduating students may well be feeling facing the prospect of paying back bank and student loans reckoned on avaerage to be in the region of £20-25,000

I'm not meaning to sound so contrarywise. I'll post more on this later.

adwilliams134 said...

I've always thought that the right to withdraw ones labour was a fundamental hallmark of a democratic society.

Well said Prometheuswrites.

Prometheuswrites said...

I was looking for a quote but found this instead, which I read for the first time today.

http://www.heraldscotland.com/news/home-news/man-is-a-social-being-real-fulfilment-for-any-person-lies-in-service-to-his-fellow-men-and-women-1.1047993


The New York Times described it as “the greatest speech since President Lincoln’s Gettysburg address.

It says more than anything I could about the situation facing us all now as a country, nearly forty after it was made.

(Though the bit about local councils is obviously talking about the ones that work for the interests of the people).

The Red Flag said...

Jimmy Reid of the Clyde shipyards I believe Prometheussays.

There is a certain Labour Party in this country that would do well to remeber it's roots and what it is supposed to stand for instead of fannying around with neo-liberal garbage.

The Great Councillini said...

Who was it that said not so long ago: "in the long term, western economies are bankrupt". Well, if not economically quite yet, certainly morally so!

I think a lot about economics, would not claim to understand a lot of it, but then, those who said they did understand it handed us a very big mess. Maybe if I did understand it completely, I'd declare it a form of madness?

I fell economics is a bit like statistics - it depends what you want to demonstrate. In the end, I'm one of those on the fringe, thinking that a monetised society is not really a good thing. Is there a workable alternative? I'm not sure. But it's worth having a good think about it.

The trouble with Capitalism is that you have to capitalise on something - usually the masses of the poor - who subsequently make the few rich.

The Red Flag said...

TGC, Roubini was the economist who warned of the crash and what would cause it and how it would unfold. He was laughed at. It happened. Obama took him as a special advisor and asked what needed doing. Obama baulked at his replies. He is now warning of a second crash in 2012. The same people who mocked him 4 years ago are now back in charge and mocking him again.

If you were going to bet a fiver in Ladbrokes, who would you bet on. (You are betting actually, it's pension funds that wil be the primary cause of 2012 - they are basically worthles)

Prometheuswrites said...

Red Flag:
Thanks for mention of Roubini. I've not heard of him before.
I read the entry for him on Wikipedia.

Prometheuswrites said...

I think the important question to be addressed is how to get those who are not working and are desperate to find proper secure work into work,(try living on benefits as Joe average); rather than becoming overly fixated on those who can work but don't want to.

The latter has been a perennial issue for as long as I can remember and does need addressing, but it is a different issue.

Addressing the former would do more to tackle the deficit - and I'm not proposing Keynesian economics - we've already spent that money - bailing out the banks and easing the quant.

the outsider said...

I fear Roubini may be right about 2012, in fact I am very worried about 2011 (ten years after 9/11 and the attack on thr World Trade Centre - for the conspiracy theorists amongst you).

As a child I was struck by the unsustainable nature of world trade, my geography teacher explained in simply terms how it worked for us "Britain imports raw materials from the Commonwealth, turns them into manufactured goods and sells them back to the rest of the world at a profit". In my simple child's brain I wondered how the people and nations who had sold us the "raw materials" could afford to buy back the more expensive manufactured goods that we had produced?

Well, think oil rich Middle East States, China cheap labour and cheap valued currency, and any fertile land/water/mineral rich nations inhabited by smallish populations. Then think tiny overcrowded island (Britain) with burgeoning outstanding pension liabilities. What incentives are there for young people to stick around?

The Druid of Anglesey said...

Outsider - thanks for the Roubini tip, I also have been enjoying reading up on him and his thoughts.

The Druid of Anglesey said...

Roubini in the Daily Telegraph (23 May 2010 - http://goo.gl/IDnG):

"I am worried about the hung parliament. Whenever you have divided, weak or multi-party governments, budget deficits tend to be higher. It is harder to make the necessary sacrifices."

"He dismisses the £6bn of cuts announced by the coalition as "small compared to what is needed", but rejects the idea that the UK is worse off than many of its peers.

"In the US there is a lack of bipartisanship between Democrats and Republicans, in Germany Merkel has just lost the majority in her legislature, in Japan you have a weak and ineffective government, in Greece you have riots and strikes," he says. "The point is that a lot of sacrifices will have to be made in these countries but many of the governments are weak or divided. It is that political strain that markets are worried about. The view is: you can announce anything, we'll see whether you're going to implement it."

My comment: The above quote rather makes the point that the opportunist opposition to painful cuts for the sake of short-term political advantage by Albert in his Daily Post article and inevitably by WAG when the October spending review is announced, just makes the painful task of righting the economy and making it more sustainable for the future even more difficult to achieve.

Anonymous said...

Strange however that the economic indicators have not been as bad as predicted by the Tories before the election.
They have been dieing to get into power with an excuse to slash and burn the state and here they are with a good excuse.... as long as we continue to swallow the "Labour Caused all the pain" line.
There is nothing that Labour did that the Tories wouldn't have done in spades. Wars? Bring it on! "Soft touch" regulation of scurrilous bankers, yeah let's have loads of that.
Spending? Tories target spending to benefit their own and as for raising taxes... Well we wouldn't want to stifle the economy by actually insisting that Tory sympathisers and high earners actually pay their fair share now would we?

There is no such thing as political morality. Labour made the mistake of thinking it was alright to become "Tory Light". It wasn't.

Any of you brain dead people who think that the Tories will ever willingly do anything for ordinary people... get real. Somehow or other, by slight of hand, that great cash cow the NHS will start to function through private business and you all did it with your Tory votes.

Labour needs to look at the pathetic shadow of its former self that it has become and get a vision and a backbone.

And you Blue Druid, if you are going to be an uncritical Tory cheerleader.. Bugger Off.

New Fridgeman failed; which shows that Ynys Mon has some people with common sense and a memory.

The Druid of Anglesey said...

Anon 16:42 - "Strange however that the economic indicators have not been as bad as predicted by the Tories before the election."

Which economic indicators are you referring to? If you are referring to government gilts for example (or a number of others), they could be performing better than expected because the Budget convinced the markets that the Government are intent on tackling the deficit. The markets may have reacted badly to a government of any colour which decided it was going to take the easy path of borrowing more to try to stimulate more.

"They have been dieing to get into power with an excuse to slash and burn the state and here they are with a good excuse.... as long as we continue to swallow the "Labour Caused all the pain" line."

It is difficult to argue that there is not huge amounts of waste in the public sector - especially as all spending items over £500 are released to the public for the first time. Furthermore, considering we have the largest peacetime deficit, Labour did overspend.

"There is nothing that Labour did that the Tories wouldn't have done in spades."

Really? You just said that the Tories were "dieing to get into power with an excuse to slash and burn the state" so presumably you must think that the Tories wouldn't have let the deficit get as large as it currently is. You can't have it both ways.

"Wars? Bring it on! "Soft touch" regulation of scurrilous bankers, yeah let's have loads of that."

Perhaps. But I believe it was the Tories who were first to point out that Gordon Brown's 'tripartite regulation system" wasn't working and that the deficit was getting too large and needed to be cut - in the face of GB's "investments vs cuts" jibes.

"Spending? Tories target spending to benefit their own and as for raising taxes... Well we wouldn't want to stifle the economy by actually insisting that Tory sympathisers and high earners actually pay their fair share now would we?"

Where is your proof for any of this?

"Any of you brain dead people who think that the Tories will ever willingly do anything for ordinary people... get real. Somehow or other, by slight of hand, that great cash cow the NHS will start to function through private business and you all did it with your Tory votes."

So people are "brain dead" if they believe in anything other than what you believe?

"And you Blue Druid, if you are going to be an uncritical Tory cheerleader.. Bugger Off."

You are welcome to come here an question my views and prove where I am wrong. So far your comment is just a rant without any proof or evidence to back it up.

"New Fridgeman failed; which shows that Ynys Mon has some people with common sense and a memory."

Memory of what? What I remember is that most of Anglesey's largest employers (Anglesey Al, Peboc, Octel, Eaton Elec. etc.) survived the recessions of the 1980s, yet have all closed over the past few years under Labour rule. QED.

The Red Flag said...

I was a mwmber of the Labour Party for over two decades. They are a sham - a complete and utter fraud.

The points the Druid is arguing against above I find staggering in their naivety. I congratulate the Druid for not making the writer look a complete and utter idiot - it shows great compassion.

To put it in a nutshell, we are in this mess because New Labour followed neo-liberal economics. They can only have done it for one of two reasons - on purpose or because they are economically illeterate. Even Alistair Darling - who was actually a pretty shrewd Chancellor - is now publicly saying Brown got it wrong.

the outsider said...

Dear Red Flag, I'm sorry you have been let down. Back in the mid 90's I observed at close quarters New Labour's media manipulation techniques. And it turned me right off there and then. Ok everyone does it now. But back then it did not seem right to put so much effort into presentation and so little into economic research, world politics analysis, business learning, and getting to know the people who might actually vote for you.

Gordon Brown was hailed as a "very clever" economist. Yet he failed to see that there are only so many mortgages you can sell! Over the last 5 years I have repeatedly wondered was he stupid or just incompetent? As Roubini says "anyone could see what was coming". Even Her Majesty is reputed to have said "if it was so big why did no one see it coming".
I guess this is a way of her saying you idiots even I saw this!

So we now have, according to the IEA £4.8 trillion of national debt, (£78,000 for each person officially in the UK). And I don't think that includes PFI liabilities. I think I read somewhere that this years Treasury Gilts have all been bought by the BOE. It took nearly 50 years to pay the UK's loans off after WW2, this time round it may take longer.

Anonymous said...

a post-script to the discussion on bankrupt UK plc. I suggest anyone who is interested in how we as a nation might go forward from here first reads the full document I referred to yesterday A Bankruptcy Foretold 2010. Post-Financial Crisis Update. June 2010. IEA Discussion Paper No 28. see www.iea.org.uk it's only 20 pages, and in particular note para 2 page 17 "the government is effectively bankrupt" but of course the outgoing Government knew that as their Chief Secretary to the Treasury revealed in his little hand written note to his successor.

Anonymous said...
This comment has been removed by a blog administrator.
Prometheuswrites said...

Anon 21 Aug 16.42

No-one ever changed my mind by abusing me.

I have on many occassions changed my opinion after engaging in a rationale debate about an issue.

If patriotism is the last refuge of scoundrel, then I would add that abuse is the first refuge of the prejudiced and the last refuge of an unsupported argument.

The pity is, I would probably agree with some of your points if they weren't made in such an antagonistic and unsubstantiated manner.