Politics UK – Page 53 – thinking liberal

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.

The Tories are living up to their “Stupid Party” label.

As I posted yesterday, the recent local elections were bad for the Liberal Democrats, the party for whom I am an activist. But if there’s any cheer to be had, it comes from looking at the behaviour of the other parties.

Labour have reason to be cheerful, but the results contain a trap. Their party has lurched to the left, going back on Tony Blair’s legacy. They want more spending, and more taxes to pay for them. This is a good line for motivating activists, many incandescent over the Coalition’s cuts, which they consider to be unnecessary and ideologically motivated. This is great for getting the turnout up in local elections. But it’s not enough for them to win in 2015 – and the weakness was evident in their failure to capture the mayoralty in an essentially Labour London. Liberal Democrats must hope that they keep reading their Polly Toynbee and let their anger trump their strategic sense.

But what is even more remarkable is the response of the Tories, to judge from the weekend’s press and backbenchers popping up on the radio. It echoes my advice yesterday to the Lib Dems in London yesterday – to shore up their core vote. They think the party will fail because it isn’t right wing enough, and that they should go back to being “the Nasty Party” to fit the nation’s sour mood. This is sheer panic, and befits the party’s other nickname: “the Stupid Party”.

They do have a problem, and one that I predicted over a year ago before the referendum on the Alternative Vote. There is a resurgent UK Independence Party (UKIP) chipping away at their core vote, while the Lib Dems find it easier to convince soft Tories to vote for them than soft Labour voters – and so they are going after them. That is why they should have supported a Yes vote in the referendum last year – or at least not fought too hard for a No vote. The more they go after the UKIP vote, the easier the Lib Dems wll find it to pick their centrist supporters off; the more they shore up the centre, the easier it is for UKIP to continue their progress.

But the correct answer to this problem is “don’t panic”. They should endure a few difficulties in local council elections and the Euro elections in 2014 – because the real prize they are aiming for is outright victory in the General Election in 2015. In this election they should have no difficulty in crushing UKIP, by painting the real enemy as Labour and the Lib Dems. They will then use Labour’s lurch to the left to scare Lib Dem inclined voters into supporting them too, while reassuring them that they are quite nice and liberal really. It’s the latter task that is by far the trickiest, so they shouldn’t jeopardise it by lurching to the right.

David Cameron knows this perfectly well, and his continued leadership represents the party’s best chance of outright victory in 2015. But if the right openly rebels, the party will both make itself look divided, and retoxify the Tory brand. The rebels should shut up and wait for 2015 – much as the Labour left did before 1997, and indeed 2001, before that party lurched to the left with its big spending expansion of government in the 2000s.

Labour lurching to the left. The Tories to the right. This makes life a lot easier for us beleaguered Lib Dems. Please let it continue.

London elections – the Libs Dems need to rally the base

After the Lib Dems shocked the world by going into coalition with the Conservatives in 2010, plenty of commentators threatened the party with oblivion. At first glance this week’s results in the local and London elections show this prediction to be comfortably on course. In fact the Lib Dem vote held up well in the party’s strongholds (including in their vilified leader Nick Clegg’s Sheffield constituency), so extinction is not beckoning. Some very challenging questions are being posed for the party’s leaders and campaigners, though, especially here in London.

The London results look particularly bad. Brian Paddick, the mayoral candidate, managed a deposit-losing 4%, and was behind Jenny Jones of the Green party, and only just beat the independent Siobhan Benita, advocating a new runway for Heathrow. In the Assembly the party mustered a mere 6.8%, leaving it with just two Assembly seats: the peerless Caroline Pidgeon and newcomer Stephen Knight. These results represent a big fall in the results achieved in 2008, which was already a very bad year for the party.

But it gets worse. This time the party had the best funded and best organised campaign it had ever put up across the capital. The results acheived did not match the Greens, who who were barely funded and organised at all, having a much smaller base of activists and donors to draw from. It wasn’t that the Greens did particularly well – the Lib Dems did very badly. A repeat performance would mean that the party will lose its London MEP at the Euro elections in 2014.

The London elections are an awkward challenge for the party. It’s entire campaigning wisdom is based on going after floating voters to win first past the post elections. This already makes the party vulnerable in proportional representation systems, such as that used for the Assembly. And yet the attention of the electorate is drawn to the parallel mayoral race (rightly, in view of the office’s powers), which is (near enough) first past the post. This draws the party in a floating voter campaign for Mayor, that fails either to attract floating voters (because the party is not amongst the front runners) or to rally the core vote, the “base” in political jargon. The party gave a lot of prominence to tough-sounding slogans like “you break, you fix” to reassure the floaters about the party’s stance on crime, but this left more liberal voters (like me) cold. The party’s literature consisted of a lot of tabloid newspapers which neither worked as sources of local news to draw people in, nor to rally wavering loyalists.

And the base seems to be disappearing. Surely metropolitan London is the most liberal part of the country? And yet the overall results must be amongst the worst in the country.

So the lesson for the party must be to spend more time rallying the base. It needs to be spell out what the party stands for, liberal values above all, and less defensively justifying the coalition, and not trying to appeal floating voters in areas where the party isn’t strong anyway. The requires a completely new mindset from the party’s campaigners. Even when they promise to do this (I remember last time’s Euros particularly well), they tend to get the same old rubbishy tabloids, positioned messages, and so so on. The next Euros will be an important test. I’m not holding my breath.

That applies especially to London. The party still needs to hang on to its MPs and councils, which takes relentless floating voter persuasion – but the party surely can’t afford to disappear into nothingness outside its bastions. The party needs activists, donors and the moral authority that come with a genuine nationwide base.

The Coalition – there’s a narrative, but the right doesn’t like it. Time for Lib Dems to make the case.

Since the budget in March, the British Conservative-Lib Dem Coalition government has been having a rough ride in the media. This is showing up in its poll ratings, with Labour romping ahead. Mostly this is Westminster bubble nonsense, but Liberal Democrats, in particular, need to ponder what is happening – and do more to lift the government’s PR performance.

The list of issues that the government is said to have handled badly grows. It started with taxing pensioners, takeaway food, and charitable donations, which arose from the Budget. This week the issues have been queues at Immigration at airports, poor GDP figures for the British economy, and revelations that the Culture Secretary, Jeremy Hunt, was a bit to close to Rupert Murdoch’s News International media group.

Mostly these are either non-stories stoked up by the opposition, or quite sensible policy decisions that are attracting opposition from vested interests. The Jeremy Hunt problem is the only one that looks a bit more serious, but it is part of a much more complex story that sits rather outside the government’s main purpose. The GDP figures do relate to an important issue, the economy, but were of little significance in their own right, and told us nothing that was actually new.

So why can’t the Government get on the front foot and just swat this stuff away? There is some nostalgia for “big hitter” government spokesmen that previous governments have been able to trot out to do just that: Labour’s John Reid, or the Conservatives’ Ken Clarke (in another era – he’s older and off-message now). There was a rather interesting discussion on BBC Radio 4 yesterday morning on this, featuring Mr Reid and Norman Tebbit, who has also performed such a role. These spokesmen blamed the government’s lack of narrative. Lord Tebbit scoffed at Lords Reform and gay marriage as ideas too small to make a compelling story. Both added that the fact that the government is a coalition made this very difficult. These creatures of the old politics would say that of course, but it’s worth trying to tackle the argument rather than the man on this one.

First there’s the rather complacent point that all governments suffer from mid-term blues, and can get bogged with apparently trivial news issues at round about this time. It’s not clear that the big hitters helped much this. Things get better in the natural cycle.

Secondly the lack of a clear narrative is hardly new either. Mrs Thatcher was clear enough – though that did not stop very poor mid-term poll ratings. And as for John Major, Tony Blair, and Gordon Brown – none of these governments had a clear mission, beyond being competent managers. Mr Major was lampooned for his “cones hotline” as being his biggest idea – beside which gay marriage and House of Lords are clearly a big deal. But Mr Blair’s main thrust in the 1990s boiled down to “the same, only different”. He was elected in 1997 with a huge majority and little mandate beyond introducing devolution in Scotland and Wales, ideas that were evidently forced on him from outside. Mr Brown’s lack of clear narrative is the stuff of legend. This is what modern managerial politics has become.

But actually there IS a perfectly good narrative, if only you look for it. First is the economy: Labour left a horrible mess, which went beyond trashed government finances to a highly unbalanced economy. The Labour economy was built on massively unsustainable levels of government expenditure, both for services and benefits. Painful though this is, they have to be cut back, and there’s never a good time to do that. But it wasn’t just the government being too big, there were too many of the wrong sorts of services, and not enough things we can export. All this means that you can’t just stimulate the economy back to growth – because as soon as the stimulus ends the economy sinks back to where it was before, with even more debt. This is a long haul – let’s be thankful that unemployment is at lower levels than in earlier recessions. What is really needed to get us moving is more investment by business – but that’s difficult in the current world climate. Now just what is it in the message “this is a long haul” that do you not understand when carping about 0.2% in GDP figures that are going to be revised in a month or so’s time?

But the narrative has to go further – Lord Tebbit conceded that there was a reasonably clear narrative on the economy. And this is the Big Society/Localism/Community Politics agenda. We need to make central government smaller so that people can be empowered locally to change things to the way they want them. That means reforming the whole shape of government – including the NHS. We’ve been so addicted to the old centralist ways that it is bound to take time for these things to work themselves out and there will a lot of protest on the way. And finally we need to clean up politics. This involves tightening up the electoral system (equal constituencies) and reducing the number of MPs. It means tackling that out of control and ineffective patronage factory called the House of Lords. Of course people are squealing. There are no omelettes without broken eggs.

I could go on to bring in Europe (not the time for radical changes in the UK relationship with the economy so delicate), and immigration (this is something most of the electorate agreed on at the last election and the Lib Dems promised to grit their teeth). This narrative is surely no worse that Tony Blair’s government that got re-elected twice.

The first problem is that the government is not clearly articulating this narrative. They are doing quite well on the economy, though could do better. But not the bigger picture. The problem is lack of narrative itself, it is that the Tory right, and their friends in the press, don’t like it.

Of course there are tensions in the government – between parties and within them. But that’s not new. Mrs Thatcher had her “wets” on the Tory left. Mr Blair had both the Labour left, who felt utterly betrayed, and the brooding presence of Mr Brown to deal with.

There’s no excuse for the government not to be trying harder to present a more coherent case for what it is doing. The Prime Minister David cameron should be leading from the front here, but seems strangely absent. But I think the Liberal Democrats should be doing more too.

For the Lib Dems the position is rather intriguing. The party took a huge hit in the Coalition’s first year, while the Tory standing increased, if anything. Now it is the Tories that are taking the main pounding. But there is little comfort for the Lib Dems here. They may not be heading for the opt-predicted wipe-out. But for them to advance beyond their current reduced poll ratings, the Government as a whole has to be seen to do better. And if the party fails to advance from its current standing, it will not play a major part in the next government, even if there is a hung parliament. The first lesson for the Lib Dems from the Coalition was to show differentiation. Now they must understand that it has limits.

The House of Lords is broken – now’s a good time to fix it

The denial stage is over. Opponents of Lords reform have woken up to the Government’s plans and are mobilising. But the reform plan is far from dead.

What’s the problem with the House of Lords? It chalks up the odd success in challenging and revising legislation, without challenging the democratic credentials of the Commons. But that doesn’t mean “It ain’t broke, so don’t fix it” – the argument used against regulating the banks more tightly before the financial crisis. The fact is that the Lords is not up to its job and things are getting worse.

Appointment to the House of Lords is one way traffic. Once appointed, almost nothing short of death deprives you of the right to take part in the legislative process. This gives rise to two practical problems, never mind democratic legitimacy: size and accountability. There is no one-in-one out rule for the Lords. Political leaders regularly appoint new members to maintain political balance and to make sure that there are enough peers young and enthusiastic enough to do the hard graft – not forgetting the need to offer consolation prizes to victims of the political process. There are now over 800 – compared to the Commons which has 650, with a plan to reduce it to 500. This is a bit of a joke.

But this is less of problem than it might be because of the second issue: there is no accountability for what peers get up to after they are appointed. That means that most of them don’t do much at all. Many just turn up on the big occasions, make a speech, vote, and then clear off thinking that they have added to value to the legislative process. But the Lords’s key work is detailed revision – this is the bit people say works. Legislation that leaves the Commons often lacks detail or hasn’t been thought through. This revision doesn’t happen in set piece debates. It happens in and around committees, and requires a serious commitment of time – you need to get into the details, take evidence, and so on. That the Lords does this as much as it does is one of the wonders of the British system, but only a tiny minority of peers actually get involved in this grind, and they are self-appointed, and get little logistical support. It is distinctly ad-hoc and amateur. This creates a lot of charm, that seems to bewitch many of those that come into contact with it But it really isn’t up to the job in the increasingly complex world of legislation. And its failures are largely invisible. Poorly thought through legislation happens all the time – the last government had to introduce a new act on criminal justice almost every year, since they kept failing to nail the problems – but we blame ministers and the Commons for this, not a House of Lords that was out to lunch.

So the Lords (or whatever else we might call a revising chamber) needs to be more accountable and more professional. That means appointing professionals to it with some process of reporting back to those that appoint them, and for limited terms. That has to mean elections of some kind. This is what the Government’s reform is trying to do.

And that is all it is trying to do. Many of us would like a new constitutional settlement for the United Kingdom of Great Britain and Northern Ireland, based on a constitutional convention. The primary purpose of such a convention would be to resolve the status of the country’s constituent parts, in the face of demands from many Scots for independence. A reformed upper chamber could play a role in any such settlement. But we aren’t going to get a convention, because our political class doesn’t see the need, and the public at large seems indifferent – in England especially. Meanwhile the Lords bumbles on in its current form.

Will the proposed reform do the job? I don’t know. It’s a messy compromise because the government needs to build consensus. The important issue is to break through the untouchability of the Lords’s status, and bulldoze aside the biggest roadblock to change, which is the unelected Lords themselves. We can amend later the bits that don’t work as well as they should.

And now is a good time to take the issue on. The Government has passed most the new legislation it wanted to; it has three relatively uncluttered years to push things through. Of course the economy is in a mess, but, God help us, we don’t need our parliament to pass lots more laws to help us out. The economy is a matter for the executive, not the legislature.

Will it work? It stands a better chance than changing the voting system. Then the forces of darkness (by which I mean the conservative press and political donors) mobilised against the AV reform, making supporters look weak. The Conservative Party was united against it. This reform has the Prime Minister on board. The forces of darkness have not yet mobilised one way or the other, and may be persuaded to stay quiet, given that upping the temperature could really hurt the Tory party.

But the reform’s supporters may well need to concede a referendum in order to get it through parliament, whatever the rights and wrongs of the issue. The opinion polls suggest that such a referendum would be won comfortably – but they are near meaningless. But if the press barons are silent, and a reasonably strong coalition supports them, with important figures from across the political spectrum and and outside it, then it’s winnable. There’s all to play for.

The death of a snack bar.

Last Monday evening as I was walking to the Tube I saw a bit of a commotion on nearby Clapham Common. There was smoke and there was a fire engine. A closer look revealed that the smoke was coming from the mobile snack bar on Windmill Drive. As I cycled past it on the following morning, it was just a tangled mess. By yesterday it had gone completely.

This snack bar was something of a local institution. There would usually be a knot of people chatting nearby, with an assortment of vans, lorries, police cars and the occasional ambulance parked nearby. The people were almost all white and working class (by which I mean the real thing, and not simple “white and poor” as some rather annoying bureaucrats have taken to using the expression) and male, the occasional police woman excepted. It was a favourite spot when such workers had a few minutes to kill.

And it did nothing to challenge prejudices about white working class people. Its fare was greasy. I don’t know what its coffee was like, but I saw no espresso machine as I walked by. It all looked pretty disgusting. Which makes it very easy for nice middle class people like me to sneer at it. But working class people are a beleaguered bunch, looked down on by so many – I don’t begrudge them their moment of relaxation. Besides my relationship with disgusting food is not entirely innocent – though I find it hard to forgive disgusting coffee.

But the fare clearly wasn’t healthy, and unhealthy eating is one of the things that causes policy types angst – as demonstrated by a series of seminars Food can be the best medicine held by the Reform think tank – trying to emphasize the positive potential of diet, as well as decrying the effect of poor choices. This, along with harangues on the subject of smoking and drinking, is one of the forces which is laying siege to the working classes. In doing so, it raises some challenges to modern liberal thinking.

On the one hand liberals like to emphasise choice, freedom and empowerment – traditionally as values in their own right, more recently based on evidence that these things are key to overall wellbeing. On the other hand there is a focus on outcomes and the use of evidence based policy formulations, which tend to prescribe the same solution for everybody. If we make people free, they will choose different things. A lot of these choices will be for things we consider to be inadvisable. And it will often be that different groups of people will tend to make different choices some being less to our taste than others. But we have to accept that people are by and large responsible for the consequences of their bad choices – and not governments or wicked multinationals or anybody else. It’s an awkward fact that most people who make unhealthy choices are perfectly well informed about the consequences – studies have shown this for smoking.

The NHS gives some a particularly pernicious line of reasoning. It’s that since the NHS is funded by taxpayers in general, it gives the public the right to force people to make better choices (or at least to bully people) so as to reduce NHS costs. But the unhealthy pay their taxes too – and if they drink and smoke, they pay a pretty decent whack too (tobacco tax revenues easily pay for the additional NHS costs associated with smoking, for example). Perhaps hot pasties and sausage rolls should not be exempt from VAT, but when all’s said and done I think we tax unhealthy lifestyles enough.

We (by which I mean the policymaking middle class elite) should just lighten up. Who knows, if we respected the choices people make with better grace, it might just help people to gain that extra confidence to take control of their lives and make better choices.

So I hope that unhealthy snack bar on Windmill Drive returns, as it has after a previous fire.

Can our bankers learn from the charities?

My applause for last month’s Budget on this blog looks more out of touch by the day. The Budget has led to a string of PR difficulties, for which the government seemed ill-prepared. First it was the age-related allowances, then hot takeaway food, and now it is charitable giving. Perhaps the back-and-forth of coalition deal making leaves the PR behind. But what the last week shows above all is just how skilled the charitable sector is at public relations and lobbying. There is quite a bit of fuss about corporate lobbying in politics, but businesses look flat-footed by comparison.

The wave of protest from charities over the government’s proposed minimum tax on income is building into an overwhelming tsunami. How have they achieved this, over a relatively obscure rule that affects only a few people?

Inevitably, truth is one of the first casualties in a battle like this. It’s not that anybody is putting out lies, it’s that a concentrated smokescreen has been built up, so that few people have any idea what is really going on. There are a couple of fine examples from last week’s radio coverage on the BBC. One was a survey conducted by one of the lobbyists of charity chief executives asking them whether their charity might be seriously affected. This was a bit like asking them “Do you want tax relief on charity giving to be restricted?” – not surprisingly nearly 90% said that they were. This 90% figure quickly did the rounds to give the impression that 90% of charities would be in serious trouble. In another case one senior person from one of the lobbies was asked how much charities would lose; she replied correctly that this was very difficult to estimate, and then proceeded to give a rather large and rather precise estimate – which quickly got quoted all over the place. Very quickly the impression has been raised that charities’ income is going to be affected drastically, with the result that all sorts help to the poor and needy was going to get cut back. Since then a steady stream of charity, arts and university types have piped in to add to the overall impression of impending disaster.

Meanwhile the government response has been a bit weak. Some Customs and Revenue types were allowed to air their prejudice that most charities were tax dodges – but this idea was no more based on substance than the charities’ claims, and didn’t really help.

And as for the truth, I await some rather calmer analysis from the rather limited number of purveyors of calm, like The Economist. For now what interests me is the pattern of the PR effort. The basic idea is common enough from ordinary business PR. A new regulation or tax is proposed that might force your business to change the way it does things. So you scream murder and claim that the change will bring an end life as we know it. Sometimes these claims may be grounded, but most often they are not; the thing is not to think about it too hard. Anti-pollution regulations offer an instructive example: these are usually opposed vehemently by the industries that they affect; and yet the air and water gets cleaner while the economy continues to prosper (the most widely quoted example of egregious protest was against sulphur dioxide pollution, in the 1980s, I think). The general idea is that policy is developed through an adversarial process, like the British legal system. Make your case as effectively as possible: the truth is somebody else’s concern.

How have the charities been so effective? First of all they succeed in creating the impression that what they do is for the benefit of poor and needy, both here and abroad. The huge amount of marketing expenditure by big charities like Oxfam and Cancer Research, plus all those public sponsorship campaigns involving celebrities (like the recent Sports aid) help here. Of course the picture is more complex than this: a lot of charities are about providing elitist education and entertainment (i.e. art) and some are downright nefarious extensions of rich egos.

Given this complex picture, the key thing is to keep solid and keep the message simple. The supporters of poverty charities have not fallen into the trap of criticising their elitist fellow travellers – as this would fatally complicate the message, as well as opening a can of worms. A second important point is timing. The charities waited for the fuss over age-related allowances and Cornish pasties to calm down, before launching an onslaught. And that onslaught looked well coordinated. Whether or not their was much coordination I don’t know – but all that’s really necessary is to play follow-my-leader, which needs very little pre-planning.

Positive image for a few key leaders and low profile from the rest; simple oppositional messages; solidarity. Can that PR disaster that is the British banking industry learn from this? Banking, after all, has done more to alleviate human poverty than the charities ever will, through easing the path of trade and investment, the two real enemies of poverty.

I don’t think so either. They don’t care enough about their image, and are too rivalrous to do the solidarity bit properly. Better stick to their usual strategy: passive resistance – the slow, patient picking apart and undermining of reform when the politicians are looking elsewhere.

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?

The budget – the coalition at its best

George Osborne is gradually cementing a reputation as an effective Chancellor of the Exchequer and skilful politician. He certainly understands coalition politics and how to play for the longer term. Yesterday’s was a very interesting budget.

There a two schools of thought about coalition governments. One may be characterised as “lowest common denominator”: all the bold ideas are knocked out and we are left with a few messy compromises that lack any kind of coherence. The second is the “natural selection of ideas” in which the ideas of the various parties have to compete on their merits and the weak ones don’t survive, the sum being better than any party would produce individually. Britain’s first post-War coalition, formed by politicians unfamiliar with how coalitions work, has seen both types of policy formation at work.

The coalition started well. The initial policy programme was full of bold ideas, while dotty ones (cutting inheritance tax for example) did not make the grade. But things soon degenerated, as activists on both sides sensed betrayal. This was especially evident on the NHS, where we are left with a messy compromise that is almost certainly worse than either party would have produced on its own. But the 2012 budget shows a reversion to the “natural selection” model, for which credit must go to both George Osborne and the Lib Dem leader Nick Clegg.

One of the interesting features of the budget has been the disappearance of budget “purdah” – the absolute secrecy surrounding budget proposals. Mr Clegg made the early running in the media game with his bid for an acceleration of increases to personal allowances. But Mr Osborne clearly understood this to be an opportunity rather than a threat – in this case to reverse the top rate of income tax of 50%, which until a month or so ago looked to be entirely off the agenda. A few years ago the Lib Dems had a big conference battle over this top rate (before Labour introduced it, as it happens) and rejected the 50% – so there was evidently some Lib Dem ambiguity over the tax, which Mr Osborne was able to exploit. And indeed world thinking has long since turned against such high marginal rates, even for the very rich.

Meanwhile, weaker Lib Dem ideas about how to tax the rich more efficiently did not make the cut. This applied to the Mansion Tax on high valued property. Such an idea (though based on land rather than total property value) appeals to theoretical economists, but has two major practical problems. First is that property is not the same as cash, and that owners of such valuable properties may struggle to pay, and hence create a fuss. The wider the scope of tax, the more of a problem this is. The second problem is that it has to be based on a theoretical valuation rather than hard and fast fact. This is one of those things that becomes more of a problem the more that you think about it. Property (or anything else) is worth what you persuade somebody else to pay for it, which depends on many factors unique to the individuals taking part in the transaction and the time they make it. A host of practical issues follow. The eventual compromise of an increase in stamp duty for properties over £2 million, combined with a clampdown on stamp duty avoidance, looks like a much better idea to me.

The idea of limiting allowances to higher income people so that effective tax is no less than 25%, the “Tycoon Tax” – attributed to Mr Clegg in the proposal process, though not coming out of any Lib Dem official policy – also looks like a very sensible proposal – and this made the cut.

Mr Osborne was also able to push through further cuts to the main Corporation Tax rate. I have some reservations about this: companies are sitting on too much cash – if they don’t invest it, then the best way of getting this wealth back into the economy is to tax it. But there is logic to it to help retain footloose international capital, something that the country has been quite good at, but needs to stay in the game. And it’s not as generous as it looks, since allowances have been kept in check. In fact the big thing UK companies have been asking for is more generous capital allowances – but the footloose companies aren’t so bothered about this, and the Chancellor did not budge. I’m not sure that capital allowances have been set at the most efficient level – but I do know that business leaders always ask for too much, and the game is often more about tax avoidance than real investment.

One idea was not leaked in advance. This was the phasing out of the age-related personal allowances. This “granny tax” has attracted most of the press attention this morning, with howls of protest that the Labour opposition are seeking to exploit. Yet the reasoning behind this change is solid enough. Pensioners have done pretty well under the reforms already implemented by the government, and this is a nasty, complicated piece of work. Although it is true that many pensioners have been punished by the general reduction in the value of savings since the crisis began, this allowance is a bad way to deal with the problem. What is actually needed is for the economy to return to health, so that we can get back to a real interest rate of about 2% or so from its current negative value. It was brave to take on the pensioner lobbies like this, and Messrs Osborne and Clegg (to say nothing of the PM David Cameron) deserve credit. Critics suggest it may go down as a fiasco like Gordon Brown’s cut of the 10% tax band, or the negligible increase to state pensions the last government implemented when inflation appeared to be very low. Both were politically very damaging, to Mr Brown and to Tony Blair respectively. But this policy does not create cash losers (denying benefits to those who haven’t got them yet – rather than taking them away from those that have). It may even mark a turning point in the battle of the generations, as younger voters start to appreciate just how generous the state is to pensioners, and shift their ire away from the much less costly immigrants and benefit claimants.

The budget does nothing for macro-economists. There is no bold, imperial stimulus to “get the economy moving”. But nobody was expecting that. Overall this budget is a credit to the Coalition government.