UK politics – Page 4 – thinking liberal

Britain’s ungovernable Conservatives

I can remember when Britain’s Conservative Party was thought to be the country’s natural party of government. This feeling reached a peak after John Major’s shock win in 1992, when the party looked all but unelectable. The journalist Will Hutton wrote a best-seller “The State We’re In” which explained why. The party was deeply embedded into the country’s establishment. The discipline of its membership was legendary. Its hunger for power also made it adept at judicious compromise. It was a well oiled machine to keep an elite in power. The brief intervals of post-war Labour government in 1945, 1964 and 1974 seemed like awkward aberrations. Now, as the party wrestles with today’s vote on same-sex marriage, many observers of the British political scene wonder whether the party will ever secure a majority in the House of Commons after that win in 1992. What went wrong?

The party’s troubles are clearly deep. When David Cameron took over, after the party’s third successive defeat in 2005 it was clear that the party’s image with the public was toxic. Polling showed, the story went, that if the party came out in favour of a particular policy then that was reason enough to turn people against the policy. Mr Cameron’s mission was to re-brand and de-toxify the party, much as Tony Blair did with the Labour Party after that defeat in 1992. It seemed to be working. Mr Cameron embraced liberal causes like environmentalism and the inclusion of gays, while putting the party’s obsessions with Europe into the background. In doing so Mr Cameron put the party’s official position in a place where most Britons would not disagree with it. The party’s enthusiasm for the privatisation of public services was, and is, the only major exception.

He failed to win a majority in 2010, but by embracing coalition with the Liberal Democrats, he seemed burnish the party’s liberal credentials. While the Lib Dems were thrown into existential crisis, it seemed that the Tories were on a stepping stone towards power in their own right. But then people started to discover what the new Conservatives were really like. The problem wasn’t so much the Coalition’s programme of austerity and public service reform – “The Cuts”. These have produced a deafening whining sound from the left of the political spectrum. But these mainly originate from a complacent Labour establishment who had got used to a way of doing things, and it is not resonating with a majority of the British public. It is more of a problem for the Lib Dem element of the coalition than the Conservatives, though the NHS reforms remain a danger to both parties.

The real problem for the Tories comes on just those symbolic issues where Mr Cameron had tried to change the mood music. An obsession with the European Union and calls for a referendum on it have come to the fore. Reform to the House of Lords was firmly squashed, notwithstanding a seeming commitment to it in the party’s 2010 election manifesto. And now same-sex marriage (“equal marriage” to its supporters, “redefinition of marriage” to its opponents, “gay marriage” to the BBC). I must admit that this is an issue I struggle to get worked up about. But most of my friends are for it (though at least one is a passionate opponent), and it fits with my generally progressive outlook on life. Our understanding of what marriage is has changed over the years. But to many people in the country the reform is the last straw in a constant process of the undermining of traditional values. Such people feel that the political system tramples over them regardless, and their frustration makes them angry. They are in a minority, but not a voiceless one. They are particulalry well represented in the ranks of the Conservative Party, and many Tory MPs are taking up their cause.

This leaves three problems for Mr Cameron and his modernising allies. First is that it exposes divisions in his party, and that makes it look less credible as a governing party. Second it shows that whatever Mr Cameron may promise, even if it is in the election manifesto (same-sex marriage wasn’t in the main manifesto, it has to be said, but in separate party publications for the gay community), he cannot deliver on liberal, reforming policies that do not involve privatisation. Third is that there is a risk of defection from the traditional wing of his party in protest, reducing the party’s potential in the electoral ground war, and potentially helping UKIP, which is positioning itself as a vehicle for just such traditionalists. Under the country’s electoral system it is tough enough for the Tories to win outright. Surely it is now impossible?

Of course Mr Blair faced major challenges from Labour traditionalists, but still forged a highly effective political machine that still looks in good shape, even after its heavy defeat in 2010. But Mr Cameron does not command anything like the same loyalty amongst party apparatchics, and above all MPs, that Mr Blair commanded at the equivalent stage in his government. Mr Cameron never attempted Mr Blair’s “Clause 4 moment”, of a deliberately engineered confrontation with his critics to show he was boss.

Is it all lost for Mr Cameron? Not quite. There is always the example of 1992. Then the Tories were able to demonise the Labour Party and its leader sufficiently to scare first the press, and then voters into voting for it in large numbers. Ed Miliband, like Neil Kinnock, Labour’s leader in 1992, does not cut a particularly prime ministerial figure. There may well be an opportunity to stoke fears about tax rises under Labour too. As the General Election approaches Mr Cameron could rally the dissidents. He can still call on rich donors and much of the press will still rally to their cause.

But the Conservatives are no longer the party of the establishment. Their hidden advantages, so strong in the 20th Century, are eroding away. The 2015 election looks like another stalemate.

That speech: just a ripple on the surface of British politics?

Last week I commented on David Cameron’s speech on Britain and the EU, where he promised an in-out referendum, following a “renegotiation” if the Conservatives win the next General Election in 2015. For some days after I though this was a decisive moment in British politics, in which Mr Cameron seized the initiative, and the Labour leader, Ed Miliband, lost his chance to win the next election. A week on, the dust has settled and the news is dominated by other stories. Was is such a decisive moment, or a mere ripple, a failing prime minister making a promise he can’t deliver?

The weekend polls show no decisive shift, with the coalition parties trending up a tad, but Labour still comfortably ahead, following a trend already evident before the speech. One poll seemed to show a big advance by the Conservatives at the expense of UKIP – but on further examination it looks as if this has more to do with polling methodology than people changing their voting preferences. Mr Miliband’s calculation appears to be that the main issue for British politics is the economy, and so the best thing to do is to change the subject back to this issue. His line that the speech hurts the economy because it creates uncertainty, that old argument against any form of decisive leadership, seems to be carrying weight with the British public, according to a further poll published by The Independent – though this also showed Tory support rising. And in the ephemeral world of British political commentary that should be enough to say that this is just a small tactical victory for Mr Cameron, making his party less vulnerable to UKIP, and not much more. But I think two big things have changed, and a big problem has opened up.

Firstly, Mr Miliband has made a serious strategic error, even if its significance will not show up much before 2015. His strategy should be to focus the political debate onto a small number of subjects and overwhelm the opposition there. This is a strategy I have called “the same, only different” following a 20th Century advertising campaign for a product I have long forgotten. It was used by Tony Blair’s New Labour to devastating effect in 1997. Basically you shadow your opponent’s policies in almost every detail except for a small number carefully chosen issues, plus a big investment in mood music to make your party appear more caring and more competent. I remember the exasperation of Tories; whenever they came up with a new policy to try and get an edge on Labour, Labour promptly adopted it as their own. It prevented the other side from changing the agenda. This seems to have been what Mr Miliband is trying to do, albeit without actually committing to any policies just yet (again following Mr Blair’s example). He is not creating sharp policy differences with the government, and making the main focus of his attack the economy. He is trying to create the right mood music by painting the government as by turns gratuitously nasty, and shambolic and incompetant. This strategy was slowly paying off.

But Mr Cameron has hit Labour below the waterline. He has created a clear area of policy difference, where he is probably more in tune with the British public than Mr Miliband, and one in which he can guarantee coverage from Britain’s still-important press. But also the issue makes Mr Miliband look weak, indecisive and un-prime ministerial. That could be fatal. What Mr Miliband actually should have done was welcomed Mr Cameron’s speech and adopted his policies as his own. That would have taken the wind totally out of the Tory sails.

The second way that Mr Cameron’s move may be decisive is that it may have turned the advancing tide of British Euroscepticism, while at the same time unifying his bitterly Eurosceptic party. I have read Mr Cameron’s speech, and the most striking thing about it is how Europhile it is. He has well understood the arguments for Britain staying in, and put them forward. Britons are a suspicious, conservative bunch as the 2011 AV referendum showed. Leaving the EU would be a big step into the unknown, and the more people think about it, the more nervous they are likely to become. And yet the sceptics are happy because they have their precious in-out referendum.

Mr Cameron’s speech was a genuine act of decisive political leadership. There are risks, but there always are. There is also a risk that the EU needs to take forward a treaty change that we are forced to put to a referendum that is then lost. This risk has now been sidestepped, because we now have the opportunity to package it up with more popular changes and put it too an in-out referendum.

But there is a big problem with Mr Cameron’s speech, which I did not pick up last week. Aside from its tactical genius, it is intellectually vacuous. Its economics is based on a fatuous understanding of international competition and the fear of Europe falling behind the developing economies. Its analysis of how the EU needs to be changed is hot air with no concrete proposals. A single market without harmonised rules may sound good, but what does it mean in practice? I really don’t understand how this wishful vision breaks down into nitty-gritty negotiating points. Mr Cameron badly need somebody with intellectual heft to lead the negotiation – the job the Lord Cockfield did for Mrs Thatcher in developing the original European Single Market in 1992. The risk is that he will make no headway in the negotiations, and waste an opportunity to improve both Britain’s role with the EU, and the stability of the EU itself. That’s the big problem the speech opens up.

The curious case of Heathrow’s third runway

Why did senior Tory MP Tim Yeo make such a conspicuous bid to support Heathrow’s third runway? The idea is ruled out in the Coalition Agreement, and it is politically impossible for the government to take forward. Such a bid can only weaken the government and David Cameron, the Tory Prime Minister. Rather than indulge in conspiracy theories, I prefer to think it is because most MPs, who are elected in safe seats, and the business lobby advisers, don’t understand how elections are won and lost.

Mr Yeo made his bid in an article in the Telegragh. After going through the familar arguments put forward by lobbyists, he appealled to Mr Cameron to change the government’s stance, by asking himself “whether he is a man or a mouse”. The change could be a turning point for the government, he said, giving it a sense of mission amidst a lacklustre economy.

Heathrow’s operator, BAA, and principal user, British Airways, have been campaigning for Heathrrow’s expansion for many years, trench by trench. It seemed that they had lost this latest bid when the Coalition was formed in 2010. But they didn’t give up, and have kept their lobby efforts going. The results are quite impressive. Grudgingly, general public opinion seems to be coming their way, amid a deluge of supportive newspaper stories. It has become a totem issue for the political right, desperate for ideas that will both expand the economy and keep public expenditure down. Mr Yeo is one of a series of Tory MPs that have publically come out in favour.

But scepticism runs very deep here in west and southwest London, where we endure continuous intrusion from air traffic. Each victory won by BAA (to date mainly over new terminal buildings) has been bitterly contested. We have seen the smooth reassurances offered in one bid quietly buried in the next. There is no trust left in BAA and BA. And amid the swathe of hotly contested marginal constituencies in the airport’s shadow, the importance of the issue has only risen. This is what forced the Conservatives to oppose the new runway before the 2010 election. The area is also a stronghold for the Liberal Democrats, who have picked up on local opposition to Heathrow expansion from the start.

It is this last that is the political key for the government. Liberal Democrats are a beleaguered species since they joined the Coalition. Hopes that being in government would add to the party’s credibility are fading fast, as local election results show a grim picture. A very difficult election is coming up. Here the party’s objectives will be to hang on to what they have as best they can. Those local lection results show that the party can still benefit from an incumbency effect. South west London is one of the key battlegrounds, with four Lib Dem seats to defend, and a fifth Tory seat, Richmond Park, a marginal that the Lib Dems could win back. The party simply cannot afford to support Heathrow expansion. What’s more, the evident Tory backsliding on the issue is one of the very few shafts of light for Lib Dem campaigners locally. If the Tories drop their opposition to it in their next manifesto they will be bring out the champagne in Lib Dem HQ.

Which makes the fact that Mr Yeo and others are upping the ante very curious. This is an existential issue for the Lib Dems, so they will veto any change of government policy – never mind that the Tory Transport Secretary Justine Greening also has a seat under the Heathrow flightpath and has campaigned vigorously locally against expansion. Politics is supposed to be about the art of the possible.

What might the explanation be? One popular theory is that it is about Mr Cameron’s leadership of the Tory party. The Tory right are fed up with him, and would like him to be replaced. But to do it like this is surely suicidal – we only have to see what happened to John Major, the last Tory Prime Minister, who also had to deal with backbench discontent. The result was 13 years of uninterrupted Labour rule.

It may simply be a long term plan to ensure that Heathrow expansion goes ahead. This is surely what BAA and their advisers have in mind. If they can get the Tory party to change its mind at the top, and the Tories win the election without a few of those London seats, then bingo! They had already persuaded the last Labour government to press ahead. But this is a herding cats strategy. If they persuade the Tories to change their mind, the chances are that Labour will come out against, so that they can win back a few of those marginals in south and west London. The result of the that election could be very tight, so you don’t just wish away a few seats here and there for the sake of a project like this.

Personally I think it is naivity. Some on the Tory benches have spotted that if the Conservative backbenchers are behind a government policy, and you add in the Lib Dem payroll vote, who are bound to support any Coalition compromise, then it is enough for legislation to pass, even if all the Lib Dem backbenchers rebel. So all you have to do is ram a policy past the top Coalition policy process, and you’ve won. This strategy worked for George Osborne when he wanted to reduce the top rate of income tax – which he did in this year’s Budget in exchange for a series of policy concessions, now long since forgotten. He had similarly been told this was politically impossible. This is reinforced by the belief that the Lib Dems will not bring the show down because they are afraid of an election.

But that ended badly. Mr Osborne’s Budget, including reducing the top rate of tax, is now seen as a politcal distaster. It did nothing to boost investment and growth, as the Tory rhetoric and “Business” claimed it would. And as the next election looms Lib Dems are increasingly focusing on how to hold onto their parliamentary seats. It’s one reason why they jumped at the chance that Tory backsliding on Lords reform gave them to ditch the new constituency boundaries – which they had come to realise would make things very difficult for them. Heathrow is a similar existential issue, worth leaving the government for. No less than two Lib Dem cabinet members have seats near the airport.

But Mr Yeo, like most Tory and Labour MPs, represents a safe seat. He seems to have little comprehension on how elections in marginal seats work. The same seems to be true of BAA and their advisers, who probably like to look at national opinion polls and the big picture. Surprisingly few of the community of advisers, lobbyists and polical professionals that inhabit Westminster have a good understanding of the graft needed to win real elections; even less have any comprehension of how Lib Dem MPs win and hold their seats. So they make silly mistakes like this.

And what of the the case for expanding Heathrow? This deserves a blog in its own right. The case is stronger that my instinctive distrust of BAA, BA and anything calling itself a “business case”, or any group purporting to represent “Business”, would normally allow. But that is irrelevant in the rough and tumble of winning marginal votes.

Lords reform: the real loser is David Cameron’s project

Today Nick Clegg, Deputy Prime Minister and leader of the Liberal Democrats, announced that Britain’s Coalition government would end its attempt to make the country’s upper house, The House of Lords, mostly elected. It is a bitter blow for Lib Dems, but not unexpected. What does this say about the state of British politics?

The problem was that the plans did not command sufficient support on the Conservative benches. There were 90 or so rebels at an earlier vote, and this is enough to kill the bill if Labour oppose it. Labour had supported the reforms in principle, but said that, as a constitutional measure, it needed more time for debate in the Commons, so opposed the critical timetable motion. This argument is entirely specious. Debate on the floor of the Commons is an exercise in farce; it has to be time-limited or else it degenerates into filibuster. The cynicism of Labour’s position is made plain by the fact that they would not be drawn on the amount of time they thought the bill actually needed. But there was in any case a more substantive argument from the Labour side: in their manifesto they had said that reform should be made subject to a referendum, which the government side did not want to do. We can argue about the logic of Labour’s position on the referendum, but a manifesto is a manifesto.

So Mr Clegg was quite right to abandon his attempt at reform. There was very little credit in the wider world to be had for a fight to the death on this issue. While the public is broadly sympathetic to the idea, they don’t care very much about it. Mos readily agree to the trump card argument of British constitutional conservatives: that there are more important things to be doing.

Just about the only way of getting the reform through would have been to accept a referendum. Although the current polls are favourable, it would be a difficult referendum to win – a bit like Australia becoming a republic. Australians favour a republic in principle, but the never the particular structure of republic that is on offer. It was easy to pick holes in the specifics of the proposals – but that would be true of any proposal born of attempts to create consensus. The risk/reward ratio just didn’t stack.

Lib Dems are very bitter, since they see this as a breach of faith, as Andrew Rawnsley has explained in the Observer. They have knuckled down to vote for a number of proposals that they really hated, such as tuition fees for universities (though to be fair some high-up Lib Dems secretly liked the idea), and elected police commissioners, as well as immigration limits. Of course Tories have voted for Lib Dem policies too, but these are mostly quite popular in the country at large, such as raising tax thresholds. Although the Tories let them have a referendum on AV, their campaign to oppose this modest and sensible reform was so vitriolic and irrational as to come over as a breach of faith, especially when they attacked Mr Clegg personally on the basis that you couldn’t trust him because he entered into coalition with them!

But the public indifference left Mr Clegg with a problem. Why bring the government down over this, and not tuition fees, or many other things which are currently unpopular with the public at large? So the breach is not enough to end the Coalition. Instead Mr Clegg has decided to withdraw the party’s support to boundary changes to Westminster constituencies. This reform would equalise their size, to the benefit, so the conventional wisdom goes, of the Tories.

Here it is Mr Clegg’s turn to be politically calculating. I have heard his supporters make the argument that since there will be no elected upper chamber, we need to retain a bigger Commons – an argument that I struggle to understand. To be fair Mr Clegg does not use this argument in his email to members – where it comes over as a more straightforward tit-for-tat. The Tory sophists argue that the Coalition agreement did not actually say that they would vote for the Lords reforms – just to bring forward proposals. But the same can be said of the boundary changes.

And as things have turned out, the boundary changes are a real problem for the Lib Dems. In ordinary times they would have been much more relaxed, as they have shown an ability to move out of their strongholds in held seats to win over adjacent areas. The London MP Sarah Teather won her seat in 2010 in spite of major changes to the boundaries. But the Lib Dem activist base has suffered with the coalition, and the campaigning environment is much tougher. They have shown an ability to hold on where the party and its candidates are locally well know, but not elsewhere. There are no reserves with which to flood new areas. The boundary changes are a major headache. Neither are the changes partilcualry popular amongst the general public, whatever the intellectual case. To get equally sized seats they have run roughshod over traditional local sensibilities. In Wales the impact is particularly severe. Even may Tory MPs will be relieved if the reforms died a death.

But it will create an awkward moment in 2013 when the vote is due to take place, unless the proposal is abandoned. To defeat the changes Lib Dem government ministers would have to vote against or abstain – this would be new territory for the government and could easily bring it down.

So who gains from this sorry saga? The first winners are Labour, where their cynical manoeuvring have bought rich rewards. First they have made the Coalition look weak and incompetent. But best of all they should now be able to defeat the boundary changes, which they hate. Ed Milliband’s leadership can chalk up another success after his inauspicious start.

The second winners are the grumpy Tory backbenchers. They genuinely hated the Lords reform, and will be glad to kill it. They are also pretty relaxed about idea of the coalition failing. And as individuals the defeat of the boundary changes makes their lives easier.

For the Lib Dems the outcome is mixed. It’s a policy failure but it is very clear who is to blame: the Tory backbenchers and the scheming Labour politicians – unlike the AV referendum. This fiasco is out of the way a long time before the next election is due – and defeating the boundary changes will give their campaigners the best possible chance of hanging on to the 40-50 seats needed for the party to survive as a political force.

The big loser is the Tory leader and Prime Minister David Cameron, and his project of turning his party into a credible one of government. For all the soft soap he puts into the Party’s manifesto, it is clear that he can’t carry his party with him. He took on his backbenchers and came out second. His party can unite around a right-wing Eurosceptic platform, but winning a General Election, especially on the old boundaries, looks impossible. A centrist Tory manifesto will not be credible. His plan to use the coalition with the Lib Dems to de-toxifiy the Tory brand has come completely unstuck.

And the country remains stuck with an antiquated system of government that increasingly loses the respect of both the public and the world at large. The public is paying a big price for its indifference.

Betty Boothroyd makes the case for Lords reform

This morning’s Radio 4 coverage of the oncoming debate on Lords reform made little attempt at balance. They gave prominent coverage to opponent Betty Boothroyd. A supporter may have been given airtime while I wasn’t listening – but if so they did not get a mention on the website. But at least Baroness Boothroyd’s bluster gives supporters of reform plenty of ammunition.

Baroness Boothroyd, a former Labour MP and the House of Commons’s first (and only) female Speaker is treated as a bit of a national treasure – understandable given her remarkable life story, and the determination with which she climbed the greasy pole to celebrity. She is deeply conservative, and loves all that fake tradition and flummery that the British Parliament wallows in. But beyond this emotional attachment, she seems unable to give good reasons in their defence.

Her main point was that electing members of the upper house (whatever it would be called) would give it more power, and elevate its status to beyond that of a mere revising chamber that is not meant to get in the way of the Government and its whipped majority in the House of Commons. She suggested that the reform would lead to the upper house challenging financial legislation, something which it is currently unable to do. She also accused the reform’s proponents of not having thought things through, and insisted that it should be debated at length in parliament.

But this is mostly complete nonsense. The reform bill does not propose to change the current powers of the upper house – which means that it would not have the ability to challenge financial legislation. The primacy of the Commons is categorically included in the draft bill. Debate on the floor of parliament is not grand dialectical process by which laws get improved through earnest challenge and debate – it’s a theatre for the pompous to spout off pre-conceived opinions without listening to anybody else’s. The challenge and debate comes in the consultation process that surrounds the debate. This has been extensive, both in this parliament and in various predecessors. The arguments have been rehearsed many times, and solutions to the many problems devised. Having hammered out a workable compromise it is now time to decide, subject to a bit more wheeling and dealing, perhaps.

But what Baroness Boothroyd showed was that she herself could not be bothered to find out about what the proposals actually were. So what value does she contribute to the revising chamber that she defends, beyond a few deeply held prejudices? The trouble with the House of Lords is that it is full of people like her – and not the valuable experts that its supporters claim. What on earth is the point of it? Why not just abolish it all together?

The is much to criticise in the Government’s reform proposals. But they do deal with the two main weaknesses of the current house. First it shrinks it to a sensible size, including the use of limited terms of office (rather staying until you drop dead, as now) . Second it replaces patronage systems of appointment with an electoral process. These two steps will help to professionalise it, and then make it rather more effective in its job of challenging and improving lower house legislation. It may not succeed. 15 year non-renewable terms may mean that those elected just soak up the status and grandstand rather than doing any real work. And Baroness Boothroyd’s fear that it may just get in the way of government without adding value is not itself complete nonsense, unlike the bluster with which supported it. Being elected might give its members licence to be simply obstructive.

But it’s worth a try. If it doesn’t work we can change it. Or abolish it altogether.

Translating that IMF report into English: the blindness of macroeconomists

Yesterday the IMF released one of its regular reviews (“Article IV consultations”) on the UK economy. Both government and opposition seized on it to reinforce their narratives. But for observers trying to make sense of these claims by reading what the IMF’s summary actually says (here) there is a problem: it’s written in economics jargon and not English. For example, in the passage central to the controversy passage:

Under these circumstances, gains from delaying fiscal consolidation could be larger as multipliers are estimated to move inversely with growth and the effectiveness of monetary policy. To preserve credibility, reconsidering the path of consolidation should be in the context of a multi-year plan focused on further reducing the UK’s large structural fiscal deficit when the economy is stronger and taking into account risks to sovereign borrowing costs. Fiscal easing measures in such a scenario should focus on temporary tax cuts and greater infrastructure spending, as these may be more credibly temporary than increases in current spending.

What they are trying to say here is that attempting to lift the economy using a fiscal stimulus, i.e. reduced taxes and/or increased public spending, works best if growth is already low and if loose monetary policy isn’t working – which will be the case if the economy does not improve soon. But any stimulus has to be carefully designed to ensure that the government’s deficit reduction plans retain credibility. They suggest two types of policy that might achieve that: temporary tax cuts or greater infrastructure spending. In other words, not a slower pace or reversal of public expenditure cuts.

More on this later: first it helps to get a wider perspective of what the IMF is trying to say.

Their starting point is that the UK economy is currently unsustainable because of the massive government deficit (i.e. that public spending is way ahead of taxes). That means that the public sector is too large and has to be cut back to rebalance the economy. This is completely consistent with the Coalition government’s analysis, and it is where the Labour opposition is most uncomfortable. Labour draws a lot of political support from public sector workers and beneficiaries of government expenditure. They would rather not admit publicly either that the level of such expenditure before the crisis was unsustainable, or that it needs to be cut back now at anything like its current pace. But it is difficult to dispute the numbers, so they keep mum or change the subject.

But the IMF also says that there is considerable spare capacity in the economy – in other words that the private sector could expand easily if only consumer and investment demand was stronger. This fits better with the Labour narrative. Government supporters often suggest that the UK economy’s unbalanced nature was more than just an excessive public sector, which leaves little practical spare capacity, and so it is not so easy to grow through boosting demand: the extra demand might simply go into inflation or imports, for example. They point to the decline in manufacturing and the size of the “socially useless” investment banking sector before the crisis.

This leads to another point made by the IMF, which is that persistent low growth will cause longer term damage to the economy, as the spare private sector capacity whittles away. And unemployed people tend to lose their skills and value the longer they are out of work. There is a nightmare that stalks the minds of economists which they name “hysteresis” (borrowing the word from materials science) whereby people who are put out of work never get back into it, and high unemployment persists long into a recovery. Europe in the 1980s and 1990s is held up to be a prime example of this, compared to the US in the same period. The word makes its appearance in the summary.

But they do point out that UK unemployment is remarkably low compared to previous recessions, or what is going on in other economies, including the US. They put put this down to “labour market performance”, though others suggest that this has more to do with the fact that home construction played a much smaller part in the economic boom than elsewhere, and a lot of the vanished GDP was in sectors, like finance, which weren’t big employers.

The IMF report goes on quite a bit about monetary policy, not criticising the Bank of England’s performance so far, but suggesting that it could be further loosened. This might be through even lower interest rates or through “quantitative easing” – the buying of bonds by the Bank – especially if the latter was more in private sector bonds, rather then the gilts which the Bank has so far been buying.

The continued fragility of the UK banking sector causes the IMF some worry, as does the possibility of further trouble from the Euro zone. The former could provoke the government into more bailouts, which would put government finances under strain. The latter would exacerbate this problem as well as making growth more difficult. They welcome the government’s attempts to reform banking to expose government finances less to risk.

So where does that leave us? the Government can take comfort from what amounts to a strong endorsement of its policies. But by leaving open the idea of a fiscal stimulus, especially through a temporary tax cut, it gives Labour ammunition. Labour’s shadow chancellor Ed Balls can quite reasonably suggest that things are bad enough now for such a policy, without having to wait.

But, while wading through the dense economic jargon, I am left with an overwhelming impression of the blindness of macroeconomists, hiding behind their aggregated statistics and theoretical models. They don’t look far enough behind the figures. This is starkest in their faith in monetary policy. The theoretical models of money have entirely broken down in the wake of the financial crisis – but economists have placed so much weight on them that mostly they still cannot admit that they are so much garbage. The monetary authorities are left with a number of policy levers, interest rates and so on, whose effects are not properly understood. Whether looser policy will lead to any significant stimulus in demand that will lead to job creation is in fact very doubtful.

And talk of multipliers and other economic mumbo-jumbo gets in the way of trying to see if a particular form of fiscal stimulus might do more harm that good. An example of the kind of thinking that is needed comes in an article by US economist Raghuram Rajan in today’s FT: Sensible Keynesians see no easy way out. The problem with stimulus is that you have to balance the benefits now against the costs later. If the stimulus addresses the problem of unemployment, especially the long term sort, then the trade off is likely to be worth it. If it doesn’t then it won’t. Would a temporary tax cut, such as in VAT, achieve this? Personally I think the effects are likely to be marginal, and that most of the stimulus would disappear in higher prices, higher pay and increased imports. A more cogent case can be made for infrastructure spending if the infrastructure is genuinely useful to the future economy. That’s a harder test than theoretical economists allow – it is difficult to see much benefit from Japan’s massive infrastucture spending in the 1990s, for example. And the spending may not help provide jobs where they are most needed. In the UK there seems a good case for more house building: but by and large we do not need more houses where most of the unemployed people are living.

In last week’s Bagehot column in the Economist, the writer describes how people are hoping to wake up from the austerity nightmare so that they can get back to real life before the crisis. But the nightmare is reality and the pre-crisis existence is the dream.

Earthquake in Bradford. Not many dead.

“The most sensational by election victory in history”. For once it is difficult to argue with George Galloway’s comment on his stunning win over Labour in yesterday’s Bradford West by election. But as the dust settles, has anything changed?

The Coalition parties did badly in this election, but can be forgiven for having a chuckle. Labour’s loss was spectacular, and it has been a tough week for the government. For whatever reason, the media had turned on them over a series quite sensible moves (pensioners’ tax allowances, VAT on takeaway food, preparing for a potential strike by tanker drivers), which were admittedly exacerbated by some presentational gaffes. Labour had been taking some undeserved credit for this; and now they’ve been shown to be as out of touch with the real world as they allege the coalition parties to have been.

But Labour’s big problem is that they are seen as a party of government rather than one of protest. This leaves them vulnerable in by elections like this to candidates that seem to embody anger and frustration more. But it is a good thing if they actually want to win a General Election. In the narcissistic game of trivia played out by politicians and political correspondents this is a reverse. But no reason to panic.

Mr Galloway’s Respect party is a personal vehicle, not a convincing political movement. It attempts the feat of allying left-wing (“Old Labour”) ideas with cultivating the Muslim vote; this difficult reconciliation seems only to be feasible through Mr Galloway’s self-obsessed personality. He has tried and failed to broaden his appeal.

For the Lib Dems (not so implicated in the week’s gaffes, but having to share responsibility) the result is not a big deal either. They lost their deposit in a seat where they were already weak; the decline in vote was not quite as spectacular as for Labour and the Conservatives, and they comfortably saw off the Greens and UKIP. But it offers no particular hope of the party digging its way out of its poor standing in most of northern England, to say nothing of elsewhere.

By far the most interesting feature of this election has been the behaviour of the Muslim community – which seems to have been the main factor behind Mr Galloway’s success, harnessed by some very astute campaigning. According to Nasser Butt, a former Lib Dem parliamentary candidate in Tooting, who spent the last week in Bradford, the charge was led by younger members of the community, who persuaded their elders to rebel. This was reversal of the normally paternalistic way that politics is done in these communities.

This is an exciting development, even if it causes liberals some angst. Muslim communities (in this case mainly Pakistani derived) have a strong sense of grievance. This seems to be shaped by two things: the West’s ill-judged military campaigns in the War on Terror, and the generally liberal ways of the society that they inhabit, which runs roughshod over their conservative sensibilities. The latter’s flashpoints are the toleration of gays, perceived insults to their religion from a free-speaking public, and the modesty of women’s dress.

If the Bradford dynamic can be repeated elsewhere, it means that the Muslim vote is much more in play, instead of being stitched up with elders in little local deals, or not voting at all. The liberal fear is that it will put pressure on politicians in the wrong direction on issues like gay rights and freedom of speech. Maybe so, but I think it is a price worth paying. As the communities become more involved in mainstream politics, they will come to understand the need for compromise and building coalitions. And they will feel listened too. They may also come to understand that liberal views are held with passion and principle, and are not merely the signs of decadent society. In the long run this is good.

Meanwhile yesterday also saw a local by election in Southfields, in Wandsworth. There was no earthquake here. The Tories held off a strong Labour campaign, taking nearly half the votes cast. The Lib Dems, who did not put in a major effort, were pushed back to under 6%, but beat the Greens (under 3%) – something that did not usually happen in Wandsworth before 2010. Unlike last year’s Thamesfield by election, when the Lib Dems fought at full throttle to get 17%, Labour can’t blame their defeat on them this time. The Tory one-party state moves on unruffled. There was a Muslim independent candidate, but he made little impact, with 38 votes (1%), two less than UKIP.

Minimum unit pricing on alcohol – it’s all about cider

Perhaps to distract attention from the poor publicity surrounding last week’s budget (notwithstanding my general endorsement of it…), our Prime Minister David Cameron has moved the policy circus onto the pricing of alcoholic drinks. A rather unedifying debate has ensued. It’s worth trying to unpack this a bit.

The proposal is to force a minimum retail price on alcohol of 40p per unit. The argument put forward in its support is highly paternalistic, in the way of modern British policy making (or “evidence-based” in the fashionable euphemism). Alcoholic drinks are available very cheaply, especially from supermarkets. It is thought that this has encouraged excessive drinking. Although overall alcohol consumption is on the decrease there really does seem to be a problem with excessive drinking. The most conspicuous problem is “binge drinking” by young people, which tends to disfigure many city centres at night. There may also be a much less visible problem with middle class drinkers overdoing a daily dose of wine/gin-and-tonic. This all comes out in increasing problems with liver disease. It was reported by the NHS last week that deaths from liver disease in England have increased by 25% over the last decade, although alcohol consumption is only one factor, alongside obesity and hepatitis C.

It is, of course, the binge drinking that is creating the political pressure, upsetting as it this is to middle class and elderly voters. Most of the noise and antisocial behaviour occurs in the region of pubs and bars where the prices aren’t particularly low – but the story goes that the youths get themselves tanked up on the cheap stuff first. There may also be a problem with “happy hour” promotions by the bars to get people started. The Home Office strategy paper launched by Mr Cameron (as reported by the BBC) makes the rather extravagant claim that the policy would mean 25,000 fewer crimes a year and 900 fewer deaths “by the end of the decade” (in a classic use of confusing statistics – I think this means 100 or so fewer deaths per year, or 1% of liver deaths).

For paternalists it’s a simple matter of costs and benefits. The gains from reduced crime and health problems are set against the hardships and political costs for people who pay extra without indulging in antisocial behaviour. The last government baulked. Mr Cameron, it seems, is more determined to “do something”.

But liberals have a lot more angst about this. People should be allowed to make their own choices as far as they don’t harm others. Of course excessive alcohol consumption is antisocial – but there are two counterarguments. First a lot (most?) drinking is not antisocial. Second, taxes on alcohol are quite steep anyway, and surely cover all the extra costs, and more. And there is a rather nasty class twist. Few middle class drinkers will be affected, including the antisocial ones, but those less well off will be, including those that are not antisocial.

And that is about far as the public debate that I have seen gets. But it isn’t so simple. The big question to ask is how much profit are the sellers of drinks making? This matters, because if businesses are loss-leading on booze sales we need to ask why. Supermarkets aren’t charities. If they are losing money on booze then they are making it up somewhere else. I am deeply uncomfortable about this, and it undermines the argument that raising the price is an attack on the poor. People may be underpaying on the booze, but at the expense of overpaying on other goods. It may of course all be part of a careful segmentation strategy whereby middle class customers pay more for their supermarket goods than poorer ones, without the need for varying individual product prices. Even so, the idea that for poorer supermarket customers to benefit they have to by lots of drink has rather difficult implications. The issue of bars offering discounted prices in happy hours seems to be more straightforward: to entice customers into a state where their judgement is impaired and they will accept overpriced drinks later. This again will cause even liberals some angst.

So will a 40p per unit price just stop pernicious loss-leading, without impinging much on overall living costs? Retailers must pay excise duty (and VAT on top) regardless of the price they charge the customer. By my calculations this works out at about 20p per unit for beer, 25p for wine and 27p for spirits – but a mere 11.5p for ordinary strength cider (5%). Leaving aside the special case of cider that leaves 13p to 20p (or 11p to 17p allowing for VAT) to pay for the product itself and make a margin. That looks quite tight, but maybe feasible for beer at least.

But the case of cider is quite striking. Duty is much lower (especially for strengths under 7.5%), and the impact of the 40p price could be quite significant. In 2010 the dying Labour government increased the tax on cider – but this created such a stink that the change was lost when the election was called.

And that, I think, is the key. The government thinks that cider is unhealthily cheap, but it is afraid of tackling the problem directly by harmonising the duty with that charged for beer. So this minimum pricing is an alternative. The extra cost to the customer goes to retailers and manufacturers rather than to the state – but maybe that can be rectified at a later date. It will be easier to put up duty on cider if the minimum pricing policy is in place.

But liberals are right to be sceptical. 40p is a bit high to simply prevent pernicious loss-leading. And wouldn’t it be more honest to tackle cider duty head-on?