Economy

Monday

James Plunkett

Are we facing an American nightmare?

With the Chancellor’s autumn statement due next Tuesday, we’re all talking about growth. The ECB and Bank of England now say the UK economy is set to grow at less than half the rate the OBR forecast back in March. That makes it all but certain that George Osborne will announce dramatic downward revisions to UK forecasts when he stands up in parliament next week. But before all the fighting about Plan As and Bs reaches fever pitch, it’s worth asking what the next decade looked like under the previous, more optimistic growth projections. The answer isn’t pretty and it helps highlight one major question that’s rarely asked in our

Saturday

Fraser Nelson

Nigel Lawson versus Mervyn King

In this week’s Spectator we have a piece from one of our former editors, Nigel Lawson, where he confronts this idea that the West’s woes can be blamed on a new bogeyman called ‘global imbalances’. This is fast becoming the received wisdom, something that even the bankers can point to and blame. It gets everyone off the hook, and takes attention away from the basic failure to regulate the supply of money and quality of investments. CoffeeHousers may be familiar with the argument by now. Time and time again, we hear central bankers shrug their shoulders and say something like: ‘Don’t blame us central bankers and financial policymakers for the

Peter Hoskin

Assessing the sick

Should GPs determine whether people on long-term sick leave are too ill to work? Perhaps not, according to the draft copy of a government-commissioned review into sickness absence. It proposes setting up a new, separate and independent body to assess those on long-term sick leave, on the grounds that doctors have no incentive — nor, perhaps, the specific knowledge — to prod and coax them back towards employment. The new service, it is said, would advise sick leavers, and their employers, about just what they can and can’t manage. If the government does introduce this, it will be another sign of their intent to untangle the problems with sickness benefits.

Friday

Jonathan Jones

200,000 extra working pensioners

Despite – or perhaps because of – the recession, pensioner employment has increased dramtically over the past few years. In his Telegraph column today, Fraser remarks on this important but largely ignored trend in Britain’s workforce. ‘A million jobs have been lost since the Great Recession began’, he says, ‘but the number of pension-aged people in work has increased by 200,000.’ Here’s that phenomenom in graph form: Why has this happened? Fraser puts his finger on one important factor: ‘Crucially, they pay less tax. A pensioner manning the tills in Tesco will take home 12 per cent more than a working-age colleague on the same salary.’ You see, employees over 65 don’t

Jonathan Jones

From the archives: Fall of the Rock

Yesterday, George Osborne announced the sale of Northern Rock to Virgin Money. Here, to mark the occasion, is the piece Allister Heath wrote on the bailout of the bank in 2007: Northern Rock: morally hazardous, Allister Heath, 29 September 2007 First we heard about ‘sub-prime mortgages’; then it was ‘collateralised debt obligations’; now it’s the turn of ‘moral hazard’ to appear on the Ten O’Clock News. Jolted out of prosperous complacency by market turmoil, the public has started to care about economics: strange jargon and obscure concepts previously familiar only to investment bankers are going mainstream.    The best way to understand moral hazard is to reflect on how taking

James Forsyth James Forsyth

Cameron and Merkel: all smiles but no progress

David Cameron and Angela Merkel were clearly keen to show that, whatever the tensions over the role of the European Central Bank, they still get on. I lost count of the number of times in their press conference that they used the word ‘good’ to characterise their relationship and their discussions. But there did not appear to have been any actual progress on how to deal with the current crisis. Certainly, there was no softening of Germany’s opposition to using the ECB as the backstop for the Eurozone. Merkel conceded that she had raised a European-only financial transactions tax with the Prime Minister but that, unsurprisingly, no progress had been

Thursday

Mark Bathgate

Some context for the ongoing growth debate

Listening to Ed Miliband’s speech today, you’d be left with the impression that the UK is suffering a huge decline in government spending this year, and that this is to blame for most of our economic ills. The facts are a little different, as the below chart shows. The European Commission estimates that the UK is likely to have the second largest growth in government spending of any of the EU’s 27 members this year, clocking in at a robust 1.5 per cent increase for the year. Yet this has done nothing to help the UK’s relative growth performance. The UK is forecast to be the fifth slowest growing economy

Ruth Porter

Miliband’s ‘responsible capitalism’ requires deregulation

Despite yesterday’s gloomy unemployment figures there is, it turns out, good news for the government buried in current labour patterns: the total number of hours worked in the last three months has risen by three million. The bad news is that employers are currently filling this demand by getting current employees to work longer hours (average weekly hours over this time period rose by 0.3 to 31.5), rather than taking on new workers. Presumably this is because it is so much cheaper, and less risky, to do so.   This should come as an encouragement to the government, as they search for ways to bring about growth. Scrapping or regionalising

Jonathan Jones

European champions at last

The UK can now claim to be No.1 in Europe… for inflation. Further to Tuesday’s figures, the EU has now updated its own spreadsheet. And this is what it shows: We’ve been hovering around the top for a year or so, but now we’ve finally touched the summit. Let’s see if we start to plummet down again, as the Bank of England predicts.

Peter Hoskin

Osborne sells off the Rock

‘Sir Richard Branson set to buy Northern Rock.’ So read the headlines in November 2007 — and now they’re finally true. It has been announced this morning that Virgin Money is going stump up £747 million to return the bank to the private sector. This, says George Osborne, ‘is an important first step in getting the British taxpayer out of the business of owning banks.’ By the looks of it, Virgin will be paying less than they would have done four years ago, but they have also had to make various assurances about how they will handle the Rock. When Branson’s bid failed in 2007, and the bank was nationalised,

Wednesday

James Forsyth

Miliband finds his niche

I spent this morning with Ed Miliband on a trip to a factory in Sunderland. Miliband was visiting the Liebherr plant there, which manufactures cranes. The centerpiece of the visit was a Q&A with the workforce. Now, a factory in the North East is not the toughest venue for a Labour leader to play. But Miliband appeared far more comfortable in this setting than he does when giving a traditional speech from behind a podium.   Unlike Miliband’s Q&A at Labour conference, the questions were not softballs or traditional left-wing fare. One set of three questions were: why don’t we close the borders, bring back national service and do more

Sunday

Daniel Korski

The spectre of populism

Across Europe, the bien pensant are worried. They fear that the Eurocrisis could lead to the rise of populism — whatever that means — and even extremism. The spectre of the 1930s stalks a lot of discussions, as the FT’s Gideon Rachman found out at a lunch with a hedge fund manager who thought the break-up of the Euro would lead to “the next Great Depression and a resurgence of Nazism”. But is there real cause for fear or is this a matter of people projecting a particular history onto the future? Economic dislocation has in the past led to populism but not uniformly, or at least not in numbers

Friday

Peter Hoskin

Where does Cameron stand on 50p now?

One letter, that’s all it takes. After 38 City types wrote a letter to the Daily Telegraph this morning, urging George Osborne to drop the 50p rate of income tax, Westminster types have been chirruping on about it ever since. All three party leaders have had their say, except, so far as I can tell, Ed Miliband — although Ed Balls stood in for him anyway. Of all the responses, it is David Cameron’s that is the most noteworthy and perhaps even surprising. Speaking about deficit reduction on the Jeremy Vine Show earlier, the PM was unequivocal: ‘We have to try and do this in a way that is fair

James Forsyth James Forsyth

How European sovereign debt became the new sub-prime

The New York Times has a great piece today on how banks became so exposed to the sovereign debt of European countries with a history of defaulting. Here’s the nub of the argument: “How European sovereign debt became the new subprime is a story with many culprits, including governments that borrowed beyond their means, regulators who permitted banks to treat the bonds as risk-free and investors who for too long did not make much of a distinction between the bonds of troubled economies like Greece and Italy and those issued by the rock-solid Germany. Banks had further incentive to overlook the perils of individual euro zone countries because of the

Daniel Korski

Britain: a European pariah?

The British government has worked hard to counteract any perception that it is being marginalised in Europe. Before the election, the Tory party went around to different capitals to assuage any fears that may have existed. The message: despite the Conservative departure from the EPP, and their anti-Lisbon Treaty remonstrations, they would not be a problem. They would be businesslike. Once in power, David Cameron unleashed his charm, showcased his polyglot Deputy Prime Minister and sent William Hague out to make everyone feel that they had a partner not a pariah in London. Further, the energetic and amiable David Lidington replaced the combative Mark Francois as Europe Minister. Links with

Fraser Nelson Fraser Nelson

Britain: a safe haven?

The Bond Bubble is growing even larger over Britain, pushing 10-year yields down to 2.1 per cent. The FT splashes on it this morning, and uses the “safe haven” line, which is also being advocated by the Conservatives. Understandably. If I were George Osborne, I’d spin this as a standing ovation from the markets for my deficit reduction plan. In fact, it’s just a grim reflection of the fact that Britain’s low-growth, high-debt economy is less unattractive than Italy’s. But it does have another side effect, that people won’t quite admit to. Osborne’s cost of borrowing is going down (partly due to expectations of more QE) and since the Budget,

Tuesday

James Forsyth

Osborne gets frank with Europe

George Osborne’s attack on the European Commission and his fellow finance ministers, for wasting time talking about a financial transactions tax when it is not going to happen, is quite a significant moment. It marks an attempt by Britain to knock this idea, which would hit this country far harder than anywhere else in Europe, off the agenda.   The Treasury, the Foreign Office and Number 10 have become increasingly exasperated about how this issue keeps coming up again and again. This feeling has been intensified by the fact that this issue is being discussed even as the crisis in the Eurozone is worsening by the hour.   Osborne’s remarks

Matt Cavanagh

‘Guest worker’ plan would hurt the economy

The economists who advise the Home Office on immigration policy have come out against a plan to turn economic migrants into ‘guest workers’. Last week, the Migration Advisory Committee (MAC) published their response to the government’s proposals on restricting settlement rights for skilled workers from outside the EU. With all the debate around David Cameron’s pledge to cut net immigration to the ‘tens of thousands’, many of the detailed policies for achieving that overall aim have been somewhat neglected. It should be clear, however, that these particular proposals would represent a very significant change, with serious implications for employers. While a few exceptional migrant workers would be invited to stay,

Clarissa Tan

Who will bail out the EU bailout fund?

While all eyes are fixed on Italy’s ever-increasing borrowing rates, a far larger problem may well be emerging. The EU bailout fund, set up to help countries who can’t borrow, may itself have trouble borrowing very soon. A sale this morning of 10-year bonds by the European Financial Stability Facility (EFSF) had a very muted response, barely bringing in the €3 billion it was meant to. This despite the fact that the offer was priced at a much more enticing yield, some 90 basis points (or 0.9 percentage points in non-market lingo) above a previous sale. Mind you, that’s better than last week’s sale, which had to be postponed due

Monday

Clarissa Tan

For Sarkozy, AAA stands for austerity

Nicolas Sarkozy has served up his second austerity budget in as many months, in a bid to retain France’s AAA credit rating. The president wants to cling on to those three precious letters at all costs. There are elections in six months’ time and he isn’t doing well in the polls. Austerité Part Deux consists of tax increases and spending cuts totalling €7 billion, the government announced today. There will be increases in VAT and levies on large corporations, as well as curbs on increases in welfare spending. This savings programme follows the €11 billion one announced in August. Sarko’s bid to get re-elected in 2012 is in disarray. According