The UK’s budget deficit creeps back up.

Figures released today by the ONS show that for the first 6 months of this financial year, the government’s budget deficit has increased by 10% over the same period last year. But should we care? Labour certainly thinks so. Shadow Treasury spokesman Chris Leslie said:

“These figures are a serious blow to George Osborne. Not only is he set to break his promise to balance the books by next year, but borrowing in the first half of this year is now 10% higher than the same period last year. As the [Office for Budget Responsibility] said last week, stagnating wages and too many people in low-paid jobs are leading to more borrowing.”

Chris Leslie is probably right in the sense that the figures are a blow to George Osborne – at least in the minds of those in the media bubble who think the deficit is the all encompassing issue for the General Election. For most people though, other factors like jobs, housing and wages are likely to be more important factors for floating voters.

In a way we should be glad the deficit remains high. For all the talk, and while certain sections of society have been clobbered by austerity measures, overall, government spending continues to make a positive contribution  to growth. George Osborne has failed utterly to meet the targets for deficit reduction he set himself, but we should be thankful for that. If he had succeeded, we’d probably be failing down a pretty deep hole right now.

There is another sense that Leslie is correct though. While the size of the deficit doesn’t really matter (at least at the moment anyway), the fact the tax receipts are weak could be an indication of poor wage and productivity growth, which is definitely something Labour should be banging on about (but preferably only when they have a proper policy of their own to address the problem).

 

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Senior UKIP spokesman forced to deny he was the original ‘Bungle’ from Rainbow

While I have 5 minutes, here’s a silly story I found from the Liverpool Echo. Not sure why this even got written up, but it seems someone edited Paul Nuttall’s Wikipedia page to say “Nuttall was the original Bungle in children’s television show Rainbow.” The story was probably considered newsworthy because it gave some sub-editor a chance to write a funny headline, a chance that I’m not going to miss out on either.

‘I’m not Bungle': Mersey politician’s denial after Wikipedia prank

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In defense of Lord Freud (sort of)

Comments made by Welfare Minister Lord Freud have created a bit of a storm today after being raised at Prime Minister’s Questions by Labour leader Ed Miliband. Freud was recorded saying:

“You make a really good point about the disabled. There is a group where actually, as you say, they’re not worth the full wage.”

At the risk of incurring the wrath of my fellow lefties, I’m going to defend Lord Freud’s remarks while still disagreeing with the argument I think he was trying to make. I say think because what he actually said was pretty clumsy, and could easily be interpreted as offensive when viewed a certain way. So what do I think he was saying then?

It seems to me he was making a case argued by most opponents of the minimum wage. The argument uses what economists call marginal productivity of labour. This goes that firms will hire additional workers up to the point where the costs of paying the worker a wage is equal to the additional output they will achieve by hiring the worker. So if a worker can produce 5 widgets an hour, but only costs the equivalent of 4 widgets an hour, they will be hired, but a worker who costs 4 widgets but can only produce 3 won’t be. If the workers was willing to work for the monetary equivalent of 2 widgets though, the firm would hire them. If the minimum wage is set at the equivalent of 4 widgets however, this worker who can only produce 3 widgets an hour will be left unemployed.

So Freud is saying some people (in this case some disabled people) are not productive enough to produce enough to be ‘worth’ the minimum wage. This is probably true in many jobs, and I’m not just talking about seriously disabled people here, but also those who have been unemployed long term and/or are recovering from drug or alcohol problems. In economic terms this seems a rather uncontroversial thing to say and one that – despite what they may say today – most Conservative MPs  would agree with. So where I would defend Lord Freud is to the extent that he was only (rather clumsily) expressing a very commonly held belief.

But is he right though? I’ve already said that I agree there are some people who employers will view as not worth paying the minimum wage to. They could be right or wrong about this, but there is no doubt employers do not like to hire the long term unemployed, and discrimination on the grounds of disability remains a real thing. But those in agreement would argue that if there were no minimum wage restrictions, employers would hire those workers if they were willing to accept a low enough wage. This is where I disagree quite strongly. People with more business experience than me may say I’m wrong here, but I don’t believe employers make hiring decisions based on the marginal productivity of labour. I think they will always try to hire the best candidate at whatever is the prevailing wage rate. For evidence I would cite the almost total failure of Nick Clegg’s Youth Contract, which provided a wage subsidy to firms hiring an unemployed young person. Take up was atrocious.

Freud’s instinct (which he half expressed) was to favour an exemption from the minimum wage for certain groups, and to top up their wages with universal credit. To the extent that it was limited to certain groups, it would likely be ineffective as the Youth Contract demonstrated. I would also be suspicious that that was just the start, and that a complete removal of the minimum wage would be on the cards leading to a race to the bottom.

A further objection would be Freud’s implicit assumption that because the private sector won’t hire certain people at the current wage, it’s OK for them to pay those people whatever they think they are worth. But businesses are there to serve us, not the other way around. The floor on wages should be the amount at which a person is able to afford a decent standard of living. If the private sector cannot or will not hire everybody for at least that wage, then the government should act as an employer of last resort and tailor make jobs to each individuals talents.

For disabled people, previous governments have felt the need to create organisations like Remploy to create employment for those who struggle to find private sector work. This government scrapped a lot of Remploy factories, and few of those losing their jobs managed to find another one. It seems to me organisations like Remploy are more likely to be more at providing decent jobs for disabled people than scrapping the minimum wage ever would.

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Some General Election Predictions

After yesterday’s by-elections, I’ve been looking at the different odds for the results of next years General Election, and for fun, I’m going to make some predictions. I am using the current odds as offered by Ladbrokes (other bookmakers are available). I’ll be staking £5 on each prediction (It’s for fun, so I’m not willing to lose my shirt).

1. Who will win most seats? alittleecon prediction: Labour @ 8/11

I just can’t seeing Labour doing worse than last time, and they don’t have to do much better to become the largest party on 8th May.

2. Majority betting. alittleecon prediction: No overall majority @ 11/10.

While I expect Labour to do better than last time, they will struggle to hold all the seats they have in Scotland, so I think a majority may be beyond them.

3. Labour seats. alittleecon prediction: Under 305.5 @ 10/11

As of now, Labour have 257 seats. They will almost certainly pick up seats, but more than 48? I’m not convinced.

4. Conservative seats. alittleecon prediction: Over 277.5 @ 10/11

As of now, the Tories have 303 seats. They will lose some to Labour and possibly a couple to UKIP, but I expect them to nick a couple off the Lib Dems, so think overall they will lose less than 26 seats.

5. Lib Dem seats. alittleecon prediction: Over 32.5 seats @ Evens

The Lib Dems currently have 56 seats. While they are currently polling in single digits, in the areas where they have MPs, they seem to be popular. There’s no doubt they will lose seats, but while some are predicting a bloodbath, I think they’ll manage to hang on in a surprising number of seats.

6. UKIP seat totals. alittleecon prediction: Over 4.5 seats @ 11/8

I was tempted to go for over 9.5 seats at 3/1, but I’m fairly confident they’ll win at least 5 seats. We’ve seen Douglas Carswell win today, and there seems a good chance Mark Reckless will make it two shortly. It seems fairly certain Farage will win, and they must have a good chance in some parts of the North like Lincolnshire and on the east coast.

7. SNP seat bands. alittleecon prediction: 16-20 seats @ 10/1

This is a long shot, but after 45% of Scots voting yes in the referendum and SNP membership trebling to over 75,000 since then, there must be a good chance of them winning a significant number of seats from both the Lib Dems and Labour. They have 6 seats now and I think it’s possible they could treble that, which would hobble Labour’s chances of a majority in Westminster.

8. Greens to win a seat. alittleecon prediction: Yes @ 5/6

I think Caroline Lucas is popular enough in Brighton to be reelected, so yes is the call.

Here’s my prediction for the number of seats each party will have on 8th May 2015 (excluding NI as I know nothing about NI politics):

Labour: 293

Conservative: 279

Lib Dems: 34

SNP: 16

UKIP: 6

Plaid Cymru: 3

Greens: 1

Hopefully my maths are right (18 NI MPs). I’m assuming that Labour will put up a decent candidate against George Galloway in Bradford West (this is by no means guaranteed!).

So 8 £5 bets and an overall seats prediction. We’ll see how wrong I am next May! Interested in your predictions if you want to share them. How much will I win/lose?

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Lib Dem Conference highlights in full

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Lib Dems announce ‘big’ funding increase for NHS

The Lib Dem Conference started this weekend, and the first big announcement was that they would increase funding for the NHS by £1 billion. When I saw this earlier today, it brought to mind the scene from Austin Powers where Dr Evil doesn’t realise $1 million is no longer a particularly big number.

In the context of the NHS’s £110 billion budget, and extra £1 billion is pretty insignificant, as was Labour’s announcement of an extra £2.5 billion a couple of week’s ago. The announcement today seems to have got the response it deserves – a collective shrug.

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Tories end all pretence that the deficit is the biggest issue

It would be funny if it wasn’t so tragic, but the week after Ed Balls gave a speech declaring his love for fiscal rules and balanced budgets, David Cameron gives a speech in which he abandons all pretence that the number one priority is reducing the deficit. Of course Cameron wouldn’t admit that that was what he has done, but in offering a large tax cut to the top 10-15% of earners, (and a small one to the top 80%), it sends a clear message that all the rhetoric about getting the deficit down is just that – rhetoric.

That’s not to say that Cameron’s tax announcements today are a bad thing. Frankly, more tax cuts are to be welcomed, although if it was me, I would seek a better distribution than the one that would result from these cuts announced today:

So tax cuts, OK fine, although more progressive would be better. What I find hard to take is the double standards displayed by Cameron. The deficit is a huge issue when spending cuts are on the table, the grandkids start getting a mention and it’s a huge moral issue, but when a tax cut is being announced, you just get some hand-waving about the ‘structural’ deficit, which as Chris Dillow explains, is pretty much unmeasurable so can be whatever you want it to be. It would be great if politicians on both side of the aisle could just cut the crap and stop pretending it’s all about the deficit. Then we can have a grown up discussion about the level of taxation and public spending each side thinks is appropriate for the type of society they want to see evolve.

Decisions on tax and spend should be judged, not in terms of some arbitrary numbers, but rather in terms of what public purpose the government wants to achieve. Cameron implicitly acknowledged that today, by playing to his voter’s desire for lower taxes and a smaller state. Once you clear away the fog of the talk about debt and deficits, that’s what it really comes down to, and that’s what Labour should be arguing too. How much should we tax? Who should the burden fall on? And how much of a role should the state play in the economy?

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