15 May 2008

A tepid fightback - but a fightback nonetheless.

Well, my prediction that Ken would hold on in London turned out to be doggy-do, and now we have Mayor Boris. Lucky us.

In the end I think a combination of the number of people Ken had managed to piss off during 8 years (4x4 drivers, people who don't like bendy buses, etc.) and the fall-out from the general unpopularity of the Government finished him off.

And what unpopularity it is. The government is now plumbing depths unheard of since the 1982-3 period when Michael Foot was "in charge". Down to 23% in the latest polls, with the Tories on 49%... it's grim reading, for sure.

Hence the attempted fightback this week. A two-pronged strategy:

  1. a £600 increase in the income tax personal allowance, meaning that any basic rate taxpayer will gain £120, hence being compensated for the abolition of the 10p tax rate.
  2. a raft of new policy measures announced in Parliament yesterday.
So will any of it work? Most of the new policy measures are pretty lame, it has to be said. Proposals for 'elected police chiefs' look interesting but there is no detail on how they will be delivered, and the extra help for housebuyers is tiny in scale. The personal allowance increase is a good idea far too late - it should have been announced at the same time the 10p rate was abolished last year. Also, with no countervailing tax increases announced, the tax cut will have to be paid for by borrowing - and the government is already pretty much on the edge of the 40% debt-to-GDP level that its 'sustainable investment rule' specifies. £2.7 billion of additional borrowing makes it extremely likely that the rule will be breached.

But so what? It was a daft rule in the first place. While it's generally agreed among economists that if the ratio of debt to GDP were to rise steadily over time, eventually this would be become unsustainable, there's no reason why breaching a specific level of debt to GDP should have any adverse effects. 40%, 50%, 60% - it doesn't really matter provided there's some expectation that the ratio will stabilise at some point in the future rather than spiralling out of control. Really, the substainable investment rule always was dodgy economics, and the Government would do well to drop it if at all possible, and replace it with some looser criterion specifying that debt should be kept within 'manageable' levels or some such phrase.

Still, a fightback was certainly called for after the mauling the Government suffered in the local elections. No guarantees whatsoever that the apology over the 10p tax rate will have any positive impact, but it was the right thing to do. Now they need to put some sort of strategy in place so they don't keep making these basic errors...

Personnel-wise it's hard to see Alistair Darling making it past the summer recess. He is damaged goods, even though the 10p debacle wasn't his fault (it was announced when Brown was still chancellor). He will be thrown to the wolves as a sacrifice. Alan Johnson would be a good replacement - especially as, if there is a leadership challenge to Brown (not impossible if his poll ratings are static or get worse over the summer), it is Johnson who would be one of the strongest candidates. But more on that another day.


Van Patten said...

The problem is that I think everyone sees that he replacement of the 10p tax rate by an increase in the personal allowance is really a tawdry bribe, given that one of Brown's key tactics over his tenure as Chancellor was to freeze the personal allowance threshold, which was in effect a tax increase due to the effects of general inflation.

As many people have pointed out, there is an urgent need to reduce public expenditure, which none of the three parties seems to realise. As the prime foreign currency earner, the City of London is beginning its long-expected moves anywhere but the increasingly inclement economic climate here, expect it to get much, much worse in the next few months!

giroscoper said...

Mate - looks to me that if the economy gets worse over the summer we'll be needing more public expenditure, not less... just like the Tories did in the early 80s. The financial services sector is crippled enough by its own reckless idiocy in the credit boom, regardless of what the government does. Actually you're right, we could save several billion a year... by pulling out of Iraq.