Ditch the Debt….Target

MORNING BRIEFING – By Benedict Brogan (Daily Telegraph).

While the Treasury is yet to resort to Plan B, it appears to be less and less certain about achieving Plan A. Forthcoming figures from the Office of Budget Responsibility will show the coalition has little chance of presiding over a fall in debt levels by the 2015 election, leading many papers to speculate that George will abandon that target sooner rather than later.

There is an emerging sense that George is ready to dump the debt target in the autumn statement on December 5th. There seems to be a softening up exercise underway, notably in the leaders of the Times, which usually channel the Chancellor’s views.

Many of us have argued for some time that extraordinary circumstances require extraordinary measures, and it now appears that the OBR will give Mr Osborne the excuse he needs to widen his efforts. No doubt he will have mind to the risks of having accusations of u-turns added to the brickbats that will fall on him when he gives up on the debt target.

It is not as though he will have a great deal of choice. The Guardian reports that the situation has deteriorated markedly since the OBR’s last report in March:

“In March, the OBR predicted the government would narrowly meet its debt target, but since then borrowing figures have been substantially higher than forecast. City experts are predicting the Treasury will borrow £48bn more than forecast in 2015-16. The government’s debt ratio would rise that year to 90% from 85.2% the previous year.”

Meanwhile, The Times (£) reports that Dave has been distinctly unhelpful when it comes to making cuts which might allow George to meet the target, telling the Treasury to keep its hands off a large part of the welfare budget:

“David Cameron is resisting pressure from all sides to cut benefits for wealthy pensioners as part of savings of up to £10bn.

“Iain Duncan Smith, the Work and Pensions Secretary, and Nick Clegg are among those pressing the Prime Minister to raid the winter fuel payments, free TV licences and bus passes of richer recipients as a key part of future welfare cuts.”

Nevertheless, the FT (£) has some cheer for the Treasury’s number crunchers – projections based on last year’s census forecast that the elderly will die younger than previously thought.

It’s a sign of the times when that’s the good news.

BANK OF VINCE IN TROUBLE

After being announced to a fanfare on yesterday’s Today programme, Vince Cable’s state-backed business bank is already under heavy fire. The Times reports that Vince’s big idea is probably illegal under EU competition rules and under-cooked in several other areas:

“The Government has not even agreed to seek a banking licence from the Financial Services Authority. The Times understands that the FSA has not been approached about the move, which is likely to take months, if not years.”

The impression given of factions in the Treasury briefing against Vince is reinforced by today’s Independent story that the pair are on collision course:

“The Liberal Democrat Business Secretary said yesterday that the scheme “may well” involve state lending. But when the Chancellor announced the “small-business bank” last week, the Treasury made clear it would not have a budget to channel money to firms and would merely make existing government schemes to help business more accessible.”

Reaction to the plan set out yesterday has largely been hostile. The Independent points out that “a bank without funds is no bank at all.” The FT (£) says that “Cable ties himself in knots to dodge dirigisme charge.” Our leader is also scathing:

“Asking Whitehall to pick winners did not work in the Seventies and it will not work now – as the Regional Growth Fund debacle has demonstrated. The Government already owns a substantial chunk of the banking system. Wouldn’t it make more sense for it to use its heft as shareholder to encourage the banks to make business finance more readily available?”

Pleasing to see joined-up government is alive and well.

BRUSSELS IN BANKING POWER GRAB

It is an important day in Brussels with the German constitutional court delivering its verdict on the bail-out for southern Europe at 10 am British time. In the meantime, the prospect of yet another row between Britain and the EU over the City is brewing.

Our Business splash this morning is Bruno Waterfield’s report that Britain’s banks will be placed under the authority of a panel of European officials under proposals for a European banking union. The panel would be able to force the closure or bail-out of British banks, even against their wishes. Other powers are equally far-reaching, as we report:

“Under the proposals, the newly “independent panel” of officials would have full and binding powers to impose EU law and to arbitrate disagreements between Britain and the eurozone over how the City is regulated. The proposals will “confer full decision-making powers to the independent panel on breaches of EU law and settlement of disagreements”, the plans outline.

“Under current rules the EBA panel’s decisions are proposed for “final adoption” only after support from a majority of all 27 EU countries. But under the new EC proposal this procedure is reversed. If agreed, the panel’s decisions will be implemented automatically unless a specially constructed majority vote against it, which must include three countries that are inside the “banking union” and three that are outside it. It means that in a dispute Britain would have to win over members of the eurozone bloc.”

The FT (£) also lead on the story, quoting a Treasury spokesman offering reassurance that any reforms will include safeguards for the City of London.

Bankers are still not popular, but then again, nor is the EU. This has all the makings of a toxic issue for the Treasury whichever way they turn.

TORY FEUDS PART 94

Still, there’s nothing like a bust-up with the EU to bring the Conservative Party together, and Dave might be needing exactly that if today’s ‘Tories at war’ stories continue. Nadine Dorries, no stranger to controversy, announced yesterday that the Conservatives needed a “kill Cameron strategy”. Fortunately a Number 10 source was on hand to tell the Guardian:

“Nadine Dorries has made clear that she does not think the prime minister should be murdered.”

Well that’s alright then. Dorries was speaking at the launch of Conservative Voice. The launch did not quite catch fire. The impression is that the group’s failure to pull their punches about the leadership may have damaged their credibility in the party.

Meanwhile the ghost of Bo-Jo continues to stalk Cam. A poll in today’s Sun shows that the Conservatives would gain an instant six points in the polls were they to swap their leader for London’s mayor. The poll sees Bo-Jo only one point behind Ed Miliband, as opposed to the 11 point gap seen under Dave.

The rebels can dream all they like, it isn’t going to happen, as I write in my column in today’s Telegraph:

“It would take the most mind-boggling set of circumstances for the Conservative Party to mount a challenge against its leader, let alone for it to be successful. Even if 46 anonymous volunteers could be found – and yes, the number of Tories who have it in for Dave is growing – it would require a collective leaving of the senses.

“I know that in this game we are supposed always to layer in a few caveats to avoid future embarrassment, but in this case we should just say out loud: it ain’t going to happen. Mr Cameron will lead his party into the next election, and we will all get a chance to give him a vote of confidence – or sling him out.”

BIGOT-GATE II

Nick Clegg is in trouble with traditionalists after a draft copy of a remarks he intended to make to a gathering of celebrity supporters of gay marriage. We splash on the story this morning:

“Before Mr Clegg could deliver the speech, the word “bigot” prompted an angry response at Westminster and the Deputy Prime Minister’s office made an ill-fated attempt to withdraw the remark.

“According to the text, Mr Clegg planned to say: ‘Continued trouble in the economy gives the bigots a stick to beat us with, as they demand we ‘postpone’ the equalities agenda in order to deal with ‘the things people really care about’. As if pursuing greater equality and fixing the economy simply cannot happen at once.’”

The Mail reports that former Archbishop of Canterbury, Lord Carey, described the Deputy Prime Minister as ‘immature’. That’s one of the nicest things that has been said about him in ages.

WELSH GCSE ROW

The Western Mail reports that Michael Gove will face awkward questions over the decision of the Welsh government to order the WJEC exam board to re-mark English papers.

More pupils in England took the Welsh board’s English paper than pupils in Wales, and they must now watch as Welsh children have their grades fixed. It’s academic gerrymandering and parents will be fizzing. Hard for Michael Gove to stand by on this one.

BOOS FOR BALLS

Ed Balls was heckled at yesterday’s TUC conference after supporting the government’s pay freeze on public sector workers. The conference later voted overwhelmingly to start planning the “practicalities” of what would be the first general strike since 1926.

Stirring events on paper. In the flesh, the Daily Mail’s Quentin Letts was less than impressed:

“It was not much of a speech from Balls, being neither effusive nor confrontational. Perhaps five people heckled during the quarter of an hour it took him to unburden himself and during a brief session of questions afterwards. This was nothing compared to the ‘aggro’ of past decades.

“Even Alistair Darling used to get them more excited.”

In fact, Mr Balls’ thunder was stolen by row over T-shirts. The shirts, all of the ‘dancing on her grave’ variety prompted a Labour source to tell the Daily Express:

“Ed Miliband thinks they are totally inappropriate.”

Which is presumably why he is pictured in the Sun beaming whilst embracing a man who is wearing one.

HILLSBOROUGH APOLOGY EXPECTED

An independent report on the Hillsborough disaster will be published today, and is trailed in today’s papers as being very critical of the response of the authorities. The Independent splashes with allegations that police doctored evidence in a bid to evade blame for the tragedy.

Dave will make a statement after Prime Minister’s Questions apologising to the families of the 96 victims, according to the Daily Mail.

JOB DONE FOR JOWELL

And finally, farewell Tessa Jowell. The former Culture Secretary has stepped down from Ed’s front-bench team. She told the Guardian :

“To have been able to be part of planning and delivering the Olympic and Paralympic Games from start to finish is a rare opportunity in public life and that too has been a privilege. After 10 years with the Olympics and Paralympics, it is job done.”

TWEETS AND TWITS

Labour’s Chris Bryant has some startling news:

@ChrisBryantMP: “Twickenham feels very different for @ladygaga from the usual rugby crowd

Who would have thought?

POLL WATCH

Latest YouGov/Sun results: Conservatives 31%, Labour 42%, Liberal Democrats 10%, Other 17%

TOP COMMENT

In The Telegraph

Benedict Brogan – Dastardly plots and stalking Borises – blame yourself, Dave

Allister Heath – The UK is already taxed to death – a levy on wealth would be the last straw

Daniel Hannan – Black Wednesday: Britain was free, but we Tories were done for

Rowan Pelling – At least 58 per cent of us don’t want slogan T-shirts

Best of the rest

Christina Patterson in The Independent - It will take a lot more effort than this to make work pay

Alice Thomson in The Times (£) – Why aid is a dream job for Justine Greening

Martin Wolf in the FT (£) – Draghi alone cannot save the euro

Andrew Alexander in the Daily Mail – Why Dr Cable’s got the wrong prescription

THE AGENDA

Today: Environment Secretary Owen Paterson to set out statement on Government strategy for growth in rural areas.

9:30 am: Barclays chairman Sir David Walker gives evidence to Commons Treasury Committee on banking standards. Grimond Room, Portcullis House.

09:30 am: Education Secretary Michael Gove gives evidence to the Commons Education Committee. Committee Room 15, House of Commons

0930 am: Latest unemployment figures published by Office for National Statistics.

0930 am: The Council of Mortgage Lenders publishes its mortgage breakdown figures for July.

12:00 pm: Prime Ministers Questions.

12:30 pm: David Cameron oral statement on Hillsborough tragedy. House of Commons.

12:55 pm New Policing Minister Damian Green to give speech at the Police Superintendents’ annual conference. Chesford Grange Hotel, Warwickshire.

2:05 pm: New Transport Secretary Patrick McLoughlin gives evidence to the House of Commons Transport Committee. Committee Room 8, House of Commons.

3:00 pm: Commons Speaker John Bercow unveils plaque to mark renaming of the Commons Clock Tower as the Elizabeth Tower. Speaker’s Green, House of Commons.

The Office for Budget Responsibility lays bare our unsustainable finances: in the long run, we’re all skint

Just when we thought the economic news couldn’t get worse, up pops the Office for Budget Responsibility to remind us that it will. Once a year, the Treasury’s official – but independent – forecaster is charged with assessing Britain’s long term economic health. Like last year, the Fiscal Sustainability Report leaves readers feeling decidedly unwell.

Here are a few nuggets. The cost of keeping Britain’s ageing population in the benefits to which they are currently entitled will punch a £65bn hole in the budget deficit between 2016/17 and 2061/62 – unwinding more than half the current, painful £123bn austerity programme.

Just to keep the national debt at its pre-crisis level of 40pc of GDP, another £17bn of savings will have to be found in 2017/18 to compensate for the demographic pressures. If the savings are not found, the national debt will rocket back up to 89pc by the end of the forecast period.

And that’s the optimistic scenario. In reality, the National Health Service is so woefully inefficient that we would need another £68bn of austerity in 2017/18 to pay for the kind of care we currently enjoy unless the NHS somehow becomes radically

Read more….

Osborne is stuck on a great tax escalator – and it’s only going up

Those who took a foreign holiday this Easter may have whiled away the hours in the departure lounge by studying the small print of their booking – in particular the bit detailing the extortionate taxes attached to the cost of their flights. It’s always a cough-splutter moment (and air passenger duty has gone up by a further eight per cent this month).

Yet it’s not just the hidden costs of a holiday. Families know that wherever they turn, they are paying more, and will continue to do so. The Budget might have attracted derision for reducing the top rate of tax, but its actual message was the opposite: one of perpetually rising taxes, stretching far into the future. The fiscal challenge facing this Government, and those that will follow it, gets tougher, not easier. Indeed, we should ask ourselves why so many of our politicians find it easy to get exercised about tax cuts that are marginal in fiscal terms, when they should be steaming about how taxes are rising relentlessly for those on middle incomes, who form the backbone of the economy.

Read more….

George Osborne gets bolder with each Budget – but it’s still not enough

Luckily for George Osborne, not many people have noticed the heckler that he has created to pass comment on his budgets. Traditionally, chancellors give a speech which says one thing (help the workers!) and release small print that says another (tax the pensioners!). But there is also a new voice, that of the independent Office for Budget Responsibility, whose verdict on the Budget is published alongside the document itself. Deliciously, the OBR applies the “blind bit of difference” test, asking if anything the Chancellor has announced will have a meaningful impact on growth, jobs or investment.

This can save everyone a lot of time. This time last year, for example, David Cameron hailed the “most pro-growth Budget for a generation” and many might have wondered if this were true. The OBR helpfully concluded that it was not, and so it was to prove. This year, we have heard some radical and even revolutionary Budget proposals: to cut the top rate of tax, cut tax for the low-paid, and introduce regional pay bargaining for public sector workers (thereby smashing the centralised power of the trade unions). But will this do much for jobs? The OBR ruled there is “insufficient evidence” to say so.

Read more….

Budget 2012: Austerity measures could be eased, OBR to show

The Government has the headroom to ease up on austerity measures for the first time since coming to power, official economic forecasts released alongside tomorrow’s Budget are expected to show.

Stronger growth, better tax receipts, and lower public spending than expected will make it easier for the Treasury to meet its self-imposed targets of eliminating the structural budget deficit within five years and have debt as a proportion of GDP falling by 2015.

In November, the independent Office for Budget Responsibility (OBR) downgraded its forecasts so sharply the Chancellor had to announce an extra £23bn of austerity measures – beyond the £107bn already committed. All but £1.3bn was uncosted, prompting accusations that the Chancellor was simply hoping the economy would recover sufficiently to remove the need for the extra measures.

The OBR’s figures on Wednesday are expected to paint a mildly improved picture of the economy – a watershed moment for the Chancellor, who has had to contend with a worsening outlook in his four previous Budget and Autumn statements. As a result, he would not need all £23bn to hit his targets.

Read more….

Budget 2012: George Osborne to reduce top rate of tax to 45p

George Osborne, the Chancellor, will say that the tax is undermining the British economy by deterring investors and entrepreneurs.

It will be replaced with a 45p rate from April 2013, which Treasury officials believe will raise more money because fewer people will avoid it.

By the time of the election Mr Osborne hopes to scrap the higher rate entirely, with Britain’s highest earners paying 40p in the pound.

The decision is likely to prove highly controversial and will be attacked by Liberal Democrat and Labour MPs, who will accuse the Conservatives of helping the wealthy.

However, Liberal Democrat ministers agreed to scrap the rate in exchange for a new “tycoon tax” intended to prevent widespread tax avoidance.

Nick Clegg, the Deputy Prime Minister, is expected to argue that the “rich will pay more” under the budget deal. This is likely to be backed up by official figures, agreed by the Office for Budget Responsibility, the official economic watchdog.

There will also be a rapid increase in the tax-free personal allowance – not available to higher earners – from April 2013. The deal is understood to have been signed off on Friday following last-minute Coalition talks.

Read more….

The Coalition’s finest hour may be in that little red box – Telegraph

‘It’s like a Rubik’s Cube,” says a senior source. “On top of all the other tricky stuff, the yellow bricks have to match up with the blue bricks.” The drafting of budgets is, by definition, a fiendishly complex matter: a fiscal, political and intellectual conundrum to which only the finest minds are equal. Add to that the challenge of being Chancellor in a Coalition government, and you can see why the prelude to George Osborne’s speech on Wednesday has spawned so many stories, leaks and counter-leaks.

Last week, he was in Washington with the Prime Minister, having settled the essentials of the Budget on Monday. Although coverage of Cameron’s meeting with the President naturally focused upon foreign policy (Afghanistan and Iran), there was plenty of discussion about the oil price, and economic sanctions against Tehran – which are handled by Osborne and Tim Geithner, his US opposite number. Meanwhile, the final Budget documents were presented to the Office for Budget Responsibility comfortably before Friday’s deadline.

That said, I cannot recall a recent political saga that has been so variously described by different sources. I am reminded of Kurosawa’s classic Rashomon, in which four eyewitnesses describe a heinous crime in radically different ways. Depending on whom you speak to, it was the Tories who were pressing for a cut in the 50p rate; or the Lib Dems, seeking a package of goodies in return. Cameron wouldn’t have it. Clegg wouldn’t have it. Osborne wouldn’t have it. Osborne insisted… and so on. If rumour were taxed, the Treasury coffers would be full to bursting this weekend.

Read more….