No, we don’t want a Robin Hood tax or a hole in the head

November 4th, 2011

Earlier today I was reading Rod Liddle’s Spectator article on the depressingly nutty views he encountered of the protesters outside St Pauls Cathedral which some members of the Church of England seem so in thrall to. I won’t go into details – suffice to say he summed them up by writing “I wonder who their dealers were and maybe if I could get a phone number“.

London’s City, the financial centre of Europe and in some key markets, the world, is, as I wrote a few years ago in 2008, under constant assault from EU Regulations, Financial quangos, jealous American regulators and untramelled foreign competition. As I opined back then;

Anyone who thinks legislation is the answer to the City’s woes must be ill-versed in daily life there. Forget for a moment the public image of the high-earning wide-boy traders and the hedge fund managers. Today’s financial sector is easily the most over-regulated, conservative industry in the whole country. Too much of the entrepreneurship has gone out of the sector.

No wonder then that when I bump into old friends occasionally who I worked with in the City quite a few years ago, I notice they appear to have aged prematurely and seem – to be horribly blunt – emotionally repressed. The human animal and its entrepreneurial spirit wants to be free to experiment and to work in creative bursts. But constantly having to worry about complying day-in, day-out with regulations whilst working long hours can take you far the other way.

So now we have news that someone sensible and highly accomplished,  Bill Gates,  adds his weight to call for Robin Hood tax. Gates said;

It is very plausible that certain kinds of FTTs (Financial Tax on Transactions aka Robin Hood Tax) could work. I am lending some credibility to that. This money could be well spent and make a difference. An FTT is more possible now than it was a year ago, but it won’t be at rates that magically raise gigantic sums of money

If you read that slowly, it’s not exactly a ringing endorsement. Personally, I can think of lots of things that are plausible but are on balance, far from a good idea.  And whilst one must respect the work that the Gates Foundation has done, don’t think for a moment that governments would be as good at distributing funds as they have. Optimal tax collection – usually a mirage in itself when measured by costs of collection, cost of compliance and  lost revenue by evasion or avoidance – rarely matches a hypothecated optimal reallocation.

And then there’s the much bigger issue,  those within the EU pushing hard for the Financial Transaction Tax don’t seem to have anything like as much as a financial sector, that serves as a job creation scheme and an income and corporate tax revenue generator as the UK. So who has most to lose here?

Obviously it’s us. So all credit to the Adam Smith Institute for producing a paper entitled “Hanging London out to dry: The impact of an EU Financial Transaction Tax“. I can’t see this tax being anything other than a negative on British Financial Services. Why on earth would you want to reduce liquidity by increasing trading costs which are then passed onto  your dwindling pool of consumers?

There are lots of valid criticisms of our financial service sector to be made – the unwarranted high margins of active fund and pension managers, the extent of the bailouts, the lack of retail banking competition  – to name but a few.

But a Robin Hood Tax is definitely not the solution. Do we really want to inadvertently send vast quantities of city front and middle offices (much of the back office went some time ago) abroad to Hong Kong, Singapore or Zurich?


It’s the total size of the debt that makes it expensive . . .

May 17th, 2011

Beat this for a sobering bar chart in today’s Wall Street Journal;

The shocker is that while the UK has a lower interest rate than Euroland and can borrow at lower rates than every other major European country other than Germany, we are only just behind most of the  PIIGS (Portugal, Italy, Ireland Greece and Spain) when measured by the total cost to GDP of interest payments on borrowing at 3.1% while Spain is some way down at 2.2%.

I still think the story that the UK was facing bankruptcy etc. was way overblown and at times, silly. As I have argued here and here.

But who wants to spend 3.1% of GDP on interest payments while simultaneously trying to enshrine in law a commitment to Foreign Aid of 0.7%?


Shock Q4 figure have a small silver lining . . .

January 25th, 2011

It’s worse than we thought guv !

Today’s revelation that the UK economy contracted -0.5% in Q4 2010 was a sobering moment. Although not entirely suprising, as I discussed some months ago here and here. Quite apart from further highlighting the ongoing utter uselessness of macroeconomic forecasting which estimated a range of growth of between +0.1 and +0.6, I can see one positive outcome.

Interest rates are not going to go up any time soon. I never bought into the big Weimar-style inflation threat. If there’s so much cheap money around, why’s my bank offering me an overdraft at 10% when the base rate is 0.5%?

The rise in our inflation is not to do with QE, but principally stems from a market-driven decline in the value of the pound (thank God we have a floating currency), the additional rising cost of internationally priced, fungible commodities and our Politicians raising VAT – of which only the first we can control with interest rates.

And once those increases in prices have fed through, where do they think the inflationary wage spiral is going to come from?

With 2.5 million unemployed and many others underemployed, there are a lot of people looking for work out there, ready to work for much less.

On balance, I’m still more worried by deflation than inflation. And inflation hawks still have a lot to prove before they win the argument for large interest rate rises.

Andrew Sentance of the MPC will be feeling a little less confident now.

George Osborne’s Comprehensive Spending Review Statement in Full

October 25th, 2010

“Mr Speaker.

Today’s the day when Britain steps back from the brink.

When we confront the bills from a decade of debt.

A day of rebuilding when we set out a four-year plan to put our public services and welfare state on a sustainable footing – for the long term.

So that they can do their job – providing for families, sickness protecting the vulnerable and underpinning a competitive economy.

It is a hard road, cialis but it leads to a better future.

We are going to bring the years of ever-rising borrowing to an end.

We are going to ensure, tadalafil like every solvent household in the country:

  • that what we buy, we can afford;
  • that the bills we incur, we have the income to meet;
  • and that we do not saddle our children with the interest on the interest on the interest of the debts we were not ourselves prepared to pay.

Tackling this budget deficit is unavoidable.

Read the rest of this entry »

EPC Platform piece on Public Sector Pension Liabilities influences CSR

October 25th, 2010

Much praise to EPC author Angus Hanton !

Back in April 2010, Angus argued on our Platform section   – The £1 trillion black hole – public sector pension liabilities – that the government has used too high a discount rate for unfunded public sector pension liabilities – now at 5.5% compared to 3-4% in some other countries. This means that when those UK public sector pensions become due, the unforseen liability could be as much as £1 trillion pounds.

I’ve been watching the stats on our website and this article has been viewed many, many times. Of course it’s great to see people reading your work, but it means so much more when they listen and act on it.

So following the EPC’s and Angus’s promotion of the article and the issue, we were pleasantly surprised to note in George Osborne’s speech last week the following words;

. . .we will carry out, as the interim report suggests, a full public consultation now on the appropriate discount rate used to set contributions to these pensions“.

Bidaily Economics Roundup – Friday 23rd July

July 23rd, 2010

Data to be released today;

Preliminary Q2 GDP – to be released by the ONS here. Expected 0.6%.

Index of Services – for May.

BBA Loans for House Purchase – for June.

Big themes of the day;

The two most important Central Bankers of the world voice stark differences on policy . . .

ECB President Jean-Claude Trichet calls for cuts in public spending and raising taxes to consolidate the recovery. US Federal President Ben Bernanke says it’s too soon for austerity and that we should maintain stimulus in the short term.

Comment and blogs;

David Blanchflower: For once I agree with Osborne “It is clear from listening to Chancellor George Osborne’s testimony to the Treasury select committee on 15 July that he believes monetary policy should remain loose, and I agree with him on that. Rates must remain, as the FOMC put it, at “exceptionally low levels for an extended period”. Plan B would mean further quantitative easing and lots of it. The New Statesman.

Allister Heath: Strong US Profits good for recovery “My biggest worries over the coming months are not what concerns the mainstream (which is obsessed with the impact of fiscal tightening) but rather what will happen to the US money supply (there have been some worrying signs that it may be dropping uncontrollably) and the impact of new rules on the US financial system, including increased capital requirements (which force banks to lend less) and Barack Obama’s new mammoth reform bill (which is already threatening chaos for asset-backed securities and could hit corporate financing). In the meantime, the earnings numbers suggest a traditional cyclical recovery; let’s enjoy it.” City AM.

Hamish McRae: It is no good squealing about dodgy borrowers who cannot get bank credit “Politicians focus on the lack of lending now, both to companies and on mortgages, and make vague, threatening noises about making banks lend more. But that is plain silly. The problem of lack of lending is not really anything to do with British banks; it is the withdrawal of foreign banks.” The Independent.

David Miliband: To grow, Britain must solve its jobs deficit “By committing to the largest fiscal retrenchment in living memory the coalition has gone for broke. The prime minister says it will “change our way of life”. That’s the problem. Ken Clarke used to say that good economics is good politics. The government has turned this on its head. Framing the debate as a choice between the public and private sectors is certainly good politics, but it is bad economics. The Budget will force 600,000 public sector workers into unemployment. With recent surveys suggesting rapidly worsening business confidence and no evidence of an emerging hiring spree, their prospects of finding work in the private sector are bleak.” Financial Times.

Jeremy Warner: Is a double dip recession heading our way? “The good news is that most of the evidence still suggests that a double dip is unlikely. Today’s second quarter GDP figures ought to show continued recovery, albeit at an anaemic rate, and few of the most commonly watched forward indicators yet point to the economy falling back into the abyss.That is not to say that the economic winds are once more set fair; plainly they are not. The odd quarter of negative growth over the next year or two seems more than likely. The one thing we know for sure is that the path to full recovery is going to be slow and uneven.” Daily Telegraph.

Morning Economics Roundup – Monday 4th Jan 2010

January 4th, 2010

Data to be released today;

PMI (Purchasing Managers Index)  Construction Index (of the Chartered Institute of Purchasing & Supply and Markit Economics) – subscription data available from here.

Big thems of the day;

Factory activity at 25-month high – “Manufacturing activity expanded at its fastest pace in more than two years in December, buoyed by a sharp jump in new orders, a survey showed on Monday. The CIPS/Markit purchasing managers’ index rose to 54.1 last month, above the consensus forecast of 52.0 and after a surprise fall to 51.8 in November”.  See Reuters.

Tories have £34bn black hold in spending plans, says Alistair Darling – “The Tories were accused today by the chancellor, Alistair Darling, of having a £34bn black hole in their spending plans as the main parties stepped up their pre-election attacks. A 148-page dossier released by Labour ahead of a press conference by David Cameron, the Conservative leader, said the Tories had only explained how they would pay for £11bn of £45bn in spending pledges”. See the Guardian.

David Cameron launches Tory general election manifesto – “David Cameron will today set out the manifesto he hopes will win the general election while dispatching members of the shadow cabinet to seize the initiative with voters in marginal constituencies. He will place the economy at the top of his party’s agenda, in a speech at Westminster”. See The Telegraph.

Comment and blogs of the day;

Roger Bootle. There are tough times ahead but my money’s on a resurgent UK – “In economic terms, 2009 was one of the most calamitous years in the nation’s history. I suppose it is fitting that forecasters should have shared in this misery, professionally as well as personally. n fact, my own forecasts did not do too badly, all things considered. Even so, the overall tone of my end of term report should be “could have done better”.” See Daily Telegraph.

Allister Heath. Why 2010 will be make or break for UK – “T is hard to believe that just three years ago the UK economy was still being lauded as a great success story; our fall from grace has been spectacular. In 2007, London was overtaking New York as the financial capital of the world, with a resurgent Britannia gracing the covers of US news magazines; today, as the new decade begins, we are being bracketed with the likes of Italy and Greece as nations that might soon default on our national debt”. See City AM.

Hamish McRae. Some reasons to be cheerful in the bumpy months ahead of us – “Anew year brings a new opportunity for economists to humiliate themselves by getting the forecasts utterly wrong. No major forecasting body caught correctly the scale of the slump in the UK last year – all were too optimistic – so why should people take seriously any commentaries, including this one, about the likely path of the economy this year?” See The Indepedent.

Ashley Seager. Britain faces a new age of austerity to repay government debts – “The challenge for whichever party wins this year’s election will be to maintain public services on a much tighter budget. “Great Britain should endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.” So wrote the legendary Scottish economist Adam Smith in An Inquiry into the Nature and Causes of the Wealth of Nations in 1776″. See The Guardian.

Jeremy Warner. Britain yet to face the psychological pain of its new economic status – “Nobody brave enough to have joined the hordes at London’s Brent Cross shopping centre over the past week or two would have believed that we have just been through the deepest economic recession since the 1930s. But it is not just the high street which is skipping along as if once more in the midst of a full scale boom. Restaurants are full, gazumping has returned to the posher end of the London housing market, the stock market has enjoyed a record breaking rally, the art market has revived and fine wines are again achieving top prices at auction”. See Daily Telegraph.

Morning Economics Roundup – Thursday 31st December 2009

December 31st, 2009

Data to be released today;

Bank of England Quarterly Credit Conditions Survey – at 9.30 am – available from here.

Big themes of the day;

House prices up annual 5.9% – House prices rose for an eighth consecutive month in December to end the year nearly 6 percent higher than they started it, mortgage lender Nationwide said on Thursday. see Reuters.

UK standard of living drops below 2005 level – “The recession has pushed living standards in Britain to below the 2005 general election level, a leading thinktank says as it warns that the country faces a “new age of austerity”.Although many economists think the economy probably returned to growth in the quarter just ending, the deepest recession in decades has punished everyone, according to a report by Oxford Economics”. – see report by Ashley Seager and Biba MCaul in The Guardian here. Original Oxford Economics press release pdf here.

Iceland approves £3.4bn Icesave losse deal – “Iceland’s parliament has agreed to pay back €3.8 billion (£3.4 billion) lost by British and Dutch savers when its banking system collapsed, in a move that is likely to boost the country’s bid to join the European Union”. – see The Times here.

Comment and blogs of the day;

The economic ‘experts’ who stopped making sense. Edmund Conway in the Telegraph marvels at how economists have had a bad year and got away with it – “2009 ought to have been the year that economists well and truly fell from grace. There is surely adequate ammunition to explode any remaining faith in their powers of prediction: the scale of the economic slump, the rise in unemployment, the fact that a small number of extremely rich people have been getting richer while the majority have suffered. But bizarrely enough, it hasn’t happened. Sure, there has been plenty of muttering about economists’ shortcomings; the groans at their failed forecasts (for instance, the fact that house prices, far from falling by 10 per cent this year as predicted, have actually risen by around 3 per cent) are louder”. see here.

The recovery of the housing market: A year of two halves – “This time last year, the headlines were full of doom for the housing market. Prices had already dropped sharply following the collapse of Lehman Brothers in autumn 2008, and all the indications were that they were poised to fall even further — with the gloomier analysts expecting declines, in percentage terms, of at least double figures. Well, what a difference a year makes”. Lucy Denyer in The Times here.

That was the noughties. “We were promised no more boom and bust. We were told Labour would be kind to manufacturing. It would all be so much better than the Thatcher years. We know the claim of no more Boom and Bust proved to be the most absurd. We lurched from super boom to mega bust. What is less well known is just how bad a decade it has been overall, despite the boom”. John Redwood MP’s diary here.

New economics of christmas, a review of the Scroogenomics book by Joel Waldfogel – “Waldfogel is right to question how much just producing precious commodities adds to social welfare. In trying to adjust measures of exchange value to better reflect the worth of things he comes close to much of the work that nef has been pioneering. At the same time, Waldfogel suffers from a bias that is not untypical to people of his profession”. Aleski Knuutila at the New Economics Foundation blog here.

SECURING OUR ENERGY FUTURE – Why and how it must be done

December 14th, 2009

SECURING OUR ENERGY FUTURE – Why and how it must be done

Download here.

In the launch paper of a new think tank, the Economic Policy Centre, a radical overhaul is called for in UK Energy Policy, as featured today in The Engineer and in an op-ed by Dan Lewis in the Yorkshire Post.

The paper calls for;

i) A return to basics – putting energy security first

ii) Scrapping of wasteful programmes – smart meters, carbon capture levy, government-financed R&D

iii) Creation of Clean and Secure Energy Obligation – based on Renewables Obigation but with 100% target by 2060 at a much lower buyout price and the inclusion of big impact technologies nuclear, large hydro, interconnectors and Severn Tidal Barrage / tidal lagoons

iv) Keeping coal-fired stations open beyond 2015 until new clean and secure plants come onstream

v) A new annual ranking system that keeps track of the energy security footprint and to create a competitive merit order

vi) Creation of clear lines of political responsibility for energy security

Says author and Chief Executive of the Economic Policy Centre, Dan Lewis;

Britain has too much energy policy and it is back to front – it’s crazy to go on over-rewarding low impact, intermittent technologies while failing to secure investment for big impact, long lifespan, clean and secure technologies like large hydro, nuclear, interconnectors and a Severn Tidal Barrage or Tidal Lagoons. This will only lead to even greater future dependence on expensive, tight supplies of imported gas and very possibly, power cuts from the middle of the next decade. All this because government has failed to prioritise and factor in the energy security footprint of its own policy“.