Interlude and my political ramblings (Days 26 and 27)

Everyone else on my trip has now left and I have a day to relax in Siem Deap, before moving on to Chiang Rai in Thailand to start my tour of Laos.  In the meantime, I thought I’d jot down some thoughts on the forthcoming election.  I’m sure there will be a lot of disagreement with what I have to say, so let’s have some feedback.

A couple of months ago, I came to the conclusion that the Tories had blown it and so I placed a £400 bet on Labour to win the election.  This was with Betfair and I thought the bet had gone on at 17 to 1.  I believed that the odds would shorten as the election approached and that I’d be able to back out the bet at a handsome profit.  However, when I logged on to Betfair to check the latest odds, it turned out that my bet hadn’t actually been placed.  To this day, I don’t know why and I didn’t get round to following it up.  I guess I must not have clicked the Confirm button. 

Anyway, my thoughts then were that the Tories were doing everything they could to lose what should have been certain victory.  The country was in the deepest recession for eighty years, despite Gordon Brown’s frequent boasts of ‘having ended boom and bust’.   Living standards were falling and public sector spending was certain to be cut, just as taxes were certain to rise, whichever party gained control.  Labour had taken us into a much hated and, arguably, unsuccessful war and Gordon Brown himself, though not responsible for the war, was deeply unpopular.

So what went wrong and why have Labour started to recover in the polls?  As I see it, the Tories have only themselves to blame.  Their biggest problem is that they have dithered about how to handle the recession and have not presented a clear way ahead for combating the recession and the rising debt mountain.  Indeed, it seems to me that they still don’t know what to do or, if they do know, they are not telling us.  For a while it seemed as though they were all for getting to grips with the deficit and they then started to talk tough about savage cuts in Government spending.  But, just as suddenly, that resolve disappeared and they began talking about protecting spending on, for example, the Health Service, that oh so over-bloated sacred cow.

At the same time they played into Gordon Brown’s class hand by saying that they would continue with their pledge to cut Inheritance Tax (how on earth can that be a sensible priority?) and by saying that they would provide tax benefits for married couples.  Both these would be expensive to implement and should hardly be priorities when we’re facing a prolonged period of austerity.  Elections are won or lost on the middle ground and these are policies that will appeal to few people outside of their core vote and are therefore pretty pointless.  Many people live together quite happily without being married, so why risk penalising a huge swathe of the population just to appeal to Mr and Mrs Tunbridge Wells who will, almost to a man (or woman) vote Tory anyway?   And it’s just the same with Inheritance Tax.  Sure this appeals to the Tory voter, but is not likely to attract many floating voters.  Finally, there’s the promise to repeal Gordon’s forthcoming increase in NI contributions.  Surely now is not the time to introduce a further tax on jobs, but the way the Tories suddenly announced that they would withdraw most of the increases smacked of policy being made on the hoof and certainly does nothing to inspire confidence.

Whilst the Tories have been presenting a very confused and not very attractive set of policies, with little conviction too, Labour have begun to spell out a much more appealing set of promises, to wit, protect spending on health and education, continue spending to see the country out of recession, no immediate tax rises (lies, but truth doesn’t matter in politics, it’s only being elected that counts), help the common man, rather than those Bullingford Tories.  At the same time they are managing to project Gordon as the man who’s saved the world from disaster (it was he who said he’d saved the world, after all) and David as the man who is only there to support his own kind.  Bullshit, of course, but a much more appealing message to the man on the Clapham Omnibus than anything the Tories have to offer.

So what should the Tories be pushing?  This is where it gets difficult.  Economists are split down the middle as to whether or not it is too soon to put the brakes on and to cut back on the deficit.  There’s also little agreement as to whether quantitative easing should be increased, paused or reversed.   So far as I can see, virtually all economists are agreed that we will have to make serious cutbacks in order to control the level of debt and it’s just a matter of timing.  In this respect, Brown’s approach of keeping up the spending in the short term is bound to be appealing.  People have short time horizons and if they believe that there’ll be no real hardship in the short term, many will be satisfied, irrespective of the longer term prospects.  The problem with this approach is that there is likely to be continued pressure on the pound and a real risk of losing our triple A rating, with a consequent dramatic increase in the cost of borrowing (as the Greeks are now finding, to their impoverishment), which we can ill afford.  Already, interest payments are going to be a significant part of Government spending and if the cost of borrowing goes up, this will only mean further pressure on Government spending, in the form of further cuts and/or higher taxes.

Since the expert economists have such differing views, it is difficult for the ordinary person to be dogmatic about how to approach the deficit.  If pushed, I would favour much more rigour about Government spending.  I think most people would agree that Government spending has got way out of control, particular on health, education and pensions.  It’s not so much that the level of spending is too high, more that we’re not getting good value for money.  On balance, I think that I would introduce an across the board cut of 10% in all Government spending including, particularly, health, education and defence, and an even larger cut in social services.  I would be inclined to retain spending levels on the police service as we are likely to face an increasing level of lawlessness, but on balance, I think it would be better if we allowed no exceptions.

I can’t prove it, but I believe that if local managers were given the right to manage, without constant Government interference, they would be able to provide much the same level of service, but for far less money.  If we were to introduce such cuts, there would be no problem with confidence in the City and our triple-A rating would be assured, holding down our interest costs.  It would probably mean an increase in the value of the pound, potentially harming our export potential, although since the export boom that was supposed to come from a devalued pound hasn’t materialised, this is probably unlikely).  Furthermore, an increase in Sterling would help to bear down on inflation, but this may be the last thing the Government will want (more of which later).

Such severe cuts might be the ‘best’ thing to do for the economy, but it does beg the question as to whether or not the Tories would be electable if they proposed such policies and here I am not sure.  I would like to think that the majority could be persuaded that things have got so bad that we have to take tough action now or face either worse difficulties in the future.  And this, of course, is the Tories’ real problem.  I have little doubt that Osborne would like to present a tougher image, but both he and ‘hug a hoody’ are afraid that the public won’t buy it and they haven’t got the guts to show real leadership.  I’m inclined to think that they’ve shot their bolt anyway.  They’ve dithered for too long and they can’t now start to present the tough policies the country needs.  I suppose our hope is that whichever party is elected, they will actually be forced to introduce significant cuts, despite the (worthless) promises that they all have made in the campaign.

As I see it, this means is that the Tories will have to adopt a very negative campaign, as Labour is already doing, witness the Prince of Darkness and his sniping comments about Cameron and Osborne.  So I expect to see the Tories’ campaign focusing on the things that Gordon and Labour have done in the past and which have gone wrong.  For example, they should hammer home that Gordon said he had ended boom and bust and that now we’ve just suffered the biggest boom and bust the country has ever seen.  They should repeat the fiasco of Gordon’s ‘Golden Rules’ and how these have now all been abandoned.  They should keep on reminding the electorate that he raided the private pension funds, let public sector pay and pensions get out of hand and sold the nation’s gold when the price was at rock bottom. They should tell everyone that his removal of the responsibility for bank regulation from the Bank of England to the FSA was a total disaster and they should stress that it was the same Brown who a couple of years ago lauded the light-touch regulation he introduced to regulate the City who now wants to introduce the toughest of all controls over banking, including the ridiculous Tobin tax.  There are many more such failures of policy that can be highlighted, from health and education spending to constitutional reform - and the Tories need a special unit to focus on such issues.  It may not be rocket science, but in the absence of any effective positive message, it may be the best they can do.

Incidentally, whichever party gets in or if there is a hung parliament, I think an increase in VAT to 20% must be on the cards as an early measure.  This will be inflationary for a year, while it works its way through, but that may be to the Government’s advantage.  If they don't get to grips with the deficit, the pound will crash and the cost of servicing the debt will rocket.  That will lead to more inflation, but this is what the Government will want as their only option to control the deficit will be to inflate their way out of the problem.  And that’s why I’m still bullish for gold.