tag:theconversation.com,2011:/fr/topics/uk-budget-2014-9463/articlesUK budget 2014 – The Conversation2015-03-26T06:33:56Ztag:theconversation.com,2011:article/392622015-03-26T06:33:56Z2015-03-26T06:33:56ZRevealed: how British voters’ political mood swings<figure><img src="https://images.theconversation.com/files/76006/original/image-20150325-14507-199959l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Feels a bit too conservative, dear.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/69125796@N00/7415541920/sizes/l">starmanseries/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Since last year’s <a href="https://theconversation.com/autumn-statement-the-experts-respond-34833">autumn statement</a>, the electoral stars have <a href="http://cdn.budgetresponsibility.independent.gov.uk/March2015EFO_18-03-webv1.pdf">seemed to align</a> in the Conservative Party’s favour: inflation has remained low, unemployment has continued to fall, the economy has grown, and people’s <a href="https://d25d2506sfb94s.cloudfront.net/cumulus_uploads/document/v3nm8om9zh/YG-Archives-Pol-Trackers-Economic%20Worries-230315.pdf">sense of economic optimism</a> – so often the driver of government support in the past – has risen. Ed Miliband’s <a href="https://yougov.co.uk/news/2014/11/02/ed-milibands-approval-rating-sinks-all-time-low/">personal ratings fell sharply</a> after <a href="http://blogs.telegraph.co.uk/news/tobyyoung/100287467/ed-milibands-seven-weirdest-moments/">a series of gaffes</a> while <a href="http://www.theguardian.com/politics/2015/feb/14/opinium-poll-david-cameron-maintains-approval-rating">David Cameron’s ratings rose</a>. All has seemed set fair for a Conservative surge.</p>
<p>Yet despite these portents of electoral recovery and eventual victory, support for the Conservatives in the polls has risen slowly and fitfully. Even now, Labour and the Conservatives remain <a href="http://ukpollingreport.co.uk/uk-polling-report-average-2">neck-and-neck in the polls</a>.</p>
<h2>Not-so-austerity Britain</h2>
<p>The chancellor of the exchequer, George Osborne, has <a href="https://www.gov.uk/government/speeches/chancellor-george-osbornes-budget-2015-speech">presented the image</a> of a Britain that is “paying its way” and “walking tall again”. But beneath the bravado, one can hear the crashing of gears. Since <a href="https://theconversation.com/autumn-statement-the-experts-respond-34833">the autumn statement</a>, Osborne has significantly revised his programme of austerity. </p>
<p>In 2014, he <a href="https://www.gov.uk/government/speeches/chancellor-george-osbornes-autumn-statement-2014-speech">set a goal</a> of generating a surplus of £23 billion by 2019/20, and indicated that the programme of cuts would continue to 2019/20. He also <a href="http://www.economist.com/news/britain/21635617-george-osborne-makes-up-lack-giveaways-bold-tax-reform-tis-not-season">announced his intention</a> to reduce overall government spending to 35% of GDP. </p>
<p>Now, Osborne has shifted the goalposts, <a href="http://cdn.budgetresponsibility.independent.gov.uk/March2015EFO_18-03-webv1.pdf">predicting a surplus</a> of £7 billion by 2019/20. He also declared that the cuts would finish a year earlier in 2018/19. Overall government spending as a proportion of national income would return to 1964 levels. The significance of these revisions should not be overstated. Austerity has been reduced, not eliminated. Nevertheless, the revisions are politically important and prudent. </p>
<p>There are several reasons why Osborne revised his estimates. Part of it has to do with image: Cameron’s “<a href="https://www.gov.uk/government/speeches/chancellor-george-osbornes-budget-2015-speech">de-toxification</a>” of the Tory brand is still incomplete. Senior Conservatives are well aware that – in the eyes of many voters – they remain the “<a href="http://www.economist.com/news/britain/21590964-david-cameron-risks-worsening-his-partys-already-poor-reputation-nasty-party">nasty party</a>”. </p>
<p>Another reason is that Labour has been <a href="http://www.ft.com/cms/s/0/8c4cd33e-cd93-11e4-8760-00144feab7de.html#axzz3VJhFGcKU">on the attack</a>, conjuring images of a cash-starved NHS, and a return to levels of government spending not seen since the 1930s. This depiction was lent credibility, after the <a href="http://www.bbc.co.uk/news/business-30327717">Institute for Fiscal Studies warned</a> of “massive” cuts to come, and <a href="http://www.dailymail.co.uk/news/article-2859973/Cable-turns-Osborne-denounce-brutal-cuts-Business-Secretary-attacks-plans-cut-deficit.html">Vince Cable unhelpfully commented</a> that the proposed cuts would be “brutal”. </p>
<h2>The policy mood</h2>
<p>Yet the real reason for Osborne’s revisions is all too easily overlooked: it is simply that the electorate remains committed to the public services. And, what is more, it has moved significantly to the left since 2010.</p>
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<img alt="" src="https://images.theconversation.com/files/75850/original/image-20150324-17696-1c8bod9.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/75850/original/image-20150324-17696-1c8bod9.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=854&fit=crop&dpr=1 600w, https://images.theconversation.com/files/75850/original/image-20150324-17696-1c8bod9.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=854&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/75850/original/image-20150324-17696-1c8bod9.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=854&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/75850/original/image-20150324-17696-1c8bod9.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1074&fit=crop&dpr=1 754w, https://images.theconversation.com/files/75850/original/image-20150324-17696-1c8bod9.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1074&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/75850/original/image-20150324-17696-1c8bod9.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1074&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Research illustrates the British public’s policy mood swings.</span>
<span class="attribution"><span class="source">NatCen/University of Essex</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>This leftward movement is summarised by the graph above, which displays the annual average left-right position of the electorate – in other words, the “policy mood” – since 1964. It is estimated using responses to hundreds of policy questions – relating to tax, spending, welfare, Europe and so on – that are asked in different years. These 5,300 responses are standardised and averaged <a href="http://www.cambridge.org/us/academic/subjects/politics-international-relations/american-government-politics-and-policy/tides-consent-how-public-opinion-shapes-american-politics">using an algorithm</a> devised by Professor James Stimson of the University of North Carolina. </p>
<h2>Thermostats and the policy mood</h2>
<p>The research suggests that the mood has generally moved in the opposite direction to policy: down to the right from 1964 to 1979, up to the left from 1979 to 1997 and down to the right again between 1997 and 2010. By 2014 the electorate had moved left again, returning to approximately where it was in 2005 – the year of Labour’s third successive victory. </p>
<p>This pattern of response – <a href="http://www.cambridge.org/gb/academic/subjects/politics-international-relations/comparative-politics/degrees-democracy-politics-public-opinion-and-policy">first identified</a> by Professor Chris Wlezien of the University of Texas at Austin – suggests the policy mood is like a “thermostat”. When it gets too cold (unemployment and inequality increase) it signals the need to turn up the heat (spend more). And when things get too warm (spending and taxes rise) it signals the need to turn the heat down (spend less).</p>
<h2>Back to the future</h2>
<p>The evolution of preferences provides a fascinating perspective on recent history. But it also tells us something about contemporary politics too. Although the mood in 2014 was at roughly the same level as in 2005, Labour is in a weaker position in the polls.</p>
<p>Labour’s less favourable standing may be because the party is perceived as being either further left, or less competent, than it was in 2005 – a legacy of the financial crisis of 2008. Alternatively, it may be because the Conservatives are further to the centre or more competent. Whatever it is, it is not because the electorate is more “right-wing” than in 2010 – the mood has demonstrably shifted left.</p>
<p>These findings should give Labour both heart and a warning: heart because they won in 2005. And a warning because, even in these more favourable circumstances, they received only <a href="http://news.bbc.co.uk/1/hi/uk_politics/vote_2005/frontpage/4519863.stm">36% of the vote</a>.</p>
<p>The final lesson is a more long-term one. If the Conservatives do go on to form the next government and continue with their programme of austerity and tax cuts, the electorate will continue moving left. The thermostat will signal a need to turn up the heat. This movement will contribute to the Tories’ eventual defeat. </p>
<p>If Labour forms the next government and prioritises spending, the electorate will move right. The thermostat will signal the need to cool things down. As I have <a href="https://theconversation.com/how-to-predict-the-outcome-of-a-general-election-36807">discussed before</a>, governments usually lose votes from one election to the next – the British public’s policy mood swings are undoubtedly a factor in this.</p><img src="https://counter.theconversation.com/content/39262/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Bartle has received funding from the Economic and Social Research Council and the British Academy.</span></em></p>The stage seemed set for a Conservative surge, but Britain’s changing policy mood got in the way.John Bartle, Reader in Politics, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/248612014-03-28T06:15:21Z2014-03-28T06:15:21ZPension shake-up will leave some high and dry without proper guidance<p>The recent budget announcement providing freedom for retirees to decide <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293759/37630_Budget_2014_Web_Accessible.pdf">how to allocate their own pension pots</a> was a bold and surprising move.</p>
<p>However, a number of issues are clearly opened by this policy. The first is squarely in the realm of standard economics and was pointed out <a href="http://www.ifs.org.uk/projects/426">by Carl Emerson</a> at the Institute for Fiscal Studies budget briefing. Left to their own devices people with low life expectancies are, on balance, better off not being in annuities schemes. This leads to an “<a href="http://www.investopedia.com/terms/a/adverseselection.asp">adverse selection</a>” effect where only those with a high life expectancy will chose to stay in, making the funds ultimately difficult to sustain.</p>
<p>Moving to the less traditional realm of behavioural economics there are clearly many potential issues with how people make these types of <a href="http://www.nber.org/papers/w13537">complex financial decisions</a>. </p>
<p>Indeed the <a href="http://www.ons.gov.uk/ons/rel/ashe/annual-survey-of-hours-and-earnings-pension-tables/2012-provisional-results/2012-annual-survey-of-hours-and-earnings--summary-of-pensions-results.html">abysmally low levels</a> of defined contribution pension participation in the first place led to the introduction of auto-enrolment in the private sector which has been continuing apace throughout the last year. </p>
<p>While auto-enrolment does preserve an element of choice for individuals in that they can still choose to opt out, the defaults are very strongly set and people are automatically re-enrolled two years after their first opt-out. Substantial guidance and support has been provided to both firms and individuals in choosing default funds that are suitable for people’s characteristics. </p>
<p>Initial indications are that the vast majority of people are responding to the new defaults by staying in their pension schemes. Indeed one issue the government will face is the possibility that individuals who might have saved higher amounts without the default will “stick” at the level they have been allocated. With this in mind, there will be active attempts to encourage individuals to escalate their rates of saving through time.</p>
<p>Given the government has been so active in encouraging people to save more, it seems strange to reduce the intervention at the other end of the cycle. </p>
<p>It could be argued that early intervention is important to compensate for inexperience and to get people in the habit of saving. After all, with age comes wisdom, and a better appreciation of personal finances. Perhaps retirees can be expected to suffer less from biases that might influence younger people?</p>
<p>This is unlikely, however. There are many reasons why people may be <a href="http://www.fca.org.uk/static/documents/thematic-reviews/annuities-consumer-behaviour-review.pdf">poor at planning</a> from retirement to death.</p>
<p>Underestimating life expectancy and the costs of long-term care is a key factor and one that will drive individual decisions. People also tend not to pay enough attention to the fees financial firms charge them, and thus end up with lower returns than would be expected in a truly rational market.</p>
<p>Furthermore, people tend to invest in a narrow range of assets they can understand clearly such as property, stock market funds or even just leaving money in low-interest deposit accounts.</p>
<p>The government has partly acknowledged these issues by introducing one-to-one impartial advice sessions for retirees. But it is unlikely such sessions will be able to override the problems arising from a large number of inexperienced investors suddenly arriving onto the market. </p>
<p>The striking <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/227039/opt-out-research-large-employers-ad_hoc.pdf">increase in pension participation</a> among auto-enrolled employees – <a href="http://www.bbc.co.uk/news/business-26156277">2.9m signups</a> since October 2012 – highlights the futility of many of the attempts to improve pension participation through advice and information that preceded it. Just as people know smoking is bad for you, the fact that saving is a sound long-term strategy is well known; however acting on this proves difficult for many individuals due to the complexity involved.</p>
<p>Some say that attempts to restrain an individual’s choice of how to spend their pension pot is disrespectful towards their freedom. But this is a facile argument. Under the announced policy the government will already tax money taken from pension pots and it is no more intrusive to seek to regulate what might happen in the new market created by the budget announcement.</p>
<p>The implications for long-term care provision are particularly worrying. What happens if, or when, a large number of retirees are lured into very low-return or risky investments through confusion and predatory third-party marketing – who will pay for their care? </p>
<p>The <a href="http://www.fca.org.uk/static/documents/occasional-papers/occasional-paper-1.pdf">Financial Conduct Authority (FCA)</a> should set very clear guidelines on the type of products that can be offered to people as default retirement funds, and it must enforce strict rules on how fees, risks and rates are communicated to individuals.</p>
<p>The fact people differ markedly in their ability to make good financial decisions has been absent from policy and behavioural economics discussions for many years. If the government’s proposed one-to-one consultation initiative is to be effective it must recognise this. </p>
<p>Clearly, some retirees will use the freedom provided by the chancellor’s announcement to successfully seek higher value returns than they had previously been receiving. But those others who need far more than a simple advice session must not be ignored. </p>
<p>Both government policy and practical advice needs to recognise the many different types of retirees out there and be tailored accordingly. A blunt one-size-fits-all pensions policy risks simply handing financial companies easy profits at the expense of real financial stability for many households.</p><img src="https://counter.theconversation.com/content/24861/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liam Delaney does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The recent budget announcement providing freedom for retirees to decide how to allocate their own pension pots was a bold and surprising move. However, a number of issues are clearly opened by this policy…Liam Delaney, SIRE Professor of Economics , University of StirlingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245482014-03-24T06:06:45Z2014-03-24T06:06:45ZNew childcare accounts help those who already afford quality<p>The coalition has <a href="https://www.gov.uk/government/news/millions-of-parents-to-get-help-with-childcare-costs">placed a series of new plans</a> on the table with regard to childcare and early years education. Most eye-catching is the new “tax-free childcare” scheme: from September 2015, for every 80 pence parents pay into a special childcare account, government will add 20 pence, up to a maximum annual government contribution of £2,000 per child. </p>
<p>For universal credit recipients, government has pledged to meet 85% of childcare costs, rather than 70% under existing plans. Finally, an early years pupil premium will be introduced, with £50m of extra funding set aside for schools and nurseries to use on helping disadvantaged three and four-year-olds. </p>
<p>Additional investment in the childcare sector is certainly welcome. Funding on services for very young children in the UK has risen dramatically in recent decades, <a href="http://www.casedata.org.uk/under_fives">rising nearly four-fold</a> during Labour’s time in office. </p>
<p>But we still lag behind countries doing the most effective job in providing affordable and high-quality childcare which is accessible to all, such as Norway and France. In <a href="http://www.policypress.co.uk/display.asp?ISB=9781447310518&">recent international comparative work</a>, my colleagues Ludovica Gambaro, Jane Waldfogel and I have argued that funding must continue to rise to deliver further progress. But has the government chosen the right way to invest the extra money?</p>
<h2>Boost prices, not quality?</h2>
<p>The bulk of the new money – an estimated £750m a year – will be spent on the new childcare accounts. These have a certain attraction: they are clear and transparent, allow other adults to pay in, and will reach considerably more people than under the existing <a href="http://www.hmrc.gov.uk/calcs/ccin.htm">employer childcare voucher scheme</a>. </p>
<p>The lack of affordable childcare is an area where the UK stands out poorly in international comparisons – even the highest earners in the Netherlands pay just 66% of costs. At least now British parents will pay a maximum of 80% of childcare costs, rather than 100% at present. </p>
<p>And yet there are at least two reasons that this new system seems poorly designed and ill-thought out. First, <a href="http://www.policypress.co.uk/display.asp?ISB=9781447310518&">in many other countries</a>, fees are income-related, which means that government subsidies are higher the lower a person’s pay. </p>
<p>Instead, this new flat-rate 20% system sees a higher subsidy for parents who can afford to spend more – on more hours or on higher quality – which appears regressive and counter-intuitive. </p>
<p>Second, in a context in which a strong for-profit sector is in operation, there must be concerns that additional government resources will simply boost prices and profits, rather than increase either affordability or quality. </p>
<p>A strong recommendation <a href="http://www.policypress.co.uk/display.asp?ISB=9781447310518&">from our international work</a> is that government funding needs to come with clear strings attached. In Norway, public funding to privately-owned kindergartens is conditional not only on strict quality criteria, such as graduate staff qualifications, but also on profits being “reasonable” and the share of the company’s income spent on staff being comparable to that in kindergartens run by the local authority. It is a major worry that in the UK, this new funding has no such strings.</p>
<p>There is <a href="http://www.suttontrust.com/our-work/research/item/sound-foundations/">good evidence</a> that graduate qualifications for early-years staff are key in delivering high-quality provision, with the greatest impact on poorer children. Spending so much additional money on subsidising childcare for even the wealthiest families in society, and nothing on investing in more qualified staff, particularly <a href="http://www.nurseryworld.co.uk/nursery-world/news/1141681/shortage-quality-childcare-scheme-risk">as free places are expanded to reach more disadvantaged two-year-olds</a>, seems a terribly wasted opportunity.</p>
<h2>Still lagging internationally</h2>
<p>Raising the share of childcare costs covered for universal credit recipients from 70% to 85% certainly makes every sense. The <a href="http://www.resolutionfoundation.org/media/media/downloads/All_work_and_no_pay_1.pdf">Resolution Foundation has pointed out</a> that under the previous 70% rule, second earners in low-income households faced very low or even negative incentives to go to work. </p>
<p>The <a href="http://www.bbc.co.uk/news/business-11621984">reduction of the share of childcare costs</a> met under Working Tax Credit from 80% to 70% in April 2011 was one of the coalition government’s least logical moves, hitting just those families it professed to support. This decision repairs that damage; though it is worth noting that low-income working households in the UK will still pay a higher share of childcare costs than in many of our European neighbours. <a href="http://sticerd.lse.ac.uk/dps/case/cb/CASEbrief32.pdf">In the Netherlands low-earners pay just 3.5%</a>, for example.</p>
<h2>Little funding for pupil premium</h2>
<p>What of the early years pupil premium, which will give nurseries and schools that look after disadvantaged three and four-year-olds an additional funding boost? Exactly how this will operate is unclear, but the basic principle is sound.</p>
<p>Currently, nurseries and schools effectively receive a flat-rate payment per child, regardless of their background. Although local authorities can provide additional supplements for disadvantage, few do so because they receive no additional funds from central government. </p>
<p>Children with fewer resources at home are likely to need additional support in school and nursery, a principle that is well-established in relation to compulsory schooling. For many years, <a href="http://sticerd.lse.ac.uk/dps/case/spcc/wp03.pdf">more resources have been channelled</a> to poorer areas and schools with a more disadvantaged intake, most recently in the form of the pupil premium. Extending this principle down into early education is in the best interests of children who have <a href="https://theconversation.com/early-years-education-is-a-class-leveller-not-an-optional-extra-24379">most to gain from high-quality early education</a>.</p>
<p>Nevertheless, while the move is a step in the right direction, we should keep an eye on the scale of the proposed investment: £50m is not very high in the context of <a href="http://sticerd.lse.ac.uk/dps/case/spcc/wp04.pdf">around £4.4 billion</a> spent on free nursery places for three and four-year-olds. There are around 1.2m children accessing these places, so if the money is targeted on the poorest 20%, these children will receive an extra £200 each on top of current spending of around £3,500 each. Not negligible, and certainly welcome, but unlikely to transform children’s experience. </p><img src="https://counter.theconversation.com/content/24548/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kitty Stewart has received funding for her work on early education, childcare and children's life chances from The Nuffield Foundation, the Joseph Rowntree Foundation and the Trust for London. </span></em></p>The coalition has placed a series of new plans on the table with regard to childcare and early years education. Most eye-catching is the new “tax-free childcare” scheme: from September 2015, for every…Kitty Stewart, Associate professor, Department of Social Policy, London School of Economics and Political ScienceLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245932014-03-21T14:46:09Z2014-03-21T14:46:09ZThe real issues still fester for the north of England<p>The north of England, along with the central belt of Scotland, created the world we live in today. But the fundamental problems the region now faces stem from the very industrial revolution that shaped it. Put simply, the north is still struggling to cope with the transition from an industrial to a post-industrial society. The distortion of the UK economy towards London and the south-east, as well as the economic shift towards financial capital rather than industrial capital, have hit the north very hard. </p>
<p>The symptoms of failure begin with the extent of poverty. They are also evident in the scale of the loss of productive industrial employment, although the north continues to have a real manufacturing sector and one part of it, the north-east, is <a href="https://www.uktradeinfo.com/Statistics/RTS/Pages/default.aspx">the only UK region</a> with a surplus in international trade based on manufacturing. </p>
<p>So what does the <a href="https://www.gov.uk/government/publications/budget-2014-documents">2014 budget</a> mean for this part of the country? “Not much” is the best answer. The main beneficiaries will be households, and especially retired households, in the top half of the income distribution. Raising the personal allowance for income tax does very little for low-wage workers, many of them part-time. A rise in the threshold level for national insurance would have been worth far more for them and far less for high-income households, particularly if the 10% rate for that tax had been pushed up the income structure. That would have been a genuinely redistributive measure.</p>
<p>Indirect taxes hit the poor hard and there was nothing of substance in the budget addressing that issue. This budget does very little if anything to redistribute wealth, particularly towards low-paid workers. The changes to what people can do with pension pots are good for middle-income, older households, and there are many in the north, but really these just deal to a very limited degree with the disappearance of final salary pensions in the private sector – great manufacturing companies such as ICI used to have excellent schemes – and do no more than allow people to take some risks with their own money. </p>
<p>In terms of support to productive industry there are some welcome elements in relation both to taxation of investment in research and development and support for high-level innovation in applied technology, but these are not radical. Under-investment in manufacturing is a great weakness of the UK industrial system, in marked contrast to that most successful of European industrial economies, Germany, where small and middle-sized firms have an excellent record in this respect. Actually the north of England benefited rather a lot from the German tradition in the 1930s, when Hitler’s regime drove a significant number of industrial and technical entrepreneurs to the UK, where they set up enterprises in the industrial estates developed under the Special Areas regimes. They created thousands of good jobs. That was a real injection of industrial energy.</p>
<p>This budget is piddling in comparison. The funding for graphene research, a material developed in the north of England at the University of Manchester, is minute compared with the investment being made in this revolutionary material in another successful industrial society, South Korea. Money for stem cell research is welcome, but small beer. There is no industrial strategy in this budget for the north, but we have not had anything that looked like one since the days of Harold Wilson, who was actually a very competent industrial economist and statistician. </p>
<p>All this is pretty galling since the financial crisis of the UK is nothing to do with the north and everything to do with the failure of investment banking based in London. Yes, regional bank <a href="http://www.bbc.co.uk/news/business-15769886">Northern Rock</a> did collapse, but that was about business model failure in relation to liquidity rather than in relation to devaluation of assets. Actually the “bad bank” that split off from Northern Rock, which took over mortgages, <a href="http://www.theguardian.com/business/2012/mar/02/ukar-bad-bank-profits-repossessions">seems to be in profit</a> since it did not manage, despite appalling management and oversight, to get embroiled in the US mortgage-based asset disaster.</p>
<p>All in all, George Osborne has presented the nation with a budget for an election, targeted at key voters. Sadly for a large part of the county, those key voters don’t seem to live in the north.</p><img src="https://counter.theconversation.com/content/24593/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Byrne is affiliated with Green Party of England and Wales and University and Colleges Union</span></em></p>The north of England, along with the central belt of Scotland, created the world we live in today. But the fundamental problems the region now faces stem from the very industrial revolution that shaped…David Byrne, Professor, School of Applied Social Sciences, Durham UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/246482014-03-21T06:06:36Z2014-03-21T06:06:36ZEd Balls budget reply: no car crash but hardly vintage stuff<p>The political stock of Ed Balls has been on the rise recently. His <a href="http://www.thetimes.co.uk/tto/news/politics/article4033033.ece">ratings have improved</a> in recent weeks. As part of Ed Miliband’s effort to have a more civilised discussion at Prime Minister’s Questions, he <a href="http://www.thetimes.co.uk/tto/news/politics/sketch/article3976453.ece">has been advised</a> to curb his interruptions and his gestures which tend to look boorish.</p>
<p>In any case, the <a href="http://www.dailymail.co.uk/debate/article-2529324/DAILY-MAIL-COMMENT-The-gesture-Mr-Balls-deserves-voters.html">flat-lining gesture</a> he used no longer works, with the UK <a href="http://www.bbc.co.uk/news/business-26648201">forecast to have the fastest growth rate</a> among major countries in the coming year. The “austerity means no growth” argument is out of the window and the emphasis is now on the cost of living crisis, the argument that the benefits of growth are not reaching voters, in particular “the squeezed middle” to which Labour is hoping to appeal in the general election.</p>
<p>The most difficult question for Balls to answer has been the car-crash question: “Why hand the keys back to the guy who crashed the car?” Labour, of course, would argue that it did not cause the global financial crisis and many neutral observers would agree that Gordon Brown played a useful role in contributing to international efforts to limits its effects. However, until recently, Balls has been reluctant to admit that Labour did anything wrong.</p>
<p>He is now <a href="http://www.thetimes.co.uk/tto/news/politics/article4033033.ece">more willing to admit</a> that mistakes were made, in particular insufficiently tough regulation of the financial sector. His critics would argue that Labour’s big mistake was not to store up surpluses when the economy was booming, but to spend them, so that the UK ran out of money more quickly than it would otherwise have been. A temporary boom in tax revenues was interpreted as a structural and permanent change in the economy, although it can be argued that part of the problem here was the advice offered to ministers by the Treasury.</p>
<p>The opposition leader found <a href="https://theconversation.com/budget-2014-miliband-whips-up-an-eton-mess-attack-24589">responding to the budget speech yesterday</a> “tough” and may regret that he took the task on. There was some disappointment about his speech, after he had to abandon the original version and launch a general attack on government policies. With the captain having failed to score, the goal was there for Ed Balls to hit.</p>
<h2>Less bluster, more substance</h2>
<p>It was certainly an improvement on his response to the <a href="http://www.dailymail.co.uk/news/article-2518768/Autumn-Statement-disaster-leaves-Ed-Balls-red-faced.html">Autumn Statement</a> which was seen as a disaster for him personally and Labour generally. Admittedly, that set a low benchmark to start from – and he did seem distracted by heckling in a relatively sparsely populated chamber and by interventions from Conservative backbenchers. He had some difficulty explaining how, having accepted the principle of a welfare cap, he would pay for it, given his pledge to get rid of the spare room subsidy or bedroom tax. </p>
<p>Taking away the winter fuel allowance from the wealthiest 5% of pensioners, which is what he suggested, will not be enough.</p>
<p>The shadow chancellor tried to start in a statesmanlike fashion, resorting to bluster less than usually and carefully addressing his remarks to the deputy speaker, looking at him as he made his remarks and ignoring the Treasury bench opposite.</p>
<p>However, he then started to descend into political knockabout. Admittedly, the <a href="http://www.bbc.co.uk/news/uk-politics-26658742">bingo and beer poster</a> issued by the Conservatives on Twitter had already attracted a lot of criticism on social media because of its apparently patronising tone and he was able to use it to reinforce the “them and us”, “out of touch” theme which Labour has emphasised. He pointed out that the one penny off the beer duty meant that one would have to drink 300 pints before getting a free beer.</p>
<p>He characterised the budget as the last chance for the chancellor and presented a long list of concessions or help that had been omitted. However, the length of this list blunted its impact – it was like reading a long sentence with lots of semi-colons. </p>
<p>Even so, he was able to make three key charges against George Osborne: that he had failed to eliminate the deficit by 2015, that he failed to rebalance the economy and that living standards had got worse, not better, under the Conservatives.</p>
<p>He also threw down a gauntlet to the chancellor, suggesting that the Office of Budget Responsibility should be able to review the spending and tax plans of all the political parties at the next general election. That might be a risk for Labour, although the OBR could be relied upon to be restrained and qualified in anything it said. </p>
<p>Balls passed the test, if not with flying colours. Now Labour will try to make its charge stick: that Conservative policies benefit the few. The Conservatives meanwhile will try and suggest that Labour lacks economic competence. Balls will be one of their main targets.</p><img src="https://counter.theconversation.com/content/24648/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Wyn Grant has received funding from ESRC and BBSRC, but not on economic policy.</span></em></p>The political stock of Ed Balls has been on the rise recently. His ratings have improved in recent weeks. As part of Ed Miliband’s effort to have a more civilised discussion at Prime Minister’s Questions…Wyn Grant, Professor of politics, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245822014-03-20T13:41:31Z2014-03-20T13:41:31ZBudget 2014: short-term gains for business, bad news for the environment<figure><img src="https://images.theconversation.com/files/44387/original/d47hk446-1395308915.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The UK's coal revival is set to continue.</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/garethdavidwatson/8327536992/">Gareth Watson</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>The big energy policy headline in the budget was well trailed. As expected, the level of the UK’s carbon tax on electricity generation will be frozen from 2016/17 until the end of this decade. Conceived in response to lobbying by energy intensive industries and Labour’s price freeze policy, this change is part of a package that the government claims will save energy consumers up to £7bn.</p>
<p>The tax, known as the Carbon Price Floor, was implemented to compensate for the persistently low price of carbon in the European emissions trading scheme. Rather than increasing as planned, it will be capped at £18 per tonne of CO<sub>2</sub>. This will cost the government <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293740/PU1638_policy_costings_budget_2014.pdf">£1.8bn in lost revenue</a> between 2016/17 and 2018/19. </p>
<p>Because this measure will make electricity cheaper than it would have been, electricity demand is expect to increase by 3-4%. Emissions may also rise too as a result. The compensation package for energy intensive industries that are liable to pay this tax will be extended to the end of the decade, and additional compensation will be available for these industries to offset the costs of renewable energy support policies.</p>
<h2>Economics over environment</h2>
<p>This freeze is unwelcome. It weakens the basic incentive for power generators to switch away from the use of carbon intensive fuels (particularly coal) towards lower carbon options such as gas, renewables and nuclear power. The only exception is a new exemption for electricity from efficient combined heat and power plants.</p>
<p>Coal-fired electricity has experienced a revival in the last couple of years at the expense of gas due to low coal prices. This has led to an increase in power sector carbon emissions after many years of decline. From a climate change perspective, it is very important that policies counteract this economic advantage to reduce the risk that coal generation will be locked in for longer than necessary.</p>
<p>But it is also important to remember that the Carbon Price Floor received mixed reactions when it was introduced. Many investors were sceptical, and foresaw the political risks associated with a measure that could be adjusted by the chancellor each year. They seem to have been vindicated. Its usefulness as a signal for new investment in low carbon technologies was already questionable – and now it is significantly weaker.</p>
<h2>Keeping emissions reductions on track</h2>
<p>To ensure emissions reductions remain on track, other measures may be necessary. The long term contracts for new sources of low carbon generation introduced by the <a href="https://www.gov.uk/government/collections/energy-act">Energy Act 2013</a> will be even more important. The budget does include positive statements about the government’s commitment to renewable energy through these contracts.</p>
<p>In addition to this, <a href="https://www.gov.uk/government/news/electricity-market-reform-capacity-market-design">further details of the “capacity mechanism”</a> were published on budget day. This is a complex mechanism designed to support new flexible generation to help balance supply and demand for electricity. The duration of capacity mechanism contracts for new gas-fired plants has been increased to 15 years. </p>
<p>This may help to improve confidence among investors who have put plans on hold because of poor economics. But the mechanism can also support existing coal plants, some of which could be awarded three-year contracts to pay for refurbishment. This adds to concerns that coal generation (and wider power sector emissions) will not be reduced quickly enough.</p>
<p>The demand side of energy policy was notable by its absence from the budget. A more comprehensive response to high energy bills would have included a greater emphasis on energy efficiency. This is especially the case for households and smaller companies that have limited resources to invest. While the government has an <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/65602/6927-energy-efficiency-strategy--the-energy-efficiency.pdf">ambitious energy efficiency strategy</a> that aims to avoid the need for 22 power stations by 2020, progress has been mixed. </p>
<p>The Secretary of State for energy Ed Davey MP <a href="http://www.theguardian.com/environment/2014/mar/05/green-deal-loan-take-up-disappointing-ed-davey-eco">recently admitted</a> that the uptake of the flagship Green Deal policy had been “disappointing”. Some of the £1.8bn the government will forego as a result of the Carbon Price Floor freeze could have been used to strengthen energy efficiency programmes.</p>
<p>While the pressure to relieve the impact of high energy prices is understandable, this budget increased the risks that the UK’s carbon targets will not be met. It also missed an opportunity to improve energy efficiency, and to insulate energy consumers against high prices in future. </p><img src="https://counter.theconversation.com/content/24582/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The UK Energy Research Centre is funded by three Research Councils: NERC, EPSRC and ESRC.</span></em></p>The big energy policy headline in the budget was well trailed. As expected, the level of the UK’s carbon tax on electricity generation will be frozen from 2016/17 until the end of this decade. Conceived…Jim Watson, Research Director, UK Energy Research CentreLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245172014-03-20T12:55:55Z2014-03-20T12:55:55ZBlue-rinse Budget shows little sign of Lib Dem influence<p>In the budget that will <a href="https://theconversation.com/budget-2014-jobs-not-done-yet-says-osborne-as-he-asks-voters-to-keep-the-faith-24592">set the tone for the Conservatives</a> in the run-up to the general election George Osborne needed to establish a narrative of success without removing the need for more of the same. The “steady-as-she-goes” approach will assist the Tories in conveying the message that any change of direction will likely put Britain’s recovery in doubt. </p>
<p>Put simply, the narrative is they have engineered an economic recovery predicated upon maintaining the current course. Thus planting the seeds for their election campaign. It is of course necessary remember that the nature of the recovery is very much in question, with some suggesting it is a southern-focused housing bubble which is rhetorically sufficient for the Conservatives to make electoral capital out of. </p>
<p>Indeed, for most, the recovery is spoken of very much in south-eastern accents, while the remainder of the country continues to suffer the consequences of retreating investment.</p>
<p>However, the Conservatives approach – although beneficial for them – may be problematic for their coalition partners. This is because the recovery is also very much a Conservative recovery. As they dominate key economic positions in the ministries they are able to claim the necessary credit for the recovery. The economic strategy coming out of Number 11 has been shamelessly Thatcherite with little or no input required from the <a href="http://www.libdemvoice.org/tag/orange-book">Orange Book liberals</a>.</p>
<h2>Left with scraps</h2>
<p>The Liberal Democrats are, therefore, reduced to claiming ownership of scraps left under the table as a means of demonstrating their success. For the Liberals, the budget may even risk pushing them out of the recovery narrative entirely. As we approach the general election the Conservatives will need to demonstrate to its uncertain Right how they have enacted Tory policies. This could, therefore prove a significant moment of divergence between the two in which the senior partner starts to take more of the credit for the Coalition’s economic (and broader) strategy.</p>
<p>Needless to say, had it gone the other way, then the Liberal Democrats could have been the cause of holding back what needs to be done. Unfortunately for Clegg there was never a scenario in which the Liberal Democrats would be able to claim they kept the Tories in check, even if they have done so, because the Conservatives are simply better at establishing narratives in the mind of the electorate.</p>
<p>As such the Liberals are faced with a difficult decision. As the Tories have successfully seized the economic record of the Coalition for themselves, Clegg risks being left with nothing to say. They have failed on <a href="http://www.theguardian.com/commentisfree/2014/mar/09/coalition-lib-dems-tories-phoney-fights-real-battles-budget">constitutional reform</a>, they have failed on social welfare. They have <a href="http://www.independent.co.uk/student/news/nick-clegg-pleads-with-students-to-trust-the-lib-dems-again-in-an-another-attempt-to-put-the-tuition-fee-farrago-behind-him-9152672.html">failed on tuition fees</a>, they have failed on the economy. Only on gay marriage could they claim success, but <a href="http://www.pinknews.co.uk/2013/07/17/david-cameron-gay-marriage-is-something-i-believe-we-can-be-proud-of-as-a-country/">Cameron has taken that for the Tories</a> too. The Conservatives have succeeded on each of these areas and so are better positioned to exploit them over the coming year. </p>
<h2>Clegg lacks a narrative</h2>
<p>The issue seems to be a hesitation on the part of the Liberals to establish their own narrative in a way the Tories seem to be doing. This is partly compounded by a leader who the electorate <a href="http://yougov.co.uk/news/2013/09/15/liberal-democrats-party-conference-2013/">seem to have taken a strong dislike to</a>. Indeed, even if they broadly support a position Clegg is advocating, hostility to the man remains. </p>
<p>And given that the Coalition seems to be the only show in town for them, they are unable to explain why the electorate should vote for them given the party has decayed simply keeping Clegg as DPM. As Clegg <a href="http://www.theguardian.com/politics/2014/mar/09/nick-clegg-lib-dem-leader-2015-election">suggested in a recent speech</a>, he intends to be leader regardless of the outcome in 2015. This pretty much transforms the party into a vehicle for his leadership. </p>
<p>In the meantime, the Conservatives <a href="http://www.telegraph.co.uk/news/politics/9601673/Tories-plan-outright-majority-with-new-40-40-campaign.html">are looking to form a majority government after 2015</a>, so this hesitation on the part of the Liberals therefore embeds them into the record of failure in the Coalition.</p>
<p>Consequently for the Liberal Democrats, the budget represents a final opportunity to demonstrate their successes in government. They have, for the moment, failed to do so. This is a Conservative recovery, based on neo-liberal principles, which the Tories will exploit in the run-up to the general election. On balance, the Conservatives are the clear winners out of the Coalition, whilst the Liberal Democrats have proven the greatest disappointment.</p><img src="https://counter.theconversation.com/content/24517/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew S. Roe-Crines does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the budget that will set the tone for the Conservatives in the run-up to the general election George Osborne needed to establish a narrative of success without removing the need for more of the same…Andrew S. Roe-Crines, Teaching Fellow in Foreign Policy and British Politics, University of LeedsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245842014-03-20T12:27:02Z2014-03-20T12:27:02ZRelief for theatres as treasury expands cultural policy<figure><img src="https://images.theconversation.com/files/44390/original/x3yggdtx-1395312824.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">More of this?</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/reallyboring/10434967113/">Eric Allix Rogers</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>We are finally starting to see an emergent consistency in creative economy policy in <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293759/37630_Budget_2014_Web_Accessible.pdf">George Osborne’s budget</a> statement. The chancellor’s key innovation was the introduction of tax relief for theatres from September 2014.</p>
<p>In January, the UK government seized the news agenda with its <a href="http://www.screendaily.com/news/uk-creative-industries-worth-714bn/5065348.article">Creative Industries Economic Estimates</a>. With one voice, the media told us that the creative industries are worth £8m per hour to the UK economy and account for 5.6% of UK jobs. And with growth of 10% in 2012, the <a href="https://theconversation.com/overlooked-creative-industries-are-recession-proof-22205">creative economy is said to be outperforming all other sectors</a>. </p>
<p>Even if these figures are open to question, they explain why in this budget Osborne has taken measures to improve on them. The new theatre tax relief will support the production of plays, musicals, opera, ballet and dance at a rate of 25% for touring productions. Other theatre productions will receive 20%. </p>
<p>The tax regime will now treat live performance the same way as film and television. Osborne is therefore beginning to bring consistency of policy to the cultural sector as a whole, although <a href="http://www.wired.co.uk/news/archive/2014-03/19/uk-games-industry-tax-break-budget">video games tax relief</a>, mooted since 2007, has not materialised, and still awaits a green light from the European Commission. </p>
<p>Osborne’s new scheme will allow producers mounting a show to claim the tax rebate on 80% of a production’s up-front eligible costs. The relief can be claimed either by offsetting it against corporation tax or as a cash credit.</p>
<p>The higher 25% touring rate is intended to assist regional productions – a quiet move, perhaps, to address the growing clamour over the <a href="https://theconversation.com/hard-evidence-does-london-get-too-much-arts-funding-22328">overheating of London relative to the rest of the UK</a>.</p>
<p>This is certainly a significant gambit, although it remains to be seen precisely how it will work. A consultation will take place before implementation occurs. Issues to be addressed include the definition of “regional” and whether old works as well as new productions are to be included in the relief.</p>
<p>The tax break has been hailed as a crucial move in theatre circles. Nicholas Hytner, director of the National Theatre, <a href="http://www.ft.com/cms/s/0/1ad44478-af88-11e3-9cd1-00144feab7de.html#axzz2wRufMGgO">welcomed</a> the “unequivocally good news” as an “imaginative response to the challenges of theatre production”. </p>
<p>Julian Bird, chief executive of the Society of London Theatre, <a href="http://www.thestage.co.uk/news/2014/03/theatre-tax-relief-monumental-development-industry-reaction/">sees it as a major boost</a> to live performance, potentially attracting millions in investment. The relief allows investors to recoup their upfront costs more rapidly.</p>
<p>And according to Rachel Tackley, president of UK Theatre, commercial theatres will now be able to compete with film producers for investors, whereas the not-for-profit sector “will be able to get a cheque in the post”.</p>
<p>But there is some concern in theatre circles that the Chancellor’s largesse may result in less funding going to Arts Council England. ACE’s budget <a href="http://www.bbc.co.uk/news/entertainment-arts-11582070">has been reduced by one-third since 2010</a> and many local authorities have cut their arts budgets.</p>
<p>Film policy has long had special treatment, being regarded with envy by other cultural sectors. Recent Oscar successes, such as Steve McQueen’s <a href="https://theconversation.com/oscar-winning-12-years-a-slave-is-an-artistic-and-educational-triumph-23932">12 Years a Slave</a> and <a href="https://theconversation.com/why-gravity-does-not-deserve-the-best-picture-oscar-23625">Gravity</a> – made at Pinewood and Shepperton – are seen in industry circles as benefitting from a range of supports.</p>
<p>Aside from lottery finance and spending by BBC Films and Film4, tax relief has been overwhelmingly crucial in attracting inward investment. Consultants Oxford Economics <a href="http://www.ft.com/cms/s/0/b322d0b6-a306-11e3-9685-00144feab7de.html#axzz2wUxFdLq7">have attributed</a> more than 70% of film production to the government’s tax relief. Of £1.07bn spent on UK films in 2013, £868m was attracted by the UK’s tax regime.</p>
<p>The UK’s attractiveness to Hollywood, and the way the inflow of funds supports a range of production skills and ancillary businesses, has now led to a policy consistency across several cultural industries – <a href="http://www.hmrc.gov.uk/ct/forms-rates/claims/creative-industries.htm">HMRC offers</a> creative industry tax reliefs in film, animation and “high-end” television.</p>
<p>To qualify for tax relief, all films, TV programmes, animations or video games must pass a “cultural test”. In short, they have to demonstrate their British cultural credentials. Brussels still has to be convinced that the games industry qualifies in this way.</p>
<p>In the budget, Osborne also announced that there would now be an increased rate of relief for larger budget films. All films will receive 25% of the first £20m of qualifying UK expenditure, and a 20% tax credit thereafter. Clearly, this increases the incentive to produce films in the UK.</p>
<p>Not surprisingly, <a href="http://www.screendaily.com/news/uk-film-tax-relief-confirmed/5069766.article?blocktitle=LATEST-FILM-NEWS&contentID=40562">this has been welcomed by the film industry</a>. Adrian Wootton, CEO of the British Film Commission and Film London has underlined the boost this will bring to special effects, post-production and international co-productions.</p>
<p>The Department for Culture, Media and Sport will doubtless conclude, as we head towards the next general election in May 2015, that at least two vocal cultural sectors have something to be pleased about. While it may not stack up as votes, this positive reception for fiscally driven cultural policy might keep some of the luvvies relatively quiet. </p><img src="https://counter.theconversation.com/content/24584/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Philip Schlesinger receives funding from the AHRC, ESRC and EPSRC.</span></em></p>We are finally starting to see an emergent consistency in creative economy policy in George Osborne’s budget statement. The chancellor’s key innovation was the introduction of tax relief for theatres from…Philip Schlesinger, Professor of Cultural Policy , University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/246092014-03-20T06:11:04Z2014-03-20T06:11:04ZBudget 2014: there could be a sting in the tail for savers and pensioners<figure><img src="https://images.theconversation.com/files/44337/original/hmnmvfg5-1395250035.jpg?ixlib=rb-1.1.0&rect=4%2C32%2C882%2C651&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Much to ponder for Osborne's favourite voters.</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/robertsharp59/4468420870/sizes/l/">Robert Sharp</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The Chancellor of the Exchequer, George Osborne, “pulled a rabbit out of the hat” for pensioners and savers with changes to UK pensions that have been hailed as the most significant overhaul to the system since 1921. Simply put, the chancellor is trying to give the 13m people who find themselves in defined contribution schemes more choice in how they invest their money in retirement.</p>
<p><a href="https://theconversation.com/budget-2014-experts-respond-24591">After the budget announcement</a>, those retiring in a defined contribution scheme will no longer be forced to buy an annuity to guarantee them an income over their retired life. As well as this, the 55% rate of tax charged on lump sum withdrawals over 25% of the value of the pension pot will be abolished, and any withdrawal above the 25% threshold, will now be taxed at the marginal rate. Are these sweeping changes? The answer is yes. Whether they are good is another issue.</p>
<h2>A new annuity regime</h2>
<p>Choice is always seen as good. Current annuity rates mean that for £100,000 you will get circa £4500 for every year that you live, so if you live for three years in retirement you lose out, but if you live for 35 years, you gain. Moreover, if you were to take £4500 from the pot each year as income, ignoring any sort of interest or investment returns, it would last just over 22 years. Current annuity rates are clearly not attractive for pensioners, and prior to the Budget, pensioners were locked into these rates by law. </p>
<p>Individuals now have the choice of how to invest and structure their retirement. However, if individuals get these calculations wrong, and say take £10,000 a year as they expect to live for a decade in retirement – if they live for 20 years, they have a serious problem. The pot will be empty.</p>
<p>One advantage of pension vehicles, such as <a href="http://www.legalandgeneral.com/annuities/guide-to-annuities/annuities-explained/">annuities</a>, is the money is locked away. Ease of access is a problem, as a rainy day is always lurking around the corner. The money in many instances will be whittled away because of normal things that happen over the course of ones life. Broken washing machines, expensive MOTs and so on will naturally erode the pot. This security has now been removed.</p>
<h2>A new crisis lurks</h2>
<p>Other changes for savers such as the increase in the ISA threshold are clearly good news for savers. Individuals can now save up to £15,000 per annum, whether it is in cash or in shares. However, for most people, cash is the common savings vehicle as it gives them liquidity against life events. Where cash is the investment of choice, the problem remains despite today’s announcement; that the rates of interest on deposits in the current climate are negligible. In real terms, saving cash in an ISA has eroded the value of the money since 2008 as they generally pay interest of 1% and inflation has been around 3%.</p>
<p>So the question is: has George Osborne really “pulled a rabbit from the hat”? The short answer is yes from a political momentum point of view. He has clearly set himself on the side of savers and pensioners and his comment of “you’ve earned it, you’ve saved it. This government is on your side”, will definitely ring true with many people who have been affected badly since 2008; or who are staring at pitiful annuity rates as they look to retire in the coming 5-10 years. For savers, the changes to the ISAs look good, but until banks start providing them with decent interest rates on deposits, there will be no tangible benefit to increased levels of tax-free savings. </p>
<p>More worrying is what happens to those individuals who can now make choices about how to spend their pension pots. Choice may be a good thing in theory, but those about to retire will need to be much more financially literate to understand the decisions that they are making. As well as this, they will need to be given good advice from the finance industry and not just sold another product. Otherwise, there could be another pensions crisis on the horizon.</p><img src="https://counter.theconversation.com/content/24609/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iain Clacher has previously consulted to the NAPF on accounting for pensions,</span></em></p>The Chancellor of the Exchequer, George Osborne, “pulled a rabbit out of the hat” for pensioners and savers with changes to UK pensions that have been hailed as the most significant overhaul to the system…Iain Clacher, Associate Professor in Accounting and Finance, University of LeedsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245832014-03-20T06:10:41Z2014-03-20T06:10:41ZOsborne set to leave an awkward debt parcel for his successor<figure><img src="https://images.theconversation.com/files/44336/original/7syw9k9g-1395249280.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">This man came into school today and kept going on about hard work.</span> <span class="attribution"><span class="source">Oli Scarff/PA</span></span></figcaption></figure><p>George Osborne’s <a href="http://www.mirror.co.uk/news/uk-news/chancellor-george-osborne-babysits-ed-3249844">impromptu child-minding</a> of shadow chancellor Ed Balls during pre-budget interviews summed up his task in the last full year before the election as effectively as Wednesday’s budget speech. </p>
<p>Put simply, the chancellor must convince the <a href="http://www.jrf.org.uk/publications/tackling-poverty-supporting-earning-families">increasing number</a> of dual-earner families that the new <a href="http://www.independent.co.uk/news/uk/politics/budget-2014-chancellor-george-osborne-to-woo-family-vote-with-a-2000-childcare-sweetener-9198205.html">childcare subsidy</a> is part of a strategy for ensuring that their work commitments pay. At the same time he must also reassure stay-at-home parents that they are included in the <a href="https://theconversation.com/obsession-with-hard-work-is-a-dangerous-distraction-18809">clichéd praise</a> for “hard-working families”. </p>
<p>He must persuade all middle-income earners that the government has helped them during the long wait for economic recovery. Here, the hope is that increases in the personal income tax allowance (to £10,500 from April 2015) will outweigh the effects of inflation that has “fiscally dragged” 1.4m people <a href="http://www.dailymail.co.uk/news/article-2554401/Extra-1-4million-people-sucked-40p-tax-bracket-Coalition.html">into the 40% tax bracket</a> and deprived them of child benefit when they hit that higher rate.</p>
<p>Most poignantly, Osborne’s helping hand to Balls Jr symbolised his promise to today’s children that he is rescuing them from a mortgaged and growth-constrained future, by arresting the rise in national debt. The coalition’s lapse from his <a href="http://cdn.budgetresponsibility.independent.gov.uk/March-2013-EFO-44734674673453.pdf">original timetable</a> for balancing the budget has been turned into a reason for re-electing it, to finish the job of defusing the “debt bomb”. </p>
<p>The latest Office for Budget Responsibility (OBR) <a href="http://budgetresponsibility.org.uk/pubs/18291-March_2014_EFO_Charts_and_Tables.xlsx">forecasts</a>, released on budget day, point to balance being almost another parliamentary term away. Despite the return to growth having been delayed almost three years, the economy is already closer to full capacity than the OBR and Treasury <a href="http://cdn.budgetresponsibility.independent.gov.uk/FER2013.pdf">originally anticipated</a>. But this means less additional revenue is set to flow as growth quickens over the next few years, so more of the remaining deficit reduction will have to come from further spending cuts or tax rises. </p>
<p>As a result, the present government has already borrowed more in its first three years (<a href="http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-318921">£267.4 billion</a>) than the previous government did in the preceding three (£243.3 billion), at a time when the global financial crisis was at its worst. Osborne is on course to be the chancellor who added more to public debt than any other, lifting the net debt to <a href="http://budgetresponsibility.org.uk/category/topics/public-finance-forecasts-topics/">79% of GDP</a> in 2015/16. </p>
<p>With this year’s deficit almost twice the 2010 target, the recovery has been more reliant on “automatic stabilisers” – the rise in obligatory payouts during recession – than anyone at the treasury would like to admit.</p>
<p>In any case, the idea that the UK’s public deficits and debt of 2010 were unsustainable, going above levels that it could grow its way out of, has taken a battering during Osborne’s time in office. The effectiveness of budget deficits in restoring growth when an over-borrowed private sector is forced into saving has been shown to be <a href="https://www.imf.org/external/pubs/ft/wp/2013/wp1301.pdf">much more powerful</a> than the chancellor’s advisers believed in 2010. Evidence that public debt – even at 90% of GDP – starts to restrain the rate of growth was found to have been exaggerated by <a href="http://www.newyorker.com/online/blogs/johncassidy/2013/04/the-rogoff-and-reinhart-controversy-a-summing-up.html">arithmetical error</a> and a <a href="http://www.levyinstitute.org/publications/?docid=1273">questionable data set</a>.</p>
<p>Backhanded compliments to these “Keynesian” rediscoveries abound in the subtext of the budget, which is one of prolonging the public deficit to help the private-sector borrowing that has driven the recovery to date. </p>
<p>This is evident across several different policies. The <a href="http://www.constructionenquirer.com/2014/03/17/house-builders-rejoice-as-help-to-buy-extended-to-2020/">extension until 2020</a> of the Help to Buy mortgage subsidy and the raising of stamp-duty thresholds seeks to stoke the housing market; funding-for-lending aims to mobilise small-firm credit; and a further <a href="http://www.hmrc.gov.uk/rates/corp.htm">drop in corporation tax</a> towards 20% plus temporary doubling of capital allowances and export credits looks to get more large firms investing their precautionary cash piles. </p>
<p>The danger is that it’s private-sector debt, already much larger than the public sector’s (<a href="http://www.bankofengland.co.uk/publications/Documents/fsr/2013/fsr34sec2.pdf">more than 150% of GDP</a> even when the banks and shadow-banks are excluded), that may have jumped back above safe levels under this Chancellor. For all his child-related charity, that’s an awkward parcel in his successor’s privatised post.</p><img src="https://counter.theconversation.com/content/24583/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alan Shipman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>George Osborne’s impromptu child-minding of shadow chancellor Ed Balls during pre-budget interviews summed up his task in the last full year before the election as effectively as Wednesday’s budget speech…Alan Shipman, Lecturer in Economics, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245942014-03-19T18:32:31Z2014-03-19T18:32:31ZBudget 2014: Osborne gambles on business boost to anchor the recovery<p>As usual the budget is as much about the <a href="https://theconversation.com/budget-2014-jobs-not-done-yet-says-osborne-as-he-asks-voters-to-keep-the-faith-24592">theatre of the event</a> as it is the economics of what is being announced. The chancellor, George Osborne, was able to make some dramatic pronouncements about pensions, savings and the taxation of energy that are designed to appease key constituencies ahead of next year’s general election, but a longer-term assessment of the budget will depend on whether the incentives to support investment, exports and manufacturing are successful.</p>
<p>The backdrop is one that shows the economy is finally managing to achieve a rate of economic growth close to its underlying potential. This should shortly bring real output back to the level that was seen at the time of the financial crisis. This <a href="https://theconversation.com/budget-2014-how-good-politics-can-trump-good-economics-24439">sluggish performance</a>, which lags well behind what <a href="http://www.reuters.com/article/2014/02/28/us-usa-economy-idUSBREA1Q16020140228">has been seen in the US</a>, is a consequence of the government’s decision to prioritise the reduction in the budget deficit at the expense of providing support for economic activity.</p>
<p>Osborne has said that the focus on austerity will continue, meaning that the government will not provide a major support to the economic expansion. This leaves household spending, business investment and exports as the potential drivers of economic growth. Ideally, Osborne would like business investment and exports to be the motors of economic activity. The re-balancing in favour of investment and export-orientated manufacturing, from pre-crisis domestic and service-sector consumption has been a stated goal of the current government.</p>
<p>There is tentative evidence that manufacturing is improving with <a href="http://www.theguardian.com/business/2014/jan/28/gdp-data-uk-growth-recovery-osborne-business-live">positive readings</a> in the final three quarters of 2013. However, this comes after the sector had fallen a little more than 10% since the first quarter of 2008. Most of the improvement in the economy in 2013 came from consumer spending, the trade balance contributed virtually nothing and the gross fixed-capital formation part of business investment provided a small positive contribution to overall activity.</p>
<h2>Spurring investment</h2>
<p>The lack of business investment is something of a concern. The chancellor has tried to address this with budget measures such as the increase in the annual investment allowance to £500,000. This will cost the government £2 billion and will, argues Osborne, encourage an increase in the purchase of new plant and machinery by the private sector. If that is the case, it would help manufacturing and may even support the broader regional development of the economy. </p>
<p>However, a lack of business investment is not a UK phenomenon. The lacklustre nature of <a href="http://article.wn.com/view/2014/02/27/Business_Investment_Still_Sluggish/">business investment in the US</a>, which is at a more advanced stage of economic recovery from recession, raises some doubt about how effective Osborne’s policy will be. And he really needs it to be successful if he is to capitalise on the signs of improvement in the economy. There is a limit to how much more household consumption can do. </p>
<p>One of the extraordinary features of the UK economic recovery has been the fact that it has generated a remarkable number of jobs. The <a href="http://www.bbc.co.uk/news/business-26644758">employment data for the three months to January 2014</a> reveal that a record 30.2 million people are working. The unemployment rate is 7.2%. Questions have been raised about the quality of some of the jobs that have been created, a point raised by the Labour opposition leader Ed Miliband in <a href="https://theconversation.com/budget-2014-miliband-whips-up-an-eton-mess-attack-24589">his response to the budget speech</a>, with anecdotal evidence of a <a href="http://www.theguardian.com/uk-news/2014/mar/10/rise-zero-hours-contracts">rise in zero-hour and flexible working</a>. </p>
<p>It is clear that there is continued pressure on living standards, with the employment data revealing that average earnings were rising at only 1.4% in the three months to January compared to an average CPI index increase of 2.0% in the same period.</p>
<h2>Missed opportunity in infrastructure?</h2>
<p>Osborne also used the budget to encourage savings by removing the 10% savings tax threshold, increasing the amount that could be saved tax-free in ISAs as well as making some changes to the pension system. If he is successful in encouraging more savings, then the chancellor will be even more reliant on business investment or overseas buyers of UK goods to get the economy going. Meanwhile, the tax cut and more solid evidence that the economic recovery is well anchored may spur a bout of private sector investment spending.</p>
<p>There are some modest plans to increase government investment in roads, flood defences and some specific projects. However, with the rate at which the government can borrow still very low, it would have made more sense to have used this opportunity to increase the size of these government investments in long-term capital projects. This could have provided a catalyst to private sector investment and would have meant it was less likely that Osborne will have to continue to rely on consumer spending.</p><img src="https://counter.theconversation.com/content/24594/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rob Hayward does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As usual the budget is as much about the theatre of the event as it is the economics of what is being announced. The chancellor, George Osborne, was able to make some dramatic pronouncements about pensions…Rob Hayward, Senior lecturer, University of BrightonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/244452014-03-19T16:17:31Z2014-03-19T16:17:31ZBudget 2014: cash for research set against an overall story of long-term decline<p>Innovation policy in the UK has taken on a medieval cast. No sooner do we have <a href="https://www.catapult.org.uk/">Catapult Centres</a>, than there is a call for <a href="http://www.theguardian.com/higher-education-network/blog/2013/oct/15/witty-report-universities-growth-economy">Arrow Projects</a>. This is the headline recommendation of a <a href="https://www.gov.uk/government/publications/universities-and-growth-the-witty-review">report</a> to government by Sir Andrew Witty on the role of universities in driving economic growth. </p>
<p>The tip of the arrow, in Witty’s metaphor, is world-class research from leading universities – behind this tip we should mobilise research institutes and private sector partners to develop new technologies that would drive new economic growth, involving British companies, big and small, in new supply chains. </p>
<p>After a long period in which the industrial policy of successive British governments was not to have an industrial policy, we are once again seeing sector strategies being developed and some technologies being identified as priorities. </p>
<p>We see more prominence for the Technology Strategy Board, and the development of Catapult Centres as physical hubs for translational research, which helps transform scientific findings into practical use for people’s health. <a href="https://theconversation.com/graphene-condoms-super-thin-and-tough-but-is-that-enough-to-make-people-have-safer-sex-22359">Graphene</a>, cell technology, and quantum information technologies have been singled out as areas in which world-leading research supported by our research councils should be purposefully translated into new products and new businesses. <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293759/37630_Budget_2014_Web_Accessible.pdf">New announcements in the budget</a> of new Catapult Centres in two of these areas continue this direction.</p>
<p>The budget announcements have a high political profile, but they are small interventions against a big picture of continuing overall decline. </p>
<h2>Decline in research</h2>
<p>Last week saw a government <a href="https://www.gov.uk/government/publications/universities-and-growth-government-response-to-the-witty-review">response</a> to the Witty report, which warmly welcomed its recommendations, while making few actual new commitments to support them. But last week also saw the publication of the latest set of <a href="http://www.ons.gov.uk/ons/rel/rdit1/gross-domestic-expenditure-on-research-and-development/2012/index.html">national research and development statistics</a>. </p>
<p>Total research and development expenditure – in the private sector, in government laboratories and in universities – has fallen in both cash and real terms. In proportion to the size of our economy, it is <a href="https://theconversation.com/drop-in-uk-research-spending-leaves-it-trailing-rest-of-the-eu-24311">now substantially lower</a> than both established economic rivals such as France, Germany, the USA and Japan and emerging economic powers such as Korea and China. </p>
<p>Our continuing economic problems, with stagnating productivity and a continuing inability to produce enough tradeable goods to pay our way in the world, suggest that we should worry about how effective our innovation system is for translating science into economic growth.</p>
<p>But this is hardly a new problem. Does <a href="https://theconversation.com/business-drops-the-baton-in-higher-ed-innovation-22067">the Witty Review represent the kind of radical new approach</a> that might help us solve this persistent problem? Or are there more deep-seated issues that require a more fundamental rethink? </p>
<p>The “arrow” metaphor puts the role of basic research at the forefront. The Witty Review follows in a long tradition of UK science and innovation policy in assuming that translating strong basic research into economic growth is a matter of improving the connectivity between research and industry – particularly innovative small and medium-sized enterprises. It also encourages universities to make the most of their intellectual property through spin-outs, and ensures a continuous output of skilled people.</p>
<h2>Demand side needs a boost</h2>
<p>That is all worthwhile, but it is all about the supply side of the innovation system, and the message from last week’s research and development figures should be that this is not enough. Most of the UK’s research takes place in the private sector, which saw another 2% decline in 2012. In the sector in which Sir Andrew Witty’s own company, GSK, operates – pharmaceuticals – research and development fell by 15%.</p>
<p>The relative decline in business research and development in the UK is a long-term phenomenon. It began in the 1980s. It is a phenomenon that is unique to the UK. </p>
<p>Research and development is not the only source of private sector innovation, but it is important as a measure of the degree to which business is organising itself to create valuable new products and processes through technological innovation. The decline in private sector research intensity in the UK is a signal that the problems with our innovation system cannot solely be addressed by supply-side measures: the problem is on the demand side.</p>
<p>The origins of the UK’s declining capacity to deliver commercially valuable technological innovation are deep-rooted, and have been analysed in more depth in my own paper <a href="http://speri.dept.shef.ac.uk/2013/10/30/speri-paper-no-6-the-uks-innovation-deficit-repair-it/">“The UK’s innovation deficit and how to repair it”</a>. The causes include an economy marred by persistent short-termism, an over-reliance on the financial sector, and an emphasis on deal-making rather than business building.</p>
<p>There are some welcome signs that some of these problems are being recognised in government, and if the response to the Witty Review doesn’t commit to very much new, it does underline positive signs in the way thinking is evolving in government. </p>
<p>The issue that faces us now is whether the scale of the remedies matches the scale of our problems, or indeed the scale of the opportunities that new technologies could offer. Our chronic and continuing underperformance in research and development – particularly at the strategic and business supported end – suggests that they don’t.</p><img src="https://counter.theconversation.com/content/24445/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Jones is a Council member of the Engineering and Physical Sciences Research Council. This article represents his personal opinion.</span></em></p>Innovation policy in the UK has taken on a medieval cast. No sooner do we have Catapult Centres, than there is a call for Arrow Projects. This is the headline recommendation of a report to government by…Richard Jones, Pro-Vice-Chancellor for Research and Innovation, University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245922014-03-19T15:53:58Z2014-03-19T15:53:58ZBudget 2014: job’s not done yet says Osborne as he asks voters to keep the faith<p>If Cameron is the heir to Blair, Osborne is the heir to Brown. His budgets have always been intensely political. The serious fiscal work now goes on in the spending review and the autumn statement. Budgets <a href="http://www.thetimes.co.uk/tto/opinion/columnists/article4037532.ece">have become rather meaningless</a>, but they still give the opportunity to send political messages to particular groups of voters as well as to reinforce the central narrative of what the government is trying to achieve. </p>
<p>The <a href="http://www.bbc.co.uk/news/uk-politics-26626280">2014 budget</a>, like its predecessors, was filled with endless tinkering with tax rates and tax allowances. There were few big announcements, which was probably deliberate. Budgets sometimes unravel after they have been delivered, as the 2012 budget did most spectacularly, being remembered as the “<a href="http://news.bbc.co.uk/democracylive/hi/house_of_commons/newsid_9712000/9712855.stm">Omnishambles Budget</a>”.</p>
<p>It was important that this budget, just one year before the general election, should not backfire in this way. Osborne wanted to deliver three main messages. The first is that his fiscal plan, first laid out in the emergency budget of June 2010 and in the autumn statement of that year, is working. </p>
<p>The deficit is coming down and the plan now is to eliminate it altogether in 2018, debt will peak in 2016 at 78% per cent of GDP and then start falling, and growth is predicted to be around 2.5% per annum for the next few years. </p>
<p>But Osborne stressed throughout his speech that these targets will only be achieved if his fiscal plan is followed through, which means continuing pay restraint and spending cuts; in other words, continuing austerity, at least as far as the public sector and local government are concerned. This meant that there could be no big give-aways before the election, he said – before going on to announce some.</p>
<p>His second message was that the government wanted to support the recovery by assisting the rebalancing of the economy towards industry and exports and away from finance. There were a number of measures providing incentives to manufacturers to invest more, as well as reducing energy bills. The coalition has been <a href="http://www.newstatesman.com/politics/2014/02/coalition-and-floods-money-no-object-no-blank-cheque">criticised in the past</a> for being too focused on the deficit and neglecting growth. Osborne tried to make amends by talking up the prospects of British industry and predicting an industrial renaissance. “Things are looking up” is seen as a big vote-winner.</p>
<p>His third message was that the government is “on your side”, directed to specific groups of voters the government needs to persuade or hold at the next election. Some of these, like the 1p reduction on a pint of beer and the halving of tax on bingo, were designed for the tabloids. The two more serious measures were tax relief on the costs of child care for working parents and the package of measures for savers and pensioners. The Liberal Democrats were given ownership of the first, in return for the Conservatives being given ownership of the second.</p>
<h2>The five-year test</h2>
<p>Will any of this have an impact on voting, or will this budget like so many in the past barely be noticed? The opinion polls remain stuck, with very little recent movement. The Conservatives face two major problems. The first is that living standards for most voters will be lower in 2015 than they were in 2010. The second is UKIP – the first time that the Conservatives may have to fight an election with a serious challenger on their right.</p>
<p>In his <a href="http://www.totalpolitics.com/print/speeches/35193/george-osborne-mais-lecture-a-new-economic-model.thtml">Mais lecture</a> just before the 2010 election George Osborne said that when people ask the famous question: are you better off than you were five years ago, this will be the first election in modern British history when the answer from the government must be no. His problem is that 2015 will be the second. </p>
<p>This is why he continues to rely so heavily on the argument that the financial crash and recession were entirely Labour’s fault, the result of a decade of debt, and that only the Conservatives can be trusted to build a resilient economy. </p>
<p>Over the last four years Osborne has been forced to revise his forecasts several times and has failed to deliver on his central promises on the debt (which is still rising) and on the deficit and borrowing (which he promised in 2010 to eliminate in the space of one parliament). But none of that matters so long as most voters trust the Conservatives more than Labour to manage the economy. </p>
<p>The pitch to the electorate is: we held our nerve, but the job is not done. Osborne hopes that this central message, combined with even a small rise in living standards between now and the time of the next election, coupled with some of the specific help on child care and savings, will persuade enough voters, particularly those tempted to desert to UKIP, that the economy is at last improving and the Conservatives deserve their vote.</p><img src="https://counter.theconversation.com/content/24592/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Gamble does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If Cameron is the heir to Blair, Osborne is the heir to Brown. His budgets have always been intensely political. The serious fiscal work now goes on in the spending review and the autumn statement. Budgets…Andrew Gamble, Professor of Politics, Queens College, University of CambridgeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245192014-03-19T15:24:31Z2014-03-19T15:24:31ZBudget 2014: measures are an inadequate fix for British manufacturing<p>The current vogue for heralding the recovery of the British manufacturing should not lead us to complacency about the very real difficulties currently faced by the sector. George Osborne’s budget offered one or two fairly substantial measures to support manufacturing, allocating <a href="http://www.independent.co.uk/news/uk/politics/budget-2014-manufacturers-get-7bn-cut-on-energy-bills-9202581.html">£7 billion</a> to lower manufacturers’ energy costs, and doubling the investment allowance. But by failing to tackle the key obstacles to making real his “march of the makers”, there is little to suggest a genuine resurgence is on the cards.</p>
<p>In the lead-up to the budget, we were subject to a steady stream of “good news” about manufacturing in the UK. Most of these stories arise from the media’s tendency to report the statistical output of regular surveys to a regimented timetable, without seriously questioning the importance of tiny monthly or quarterly fluctuations, or the validity of the measures themselves.</p>
<p>Economic activity in virtually all sectors invariably creeps forward in normal circumstances – but consistent improvement from a very low base is not a sign of success. The most remarkable aspect of this story is that it comes so long after the recession ended; that the recovery has been so tardy suggests profound problems with the British economy and manufacturing in particular.</p>
<h2>False positives</h2>
<p>The worry is that misplaced positivity helps to conceal the government’s ongoing neglect of manufacturing – indeed growth in the sector was championed by George Osborne in a <a href="https://www.gov.uk/government/speeches/chancellors-economy-speech-in-hong-kong">key speech</a> on the economy last month, an apparent sign that the economic “Plan A” is working. </p>
<p>In the opening remarks of his speech in parliament today, Osborne argued that while manufacturing “halved” under the Labour government, it is growing under the coalition. This is an utterly meaningless statistic: a much delayed post-recessionary uptick is no indication that manufacturing’s long-term relative decline has gone into reverse. Comically, Osborne neglected to clarify what it was about manufacturing that had previously halved – and intriguingly this passage of his speech does not appear in the version published on <a href="https://www.gov.uk/government/speeches/chancellor-george-osbornes-budget-2014-speech">the government’s website</a>. </p>
<p>In truth, the limited recovery evident in manufacturing has been fuelled by a single industry, that is, car manufacturing. Even this largely consists of Japanese-owned firms increasing production in the UK. Output in the transport equipment industry (principally cars) grew by more than 50% between 2009 and 2013, whereas all other manufacturing industries saw <a href="http://www.ons.gov.uk/ons/dcp171778_351570.pdf">either a fall in output or only a small increase</a>. In fact, in every non-transport industry that has seen rising output, the growth recorded between 2009 and 2010 was greater than that recorded from 2010 onwards.</p>
<p>Clearly, foreign car manufacturers have been attracted by falling real wages and the pound’s significant depreciation; that so few other industries have benefited from the same dynamic is therefore also quite remarkable, and demonstrates the UK’s crippled manufacturing capacity in most industries. Improving capacity requires investment – new factories, upgraded machinery, workforce skills – but business investment as a proportion of GDP remains <a href="http://www.ons.gov.uk/ons/rel/naa2/second-estimate-of-gdp/q4-2013/stb-second-estimate-of-gdp--q4-2013.html">lower than before the recession</a>.</p>
<h2>The energy to change</h2>
<p>The corporate sector can and must invest more. But while Treasury minister Danny Alexander is content to <a href="https://www.gov.uk/government/news/invest-more-to-ensure-economy-hits-top-gear-danny-alexander-to-tell-businesses">lecture British businesses</a> about investing their cash, the coalition government has done little to address the underlying causes of investment stagnation: the chronic short-termism of the financial sector in the UK, the absence of long-term public investment to lever private investment, and poor incentives for institutional investors.</p>
<p>None of these problems feature in the main measures to support manufacturing announced today. The annual business investment allowance will be doubled, with this higher rate continued to 2015 – this should help manufacturing firms as they are more capital-intense. But removing tax barriers to investment does not mean funds for investment will actually be forthcoming. Far greater efforts to reorient the banking system back towards “the real economy” are required.</p>
<p>Many manufacturers will welcome support for lower energy costs, achieved principally by reducing the burden of environmental levies on business. Yet while the chancellor reported that lower energy costs have boosted manufacturing in the United States, he neglected to mention that <a href="http://www.ft.com/cms/s/0/2d259852-8201-11e3-87d5-00144feab7de.html#axzz2wPP83tsb">most European countries</a> have much higher energy costs – not to mention higher wages – than the UK and the United States, yet somehow manage to sustain stronger manufacturing sectors.</p>
<h2>Challenge neglected</h2>
<p>The most acute challenges have been overlooked. Instead we remain dependent on the strategy for manufacturing detailed in the coalition’s 2011 “<a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31584/2011budget_growth.pdf">plan for growth</a>”: changes to tax allowances and more extensive advice services, now supplemented by a de-greening of the tax base. The plan for growth sought to boost “advanced manufacturing”, but more recently declining wages have led the government to turned to low-skilled manufacturing, as it seeks to convince British firms to “reshore” their production back to the UK from overseas. </p>
<p>The one welcome development in recent years has been a greater focus on university-based manufacturing research centres – mentioned in the budget, although it is not clear whether any new funding will be made available. </p>
<p>And housing policy could in fact further damage the manufacturing sector, by extending Help to Buy until the end of the decade. Such schemes suck investment into the housing market and away from the productive economy.</p><img src="https://counter.theconversation.com/content/24519/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Craig Berry does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The current vogue for heralding the recovery of the British manufacturing should not lead us to complacency about the very real difficulties currently faced by the sector. George Osborne’s budget offered…Craig Berry, Research Associate, Sheffield Political Economy Research Institute (SPERI), University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245892014-03-19T15:11:27Z2014-03-19T15:11:27ZBudget 2014: Miliband whips up an ‘Eton mess’ attack<figure><img src="https://images.theconversation.com/files/44324/original/y8v9mjfk-1395239869.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Deficit forecasts? They went that-away!</span> <span class="attribution"><a class="source" href="https://theconversation.com/asset_images/44324/edit">PA Wire</a></span></figcaption></figure><p>Ed Miliband’s response to George Osborne’s Budget statement got off to a good start with a quip about the chancellor’s announcement, flagged in this morning’s press, that a new £1 coin would be introduced to replace the current model which has proved too easy to forge.</p>
<p>The size of the £1 coin, he said, didn’t matter when people were £1,600 worse off.</p>
<p>This is a theme that has become very familiar from the opposition front bench in recent times: working families have not seen any benefits from the government’s policies. In fact, according to Labour, they have <a href="http://press.labour.org.uk/post/66863517888/on-average-working-people-are-more-than-1-600-a-year">lost out by £1,600</a> since the 2010 election.</p>
<p>Miliband suffered several interruptions which required the intervention of the deputy speaker who reminded unruly types on the Treasury benches they had not interrupted their senior colleague.</p>
<p>The opposition leader hammered away at a favourite old refrain which was that the coalition government, stacked as it is with representatives of the Eton-Oxford brigade, is more interested in looking after millionaires rather than ordinary people. </p>
<p>He rather theatrically demanded the prime minister rule out making a further cut in the top tax rate to 40p should the Conservatives be returned, but David Cameron did not respond. </p>
<p>This is undoubtedly a message that Labour will want to push hard next year in the election campaign. The leader of the opposition argued that the government was “out of touch” and had created an “Eton mess” with its policies, referring to recent remarks by Baroness Warsi, a senior minister. It was good political knockabout which got a rousing reception from his own benches – but the real meat of the Labour attack will come when Ed Balls speaks tomorrow with the benefit of 24 hours of frantic scrutinising of the budget documents by his backroom staff.</p>
<p>Labour strategists would like to look to the future rather than revisit the past (which is understandable). The want to emphasise that they are offering an alternative model of the economy to the coalition government, which in their view has failed to rebalance the economy. In particular they want to crack down on what they see as the excesses of big business. The proposed energy price freeze has gone down well with hard-pressed voters. </p>
<p>However, voters still need to be convinced that Labour can actually deliver on its model. If it starts to attract too much criticism from business about what are perceived to be “anti-business” proposals, that may affect assessments of its competence. Labour would argue that it is trying to boost small and medium-sized businesses, but that point may be too subtle for most voters.</p>
<p>There are plenty of criticisms that can be made of the coalition’s economic stewardship. As Miliband pointed out, the deficit is going to take four years longer to disappear than was originally forecast. Exports have been sluggish and the revival of the economy has been too dependent on consumer spending which itself is fragile. The <a href="https://theconversation.com/budget-2014-how-good-politics-can-trump-good-economics-24439">productivity record has been very poor</a>, and while there is much disagreement about why this is the case, and how much “spare capacity” there is in the economy, it means that austerity will have to last longer than would otherwise be the case.</p>
<p>Above all, voters perceive inflation to be higher than the statistics show. Real wages are only just starting to recover – and <a href="https://theconversation.com/hard-evidence-does-the-public-sector-pay-better-24512">not at all in the public sector</a>. There are new threats in the offing to food prices and energy prices. The “cost of living crisis” message is therefore one that has traction with voters.</p>
<p>It remains to be seen whether Ed Balls can get that message across effectively when he rises to deliver his formal reply. </p><img src="https://counter.theconversation.com/content/24589/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Wyn Grant does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Ed Miliband’s response to George Osborne’s Budget statement got off to a good start with a quip about the chancellor’s announcement, flagged in this morning’s press, that a new £1 coin would be introduced…Wyn Grant, Professor of politics, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245912014-03-19T13:58:52Z2014-03-19T13:58:52ZBudget 2014: experts respond<p>Chancellor George Osborne has unveiled his <a href="https://www.gov.uk/government/publications/budget-2014-documents">fourth budget</a>. The blueprint for recovery includes wholesale changes to pensions and savings, attempts to boost business investment, new relief for the costs of childcare, £140m for repairing the damage from the winter’s floods, a £119 billion cap on welfare – as well as a brand new design for the £1 coin.</p>
<p>As the day develops, our panel of experts here give their take on what this budget means for the economy, healthcare, education, the environment and, of course, ordinary members of the public.</p>
<hr>
<h2>Economy</h2>
<p><strong>John Van Reenen, Professor of Economics, London School of Economics</strong></p>
<p>George Osborne boasted of the Britain’s economic strength with raised growth forecast of 2.7% this year. But the budget small print admits that this growth only gets national income up where it was in 2008. Under the Chancellor we have suffered the worst squeeze on wages and the slowest recovery for over a century. The government made a huge policy error by accelerating austerity four years ago. Slashing public investment when output was depressed derailed the recovery – it is still a third lower than before the crisis. </p>
<p>Measures on housing policy create a feel-good factor for homeowners that might help boost the Tory vote, but it puts the taxpayer on the hook for huge debts in the decades to come. And Budget benefits to pensioners are good for grabbing the grey vote, but they have been relatively shielded from the turmoil of the last 5 years. The increases in personal allowances are welcome, though the main beneficiaries will not be the very poor. The budget has some tinkering with taxes to stimulate investment in a desperate attempt to deal with the fact that business investment remains depressed. But the cause is again Osborne-omics: the slashing of government investment, depressed demand due to austerity and the failure to sort out the banks.</p>
<p>For decent growth, jobs and pay, we deserve much better than this.</p>
<p><strong>Chris Martin, Professor of Economics, University of Bath</strong></p>
<p>There is a looming fiscal dilemma. Further cuts to expenditure have been announced but will only kick in after the next general election, due next spring. Should these cuts be implemented? Not doing so would damage the credibility of fiscal plans, something that has been slowly rebuilt since the 2008 financial crisis led to an unprecedented increase in the deficit. But doing so is arguably more risky. </p>
<p>Welfare cuts have proved popular but have not saved significant amounts of money. Significant reductions in the welfare bill would require cutting benefits for older people, something that is extremely difficult politically. Reducing expenditure on health and education would also be difficult. These are major components of public expenditure so a ring fence implies that large cuts in other areas, already the focus of austerity, would be necessary to generate even modest reductions in overall expenditure. The likelihood is, then, that planned cuts will be watered down. That is the sensible choice.</p>
<p><strong>Jo Blanden, Senior Lecturer in Economics and Deputy Head of School, University of Surrey</strong></p>
<p>The BBC has summarised today’s budget as about “pensions, savings and bingo” and indeed there does seem to be a strong focus on the older generation. Politically this makes sense for the Conservatives as older, wealthier groups are more likely to consider voting Tory. But economically the group which has lost out most in the aftermath of the recession is the young with 20 percent unemployment among the 18-24 year olds and average earnings reduced by 8% for those in their 20s. </p>
<p>Ironically intergenerational inequalities were eloquently identified by Conservative Minister David Willets even before the recession started in his well-received book The Pinch. The new pension arrangements are set to net the Treasury a tidy sum, the hope is it will spend it on programmes to ease the squeeze on Generation Y.</p>
<p><strong>Kenneth Gibb, Professor of Housing Economics, Glasgow University</strong></p>
<p>The Chancellor predicts that housing supply initiatives announced today will over their lifetime increase completions by 200,000, three-fifths of which is down to the extension to 2020 of Help to Buy 1 equity loans for new build. Other measures include support for small and medium sized builders and repayable loans to help partnerships redevelop urban housing estates (particularly in the overheated South East), The general immediate view is that much of this is welcome and is a start on substantially expanding supply but is dwarfed by the scale of the challenge (i.e. we need to build about 250,000 units a year to match demand). We will need more Garden Cities (and these are policies with a long pay back period) and far more policies to free up land and encourage new supply.</p>
<h2>Business</h2>
<p><strong>Dr Richard Fairchild, School of Management, University of Bath</strong></p>
<p>I am delighted that this budget makes progress towards promoting business innovation, entrepreneurship, and business growth. The government has announced a series of measures, including reductions in energy costs, designed to encourage business investment and exports. </p>
<p>The budget sets out a commitment to improving business access to finance, and to further improve the integrity and competitiveness of the banking system. The Seed Enterprise Investment Scheme will play a key role in financing innovation. I am particularly impressed with the discussion of fairness in society, and the encouragement to investors to put their money into social enterprises. Measures that shift the culture in society towards fairness, trust, and empathy towards others are to be applauded. Overall, a very encouraging budget in terms of business growth.</p>
<p><strong>Rob Hayward, Senior Lecturer, University of Brighton business school</strong></p>
<p>The Chancellor has tried to address the lack of business investment with budget measures like the increase in the annual investment allowance to £500,000. This will cost the government £2 billion and will, argues Osborne, encourage an increase in the purchase of new plant and machinery by the private sector. If that is the case, it would help manufacturing and may even support the broader regional development of the economy.</p>
<p>However, a lack of business investment is not a UK phenomenon. The lacklustre nature of business investment in the US, which is at a more advanced stage of economic recovery from recession, raises some doubt about how effective Osborne’s policy will be.</p>
<p>Osborne really needs it to be successful if he is to capitalise on the signs of improvement in the economy. There is a limit to how much more household consumption can do.</p>
<h2>Benefits</h2>
<p><strong>Karen Rowlingson, Director of the Centre on Household Assets and Savings Management, University of Birmingham</strong></p>
<p>George Osborne has put a cap on the social security budget stating, in today’s budget, that we should never again allow the cost of welfare spending to “spiral out of control”. By so doing, he has perpetuated one of the many myths about spending on benefits. The reality is that the period 1995-2011 saw expenditure on benefits, as a proportion of GDP, falling sharply and then remaining stable for the longest period since the foundation of the welfare state. </p>
<p>Of course spending has increased since 2008/9 as a consequence of increasing levels of unemployment and underemployment but that is exactly why we have a social security safety net – to support people in times of need. The various caps to social security introduced in this, and previous, budgets, will merely serve to tear this safety net away and leave people vulnerable to severe levels of deprivation.</p>
<p><strong>Michael Kitson, University Lecturer in Global Macroeconomics at University of Cambridge.</strong> </p>
<p>A negative economic shock (say, another world economic crisis) tends to increase the welfare bill – if a cap is imposed, those on welfare will individually see their benefits fall. And the inequity is that a policy of monetary easing to deal with a crisis pushes up asset prices which makes the rich – those owning assets – even richer. </p>
<p>This is a budget that tinkers with the price mechanism by manipulating taxes but does not address the system failures of the economy.</p>
<h2>Scotland</h2>
<p><strong>David McCausland, Senior Lecturer in Economics at University of Aberdeen</strong></p>
<p>With Scotland ageing more rapidly than the UK as a whole, the savings reforms will disproportionately benefit the population here. The changes will certainly be of symbolic importance to savers who have had their savings eroded through inflation over the last few years.</p>
<p>For people who are higher-rate taxpayers, the ISAs will mean that they are not losing 40% of their savings in tax. It ameliorates to some degree the lower interest rates on savings.</p>
<p>But one has to question whether it is right to extend the measures to stimulate the housing market. That kind of policy would tend to favour areas around London, which are already showing signs of over-heting, which threatens to further imbalance the economy. Increasing house prices are not going to make people feel better off, and risk repeating the mistakes of the past of a consumption and housing market-led boom. I would have thought they would want to focus on policies to tackle the erosion of real incomes and to stimulate investment in the economy.</p>
<h2>Tax</h2>
<p><strong>Prem Sikka, Professor of Accounting, University of Essex</strong></p>
<p>The chancellor’s focus on tax avoidance is welcome but still a long way off the mark. It would be interesting to see the details of how this extra £4 billion from curtailment of tax avoidance schemes is calculated. The previous estimates of the amounts to be recovered from money stashed away in Swiss banks have been spectacularly wrong. Even if the UK hits the £4 billion target, there are still billions more lost through avoidance schemes.</p>
<p>The claim that there is decline in tax avoidance because of the reduction in the number of schemes filed under the Disclosure of Tax Avoidance Schemes (DOTAS) legislation is not quite right. Because of the public opprobrium associated with tax avoidance, accounting firms now market “Financial Restructuring Plans” rather than tax avoidance schemes. The schemes can be marketed from places such as Luxembourg or Liechtenstein and thus escape UK laws.</p>
<p>Those who have signed up to tax avoidance schemes will have to pay tax up front; this is a good idea. But companies can easily shift profits to low/no tax jurisdictions through spurious royalty programmers and management fees, so the net effect of this legislation will be very small if any. There is no action on transfer pricing, the biggest device for shifting profits.</p>
<h2>Childcare</h2>
<p><strong>Naomi Eisendstadt, Honorary Research Fellow, University of Oxford</strong></p>
<p>It is encouraging that all three major parties are anxious to deal with the crisis in the price parents pay for childcare. Female participation in the labour market is good for the economy, and, if paid decent wages, good for the reduction of child poverty. The argument goes that a significant cause of in work poverty for families with children is the high price parents pay for childcare, so new subsidies are indeed welcome. But as always, the detail is important.</p>
<p>As the <a href="http://www.telegraph.co.uk/women/mother-tongue/10492042/Autumn-Statement-2013-childcare-costs-Parents-worse-off-under-Government-plans-to-expand-tax-relief.html">IPPR says</a>, a subsidy via tax breaks is regressive, in that the higher paid tax payers get more benefit. A subsidy available for parents earning up to £300,000 per year cannot be seen as the best way to spend scarce resources. More importantly, it is yet again a demand side, rather than a supply side subsidy. We have seen a history of demand side subsidies that result in increasing the prices charged to parents rather than reducing costs. A better strategy would be a supply side subsidy to providers of childcare, conditional on improved training and wages for childcare staff.</p>
<p>Childcare is a notoriously low wage sector, with significant numbers of staff with little or no training. The subsidies announced at this stage seem to do nothing to address the need to improve the quality of childcare, nor the training, pay and conditions of childcare staff.</p>
<h2>Technology</h2>
<p><strong>Suzy Moat, Assistant Professor of Behavioural Science, University of Warwick</strong></p>
<p>It’s excellent to see that the government has recognised the huge economic value to be extracted from big data if the right investments are made. We all make decisions based on what we think is happening in the world right now, and what we believe will happen in the future. </p>
<p>Previously, measurements of human behaviour largely relied on experiments or surveys. In our technology dependent world, nearly everything we do now generates behavioural data, from our shopping, to our travel, to our energy consumption. If we can learn to exploit this data to gain faster, cheaper and larger scale measurements of the world around us, and identify behavioural patterns which repeat to build better forecasts of what’s to come, we can improve the decisions we make about resource distribution and much more.</p>
<h2>Health</h2>
<p><strong>John Appleby, Visiting Professor in Economics at City University and Chief Economist at the King’s Fund</strong></p>
<p>The main message from the Budget is that austerity grinds on. The NHS next year will be at a cliff edge financially. A <a href="http://www.kingsfund.org.uk/projects/quarterly-monitoring-report">regular survey we carry out at the Kings Fund</a> of NHS finance directors shows they are very pessimistic about making ends meet in 2015-16. </p>
<p>In the end we get the health service we pay for. If NHS funding is frozen for the next parliament as the chancellor hinted, then health spending is going to fall as a proportion of GDP to just over 6% by 2021 from a high in 2009 of 8%. This would erode nearly all the increase since 2003 and is a big drop in the share of our wealth that we’re spending on health. </p>
<p>Across all government spending, it was 42.5% in 2014-15 and in 2018-19 the OBR forecast it will be 37.8%. The nearly five percentage point drop in total government spending is a very big fall – to one of the lowest levels in half a century – and will be reflected in continuing cuts in local government and other areas of government spending.</p>
<h2>Arts</h2>
<p><strong>Eleonora Belfiore, Associate Professor of Cultural Policy at University of Warwick</strong></p>
<p>As predicted, there aren’t many surprises for the arts. The government confirms its declared commitment to the creative industries with the extension of the tax relief currently enjoyed by film to theatre. The measure, amply <a href="http://www.thestage.co.uk/news/2013/12/regional-theatre-tax-relief-scheme-proposed-government/">discussed over the past months</a>, is most likely to benefit commercial theatre companies wanting to tour their productions to the regions. It will be interesting to see how this measure will be perceived in the context of the policy maelstrom over the <a href="https://theconversation.com/the-arts-dont-need-more-lobbying-but-a-radical-new-vision-22263">imbalance of public cultural investment</a> between London and regions.</p>
<p>The perhaps unexpected injection of money for the restoration of cathedrals confirms the traditional predilection of Conservative governments for investing in heritage, though it’s probably more a function of the World War I commemorations than the sign of any strategic new focus on heritage.</p>
<p>The truth of the matter is that the fate of the arts is not to be fathomed by interpreting the few paltry mentions they get in the budget. Far more crucial will be to understand the implications of the budget for <a href="http://theconversation.com/despite-bad-headlines-the-arts-in-britain-arent-dead-yet-17144">local government</a> and how they will react to the cuts in store for them.</p>
<h2>Science</h2>
<p><strong>Richard Jones, Pro-Vice-Chancellor for Research and Innovation at University of Sheffield</strong></p>
<p>After a long period in which the industrial policy of successive British governments was not to have an industrial policy, we are once again seeing sector strategies being developed and some technologies being identified as priorities. Graphene, cell technology, and quantum information technologies have been singled out as areas in which world-leading research supported by our research councils should be purposefully translated into new products and new businesses.</p>
<p>These are welcome signs that some of these problems are being recognised in government. But the issue that faces us now is whether the scale of the remedies matches the scale of our problems, or indeed the scale of the opportunities that new technologies could offer. Our chronic and continuing underperformance in research and development – particularly at the strategic and business supported end – suggests that they don’t.</p>
<h2>Environment</h2>
<p><strong>Neil Carter, Professor of Politics, University of York</strong></p>
<p>It’s not a good budget for the environment. All green businesses will of course benefit from the broad range of incentives the chancellor has provided for business in general, but the decision to freeze the carbon price floor destroys the certainty in the energy market that businesses need in order to invest in energy efficiency and green technology measures – and prolongs the life of dirty coal-fired power stations. </p>
<p>It is a shame that efforts to improve the competitiveness of energy intensive smoke-stack industries have to come at the cost of reducing green regulations and levies. On the positive side, money is being spent on repairing flood defences, though it’s not clear yet whether there will be any to build new ones. The confirmation of a new garden city at Ebbsfleet could be interesting if it’s based on good environmental criteria.</p>
<p>But Osborne could have done much more. It’s a shame that the Green Investment Bank wasn’t given the right to raise money on the market, thereby missing an opportunity to channel new investment opportunities into the green sector. He could have boosted the ailing Green Deal. And if he wanted to show he hadn’t completely forgotten about the environment, he could have abandoned this year’s review of the fourth carbon budget, which environmentalists fear could result in a dilution of the UK’s carbon reduction commitments.</p>
<hr>
<p>More budget coverage:</p>
<ul>
<li><a href="https://theconversation.com/budget-measures-are-an-inadequate-fix-for-british-manufacturing-24519">Budget measures are an inadequate fix for British manufacturing</a></li>
<li><a href="https://theconversation.com/budget-2014-miliband-whips-up-an-eton-mess-attack-24589">Budget 2014: Miliband whips up an ‘Eton mess’ attack</a></li>
<li><a href="https://theconversation.com/budget-2014-jobs-not-done-yet-says-osborne-as-he-asks-voters-to-keep-the-faith-24592">Budget 2014: job’s not done yet says Osborne as he asks voters to keep the faith</a></li>
<li><a href="https://theconversation.com/budget-2014-cash-for-research-set-against-an-overall-story-of-long-term-decline-24445">Budget 2014: cash for research set against an overall story oflong-term decline</a></li>
</ul><img src="https://counter.theconversation.com/content/24591/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Karen Rowlingson receives funding from the Arts and Humanities Research Council, the Leverhulme Trust and Friends Provident Foundation.
</span></em></p><p class="fine-print"><em><span>Eleonora Belfiore receives funding from the Arts and Humanities Research Council.</span></em></p><p class="fine-print"><em><span>John Appleby is Chief Economist at the King's Fund.</span></em></p><p class="fine-print"><em><span>Naomi Eisenstadt received funding from Sutton Trust for a project on quality for under threes, Sound Foundations.</span></em></p><p class="fine-print"><em><span>Neil Carter receives money from the Economic and Social Research Council, and is a member of Friends of the Earth and WWF.</span></em></p><p class="fine-print"><em><span>Richard Jones is a Council member of the Engineering and Physical Sciences Research Council. </span></em></p><p class="fine-print"><em><span>Suzy Moat receives funding from the EPSRC and ERC.</span></em></p><p class="fine-print"><em><span>Chris Martin, Jo Blanden, John Van Reenen, Kenneth Gibb, Michael Kitson, Prem Sikka, Richard Fairchild, Rob Hayward, and W David McCausland do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Chancellor George Osborne has unveiled his fourth budget. The blueprint for recovery includes wholesale changes to pensions and savings, attempts to boost business investment, new relief for the costs…Karen Rowlingson, Professor of Social Policy, University of BirminghamChris Martin, Professor of Economics, University of BathEleonora Belfiore, Professor of Communication and Media Studies, Loughborough UniversityJo Blanden, Senior Lecturer in Economics and Deputy Head of School, University of SurreyJohn Appleby, Chief Economist at the King's Fund and Visiting Professor, Department of Economics, City, University of LondonJohn Van Reenen, Director, Centre for Economic Performance, London School of Economics and Political ScienceKenneth Gibb, Professor of Housing Economics, University of GlasgowMichael Kitson, University Lecturer in Global Macroeconomics at Cambridge Judge Business School, University of CambridgeNaomi Eisenstadt, Honorary Research Fellow, Department of Education, University of OxfordNeil Carter, Professor in Politics, University of YorkPrem Sikka, Professor of Accounting, Essex Business School, University of EssexRichard Fairchild, Senior Lecturer in Corporate Finance, University of BathRichard Jones, Pro-Vice-Chancellor for Research and Innovation, University of SheffieldRob Hayward, Senior lecturer, University of BrightonSuzy Moat, Assistant Professor of Behavioural Science, Warwick Business School, University of WarwickW David McCausland, Professor of Economics, University of AberdeenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/245412014-03-19T06:09:39Z2014-03-19T06:09:39ZBudget 2014: Osborne can help business sustain the recovery<figure><img src="https://images.theconversation.com/files/44196/original/jvbdcffz-1395143523.jpg?ixlib=rb-1.1.0&rect=3%2C58%2C902%2C649&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Can he fix it?</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/38865853@N03/6962179321/in/photolist-bBdZmv-8dCjE9-c286Hy-dfqzb3-dS9CjN-bBVGX2-bpjKKf-dsPniz-cnrC3b-ak3yHU-8chv6U-cFaCtQ-hiowNq-8chv6Y">EG Focus</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>There is good news for George Osborne as he approaches his latest budget speech. <a href="http://uk.reuters.com/article/2014/02/12/uk-britain-boe-idUKBREA1B00D20140212">The Bank of England is predicting</a> the economy will grow by 3.4% per cent this year and the Office of Budget Responsibility is expected to raise its growth forecast from 2.4% to just under 3% as well. Several recent surveys also show that UK manufacturers are enjoying strong growth both across the country and in export orders, with overall confidence in the manufacturing sector growing.</p>
<p>All that said, and with little more than a year to go before the next election, Osborne would be premature to celebrate just yet and more will be needed to anchor those encouraging signs in business and industry. Despite the government’s austerity measures, the UK’s underlying fiscal position remains relatively weak. While the Bank of England has helped keep the economy moving with low interest rates and quantitative easing, the government has not managed to reduce the nations’ debts or bring down our deficit anywhere near as much as it should have. This leaves Osborne with a rather tricky balancing act to pull off – to recognise and take political credit for the green shoots while at the same time explaining to the public that there is still a long and slow recovery ahead.</p>
<p>In terms of what we can expect, many of the announcements have already been trailed and it is clear that Osborne wants to make this year a “budget for business”. </p>
<p>Energy costs remain a huge issue for the UK manufacturing sector and while ministers have limited powers to directly affect and lower these, seems there will be some relief for the industry in the form of <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/10701886/Osborne-expected-to-freeze-controversial-carbon-tax-in-Budget.html">reductions in green taxes</a>. Executives have routinely <a href="http://www.ft.com/cms/s/0/2f707024-5a91-11e3-942a-00144feabdc0.html#axzz2wKWuSuYK">bemoaned these levies</a> as a needless drag on growth and Osborne should be able to pick up some goodwill there.</p>
<h2>Investment for growth</h2>
<p>Businesses are also calling for an extension to the annual £250,000 capital allowance which would allow them to invest in things like equipment and offices. And smaller retailers continue to call for a reduction in business rates. It is not clear which of these demands Osborne will meet but one issue voiced across the business sector is that of a significant skills shortage. We would expect to see, therefore, some measures which serve to boost government-backed apprenticeships as well as other training and development support.</p>
<p>But, of course, it can’t only be about currying favour with business, because Osborne has the 2015 general election firmly in view. In his penultimate budget before the country goes to the polls and even given the ongoing fiscal constraints, he must also decide the extent to which he can – and should – begin to woo voters. </p>
<p>The Liberal Democrats have already <a href="http://www.libdems.org.uk/lib_dems_have_won_the_battle_over_tax_cuts">made a lot of noise</a> about the government’s plans to raise the personal income tax allowance to £10,500 which will please many low earners in particular. Tory party grandees and backbenchers were also, over the weekend, piling on the pressure on behalf of Middle Britain. They’d like to see Osborne increase the threshold at which the 40% tax rate kicks in. On current plans, anyone earning more than £41,865 will be caught. This would be a popular measure no doubt but it would also be an expensive one – it’s not certain which way Osborne will go on this.</p>
<p>What is certain is that the budget will contain a <a href="https://theconversation.com/budget-2014-will-osborne-cool-or-fuel-the-housing-market-24491">package of measures aimed at homebuyers</a>. In addition to the announcement of a £200 million fund to help create a new garden city in Ebbsfleet in Kent, Osborne will also extend the equity loan-based Help to Buy scheme from 2015 until 2020. </p>
<p>More speculatively, it remains to be seen whether he will make any changes to stamp duty. Lifting the point at which stamp duty rises from 1% to 3% (from £25,0000 to £30,0000) has been floated and would be extremely well received but would also cost hundreds of millions in lost revenue. Some analysts are calling for a more wide-ranging reform of the stamp duty system, and one that would remove the sudden and significant jumps at the various thresholds, but there is no indication from Her Majesty’s Treasury that this is likely to happen any day soon.</p>
<p>What is the man or woman in the street likely to make of it all? With wages still rising slower than inflation, domestic energy bills riding high and benefits taking a hit, the “feel good factor” is going to be somewhat muted, whatever Osborne announces on all of the above. We should welcome the good news on growth. It is a step in the right economic direction. To make the recovery sustainable, however, British businesses must be given the flexibility to grow and the electorate will have to stomach many tough decisions and frugal years ahead.</p><img src="https://counter.theconversation.com/content/24541/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There is good news for George Osborne as he approaches his latest budget speech. The Bank of England is predicting the economy will grow by 3.4% per cent this year and the Office of Budget Responsibility…Abhinay Muthoo, Professor of Economics, University of WarwickSiobhan Benita, Director of Policy and Strategy in the Department of Economics, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/221422014-03-18T12:33:57Z2014-03-18T12:33:57ZHard Evidence: are young people’s job prospects improving?<p>Recessions always hit young people hard. Firms’ first response to declining orders is to stop hiring new recruits rather than sacking experienced staff. Young people disproportionately rely on new hiring to secure employment as they move from education into the world of work and seek to move to jobs closer to their career goals. </p>
<p>In the past, young people have benefited from any recovery in jobs and youth unemployment has fallen faster as new vacancies return. <a href="http://www.bath.ac.uk/ipr/our-publications/policy-briefs/youth-unemployment.html">Today, this is not happening.</a> Under 25s make up 40% of the UK’s unemployed and have an unemployment rate nearly four times that of older workers. This is among the worst ratio within the Organisation for Economic Co-operation and Development group of countries. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/43978/original/znqzhbbn-1394818013.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/43978/original/znqzhbbn-1394818013.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/43978/original/znqzhbbn-1394818013.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=524&fit=crop&dpr=1 600w, https://images.theconversation.com/files/43978/original/znqzhbbn-1394818013.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=524&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/43978/original/znqzhbbn-1394818013.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=524&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/43978/original/znqzhbbn-1394818013.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=659&fit=crop&dpr=1 754w, https://images.theconversation.com/files/43978/original/znqzhbbn-1394818013.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=659&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/43978/original/znqzhbbn-1394818013.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=659&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Youth vs Adult employment, 2013.</span>
<span class="attribution"><span class="source">OECD Short-Term Labour Market Statistics Database (2013)</span></span>
</figcaption>
</figure>
<p>But the strong jobs recovery of the past two years has seen little increase in employment among young people, with just 40,000 of the 1 million jobs created going to the young. The young were hit hardest by the recession, but unlike previous economic recoveries, are not benefiting most from the recovery. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/43981/original/5hhhj52y-1394818334.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/43981/original/5hhhj52y-1394818334.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/43981/original/5hhhj52y-1394818334.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/43981/original/5hhhj52y-1394818334.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/43981/original/5hhhj52y-1394818334.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/43981/original/5hhhj52y-1394818334.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=425&fit=crop&dpr=1 754w, https://images.theconversation.com/files/43981/original/5hhhj52y-1394818334.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=425&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/43981/original/5hhhj52y-1394818334.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=425&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Employment rate by age group, 1992 to 2013.</span>
<span class="attribution"><span class="source">ONS, Labour Market Statistics</span></span>
</figcaption>
</figure>
<p>The coalition government’s policy response to youth unemployment is coherent and has had some limited success, but overall it remains poorly co-ordinated on the ground and lacking in scale to address the issue.</p>
<h2>Compulsory participation</h2>
<p>The response falls into three broad areas. The first is to encourage young people to extend participation in education or training. The central component here has been to <a href="http://www.education.gov.uk/childrenandyoungpeople/youngpeople/participation/rpa">raise the compulsory participation age</a> for some form of education or training from 16 to 17 in 2013, with a further rise to 18 planned for 2015. </p>
<p>In the latest data for the new academic year, the proportion of 16 and 17-year-olds who are not in education, employment or training, the <a href="https://theconversation.com/small-drop-in-neets-but-who-counts-the-cost-of-the-missing-23746">so called NEETs, has fallen to just 4.5%</a>, a major improvement on the picture before the financial crisis. </p>
<p>So far, however, this has not led to improved transitions into work and reduced unemployment among those aged 18 to 24. It is delaying the onset of unemployment but not smoothing the transition into work. The closely related attempt to increase the number of apprenticeships for those under 20 has so far failed to get off the ground, but there has been some increase for older age groups. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/43980/original/mb5s4qtn-1394818194.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/43980/original/mb5s4qtn-1394818194.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/43980/original/mb5s4qtn-1394818194.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=252&fit=crop&dpr=1 600w, https://images.theconversation.com/files/43980/original/mb5s4qtn-1394818194.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=252&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/43980/original/mb5s4qtn-1394818194.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=252&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/43980/original/mb5s4qtn-1394818194.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=317&fit=crop&dpr=1 754w, https://images.theconversation.com/files/43980/original/mb5s4qtn-1394818194.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=317&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/43980/original/mb5s4qtn-1394818194.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=317&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">NEETs as a percentage of people in relevant population group.</span>
<span class="attribution"><span class="source">ONS, Labour Force Survey</span></span>
</figcaption>
</figure>
<h2>Starting young</h2>
<p>The second policy response is to try to accelerate the recruitment of young people by employers. Here the government offers firms a £2,275 subsidy to take on young people who have been unemployed for more then six months. Take-up has been dismal and the government is now proposing to replace this scheme by <a href="https://www.gov.uk/government/publications/abolition-of-employers-national-insurance-contributions-for-the-under-21s">abolishing all employers’ national insurance contributions</a> for under-21 year olds. </p>
<p>The focus on the youngest, here, seeks to improve early transitions into work and thus should improve employability as they grow older. This change will come in in April 2015. </p>
<p>The government’s welfare flagship Work Programme, which offers support services to job seekers by providers who are only paid for positive job outcomes, has achieved just 74,000 job entries for young people over three years. This is not a complete disaster; just inadequate given the size of the challenge.</p>
<h2>Work experience</h2>
<p>The third element has been to offer valuable work experience to those struggling to make quick transitions from education to employment. The coalition abolished Labour’s <a href="http://www.telegraph.co.uk/news/uknews/8214293/MPs-warn-over-rising-youth-unemployment-as-1bn-jobs-fund-is-axed.html">Future Jobs Fund</a> before any evaluation had been carried out. The programme offered 18 to 24-year-olds who were out of work a paid work experienced placement for six months, with the wages met by the government. </p>
<p>Mostly the placements were offered by charities who bid to offer places in terms of the quality of the experience the young person gained. Yet <a href="http://www.theguardian.com/society/2012/nov/23/back-to-work-scheme-gain">the evaluation, when it emerged later</a>, showed the programme raised employment by nine percentage points, when compared to those slightly older unemployed people who were eligible. </p>
<p>The government has introduced a shorter, unpaid and hence <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/222943/early_impacts_of_work_experience.pdf">lower-cost work experience programme</a> for people who have been out of work for three months. This too appears to raise job entry, but not by enough to make a serious impact on youth unemployment.</p>
<p>But these programmes do prove that work experience, especially those that provide high-quality placements, can make a difference to young people’s employment. The deputy prime minister <a href="http://www.independent.co.uk/news/uk/politics/nick-clegg-plans-employment-safety-net-for-16yearolds-who-dont-go-to-university-9155636.html">Nick Clegg indicated in a recent speech</a> that the government was again looking a more intensive work experience programme for those young heading toward long-term unemployment.</p>
<h2>Work experience works</h2>
<p>Raising the participation age and offering work experience have proven themselves to work, but overall the policy response to youth unemployment has not made serious inroads into the huge population of the young unemployed. </p>
<p>There are a large array of agencies that have some engagement with young people after they turn 16: schools, further education colleges, local authorities, charities, some of which are funded by government some not, as well as national government agencies like National Apprenticeship Service and Job Centre Plus. There have also been various employer-focused bodies set up like Local Employment Partnerships. </p>
<p>Some major cities are trying to build a coherence to this multitude of players, which is sadly lacking on a nation level. There is substantial funding within this system, so it feels that much could be done to improve things within existing budgets. But at the same time, re-building the work experience element of the policy response is essential to addressing long-term youth unemployment. </p>
<p>Nick Clegg is hinting that the government <a href="http://www.ibtimes.co.uk/uk-youth-unemployment-nick-clegg-unveils-safety-net-help-neets-1438106">plans to do more</a>, and Labour has <a href="http://www.bbc.co.uk/news/uk-politics-26506522">more developed plans</a>. Meanwhile Britain’s young people are still waiting for the slow train to arrive.</p>
<hr>
<p><em><a href="https://theconversation.com/topics/hard-evidence">Hard Evidence</a> is a series of articles in which academics use research evidence to tackle the trickiest public policy questions.</em></p><img src="https://counter.theconversation.com/content/22142/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Gregg does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Recessions always hit young people hard. Firms’ first response to declining orders is to stop hiring new recruits rather than sacking experienced staff. Young people disproportionately rely on new hiring…Paul Gregg, Professor of Economic and Social Policy, University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/241472014-03-18T06:07:21Z2014-03-18T06:07:21ZRecovery is futile if it’s led by the finance sector<figure><img src="https://images.theconversation.com/files/44101/original/wcvhqjkb-1395057247.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Finance is fragile.</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/59937401@N07/5857473535/sizes/l/">Images_of_Money</a></span></figcaption></figure><p>The politics of <a href="http://www.theguardian.com/commentisfree/2014/feb/24/recovery-bubble-crash-uk-us-investors">recession and recovery</a> dominate discussions about the British economy. Every new set of figures published or set-piece moment like the budget sparks another debate on whether the UK has finally recovered from the 2008 financial crisis. The sheer variety of opinions demonstrates the difficulty of discerning whether the economy is moving out of – or into – a prolonged stagnation.</p>
<p>Duelling facts can only tell us so much. Whether the UK is in recovery or not depends on who you ask and, more importantly, the political stake they have in the answer. We have grown accustomed to Westminster’s adversarial politics showcasing regular sparring matches between George Osborne, Ed Balls and Vince Cable as they battle over how best to interpret the most recently published set of economic indicators. </p>
<p>But there is very little acknowledgement that these are all merely surface disagreements because, whatever spin politicians put on new economic figures, Britain’s political elite are in lock-step in their support of finance-led growth both past and present.</p>
<h2>Financial fix</h2>
<p>Finance-led growth in the UK was always intended to be a temporary fix rather than a new economic model; a result of interaction between banks and government policies pursued in the face of British economic decline.</p>
<p>In short, finance-led growth relies on cheap credit to fuel consumption and bolster growth in every manner of asset-class (stocks, property markets, debt securities and derivatives). This helps explain certain transformations in the British economy in recent years. But it is a deeply uneven process, experienced differently across the UK.</p>
<p>More importantly, finance-led growth is the root cause of the 2008 financial crisis and our <a href="http://speri.dept.shef.ac.uk/2014/02/26/britains-unreal-recovery-risks-real-economic-crisis/">current economic malaise</a>. Our problems stem from the political elite’s inability to face many unanswered questions: can (and should) the UK economy be restored to pre-crisis levels? Are we encountering a much deeper crisis related to wealth and income inequality, gender inequality and/or resource depletion and ecological limits?</p>
<p>It is increasingly clear that the UK needs to move away from short-term fixes, and develop a long-term solution to the model of finance-led growth responsible for the 2008 crisis, not least because growing inequality, a widening gender gap and the ecological limits of growth are substantial barriers to a lasting “recovery”.</p>
<p>But these problems won’t be addressed as political and economic elites frame issues in a way that constrains debate. For example, equating positive economic performance as merely achieving more economic outputs than last quarter silences alternative voices for whom economic priorities mean <a href="https://theconversation.com/the-right-kind-of-growth-only-if-you-stand-to-benefit-from-it-23219">something else entirely</a>.</p>
<p>Take, for example, the National Income and Products Accounts (NIPA). These measures of economic activity were developed in the 1930s. Their usefulness is limited, however, in that it is always the case that the cycles of growth, crisis, recession or recovery become visible only in retrospect. With GDP figures we cannot know where we are in the cycle because it will only be visible at some future date.</p>
<p>Because of this it is widely accepted that GDP growth measures are inadequate indicators of economic activity because they exclude unpaid labour in the home and cannot account for more important measures of human progress <a href="http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf">like well-being</a>.</p>
<p>Recovery does not speak for itself through strategically selected indicators of enhanced production or growth. Rather it is something that needs to materialise through how people actually experience the economy. To think about a single recovery rather than multiple experiences is therefore to silence some people’s interactions with economic life.</p>
<p>We are already seeing right now that GDP growth can exist at the same time as a <a href="http://www.theguardian.com/politics/2013/aug/13/ed-miliband-attack-coalition-cost-living-crisis">cost-of-living crisis</a>. This is because of the <a href="http://speri.dept.shef.ac.uk/2014/02/04/income-inequality-downward-wage-push/">uneven (re)distribution</a> of the burden of recession and gains from recovery. Women, especially those with care responsibilities for children, elderly or disabled family members are taking a particularly heavy share of <a href="http://www.poverty.ac.uk/report-gender-tax-benefits-government-cuts-government-policy/women-%E2%80%98hit-worst%E2%80%99-austerity-measures">the costs of austerity</a>. Women also get a much a <a href="http://www.amazon.co.uk/Women-Austerity-Economic-Routledge-Economics/dp/0415815371">smaller share</a> of the benefits of recovery.</p>
<p>Addressing these problems requires more than just a return to growth, and it requires more extensive debate than generally permitted by the news or election cycle.</p>
<p>On one hand economic recovery can be a positive notion when the UK returns to health and strength. On the other hand, recovery could mean that we do not learn from our mistakes or address the challenges of the future – negating any notion of progress. To consider a return to pre-crisis growth a success does nothing to rethink the central economic issues that face British economy and society. The debate needs to move on.</p>
<p>It is no longer enough to think of a “recovery” from finance-led growth. We need to discover potential futures for the UK economy. Thinking this way means exploring the wider social crisis of growing inequality and falling standards of living as well as new ways out of long-term predicaments such as the ecological limits to growth.</p>
<p>We need to break with this growth obsession and allow multiple voices to be heard once again.</p><img src="https://counter.theconversation.com/content/24147/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Johnna Montgomerie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The politics of recession and recovery dominate discussions about the British economy. Every new set of figures published or set-piece moment like the budget sparks another debate on whether the UK has…Johnna Montgomerie, Lecturer in Economics, Goldsmiths, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/244912014-03-17T13:24:10Z2014-03-17T13:24:10ZBudget 2014: will Osborne cool or fuel the housing market?<figure><img src="https://images.theconversation.com/files/44096/original/mz94g7zw-1395054142.jpg?ixlib=rb-1.1.0&rect=3%2C76%2C2560%2C1383&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Mental block: Osborne has conflicting motives over housing</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/jaggers/8669212624/">κύριαsity</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Britain is home to an increasingly dysfunctional housing market. The risk is that a chancellor trying to lay the foundations for a 2015 election victory will struggle to find the balance between the short and long-term priorities needed to deliver a solution.</p>
<p>This year’s budget is a critical milestone on the road to the European elections, the Scottish Referendum and primarily next year’s general election. It is an opportunity to signal intent to the markets and the voters and a chance to put specific policies on a better track. With the housing market such a critical economic and political consideration in George Osborne’s calculations this week it’s no surprise it formed the <a href="http://www.theguardian.com/uk-news/2014/mar/16/george-osborne-garden-city-ebbsfleet-budget">centrepiece of his weekend media rounds</a>. But what might he do and, perhaps more importantly, what should he do?</p>
<p>After a lengthy downturn, <a href="http://uk.reuters.com/article/2014/03/13/uk-house-price-idUKBREA2C00920140313">house prices, lending and building are all on the rise</a> in a highly regionalised housing market dominated by unique, <a href="http://www.bbc.co.uk/news/business-26006214">unaffordable London</a>. Interest rates remain historically low and important interventions such as Help to Buy are stimulating the demand-side of the market. </p>
<p>At a more structural level, the UK cannot build enough houses to meet demand or social need, public resources for housing and infrastructure are highly constrained, and frustrated would-be home-owners are contributing to a growing (and normalising) rental market. A dysfunctional housing market has wider implications by distorting our understanding of the <a href="https://theconversation.com/budget-2014-how-good-politics-can-trump-good-economics-24439">economic recovery</a>, frustrating labour mobility and reinforcing inequality through the inter-generational transfer of wealth.</p>
<p>Many analysts would argue that, in order to combat these challenges, we need a settled housing system with stable long-term real house prices, a vibrant rental market with institutional investment and a focus on delivering more affordable housing and support for those on low incomes. But housing policy is too often driven by short-run electoral considerations. It can come down to a pretty simple sum: are the insiders who feel wealthier from rising house prices or able to access help-to-buy opportunities more important politically than those who lose out from shortage and rising prices? They probably are.</p>
<h2>Garden cities</h2>
<p>What do we know so far? This weekend the chancellor has stated that Help to Buy One – equity loans for new build - are to be maintained until 2020. This intervention is a de facto interest-free loan for five years worth up to 20% of the value of the property and is a major fillip to the new build sector. Osborne has also (re-)announced the ten year plan to develop a garden city new town at Ebbsfleet involving an initial 15,000 homes. Further new towns are also possible.</p>
<p>The Help to Buy policy can be interpreted in different ways but I think is best conceived as a recognition that supporting the new build market is the least bad option economically for an essentially political choice being made by the Treasury. It probably also suggests that the days of the untargeted and inflationary <a href="http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10343793/Help-to-Buy-Key-questions-answered.html">Help to Buy Two</a> are numbered.</p>
<p>The Ebbsfleet proposal would make a modest but welcome contribution to new supply in the South East in the long term. As part of a wider programme of well-planned sustainable communities, this may help address the supply deficit, or at least be part of the solution, but it is a long term response to an immediate crisis.</p>
<p>What else might be in the red box? Widely discussed in recent months have been a national <a href="http://www.independent.co.uk/voices/comment/it-wont-just-be-the-super-rich-hit-by-a-mansion-tax-9171397.html">mansion tax</a> on high value properties and also a tax on housing speculation aimed at foreign investors. The latter, widely discussed in the autumn, may be more likely than the former, if not at this budget. The Bank of England has also tentatively <a href="http://www.independent.co.uk/news/uk/home-news/mark-carney-admits-foreign-buyers-put-house-prices-out-of-banks-control-9132362.html">floated ideas about intervening to stabilise the housing market</a> on the demand side – we may hear more about these.</p>
<p>Might there be additional resources for new affordable housing? Recent policy in England has led to the provision of state-backed guarantees to reduce the cost of landlord borrowing and two rounds of the <a href="http://www.homesandcommunities.co.uk/ourwork/affordable-rent">affordable rent programme</a> (based on higher rents and also requiring higher rents on a proportion of existing properties to help meet the cost of cutting subsidy). Meanwhile, the focus of the state has to an extent shifted into supporting the new private rental market and there has a been a weakening of the established regime that allowed new affordable/social housing to be constructed when negotiating planning permission for private new supply.</p>
<h2>The long game</h2>
<p>What might Osborne actually do that would be genuinely useful? First, do more to loosen borrowing caps for councils so they can invest in new housing (like they have done successfully in Scotland) but at the same time reverse or tighten the Right-to-Buy policy (at the very least on newer homes). </p>
<p>Second, in a rising market, government should tighten up the viability test that private developers have been able to use so successfully, reducing significantly the number and proportion of social and affordable units associated with private sector sites with planning permission. </p>
<p>Third, government should consider wider discussion as a statement of intent regarding <a href="http://www.theguardian.com/business/economics-blog/2014/mar/14/budget-2014-britain-recovery-durable-george-osborne">John Muellbauer’s recent call</a> for a national land bank and also for a clearer discussion on both housing taxation and regional economic policies. This should also be linked to the <a href="http://www.ifs.org.uk/mirrleesReview">Mirlees review proposals</a> on systemic tax reform (within which housing and land are pivotal).</p>
<p>Housing policy is a long-term game and fundamentally needs political consensus, as well as buy-in to a wider strategy that can be agreed for, say, ten years. Without this, the danger is of a combination of political short-termism, the increasingly unhelpful unintended consequences of localism and regional imbalance, no end to chronic under-supply and further market volatility.</p>
<p>As we take stock of the details of the budget, that balance between the short and long run will be crucial in discovering where Osborne’s economic, and political, motivations really lie.</p><img src="https://counter.theconversation.com/content/24491/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kenneth Gibb currently receives research funding from the Joseph Rowntree Foundation, the Northern Ireland Housing Executive, Shelter Scotland, the Scottish Government and the Wheatley Group. He is a management committee member of Sanctuary Scotland housing association.</span></em></p>Britain is home to an increasingly dysfunctional housing market. The risk is that a chancellor trying to lay the foundations for a 2015 election victory will struggle to find the balance between the short…Kenneth Gibb, Professor of Housing Economics, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/244392014-03-17T06:00:05Z2014-03-17T06:00:05ZBudget 2014: how good politics can trump good economics<p>The days leading up the budget are hectic as many in the Treasury are busy devising financial gimmicks to please the electorate. This forthcoming budget is particularly important as next year’s budget will be too close to the election to have much of an impact on the economy or the “feel-good factor”. Government politicians are also busy revelling in good economic data including a return to economic growth and falling unemployment. The chancellor has been telling colleagues that “we have won”. Have they?</p>
<h2>No return to normal</h2>
<p>There is less rosy picture when you scratch beneath the surface of a few months’ worth of economic data. Take the economic growth figures: <a href="http://www.britishchambers.org.uk/press-office/press-releases/uk-gdp-to-exceed-pre-recession-peak-earlier-than-expected-in-2014,-says-bcc.html">GDP is expected to grow between 2.5 and 3.0% in 2014</a>. On the face of it, this is a return to normal as this is broadly the long-term growth rate since the industrial revolution. But it is not normal, as after a deep recession a significant bounce-back is expected; normality would be a growth rate of between 4 and 5% per annum. </p>
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<p>Take the recovery from the Great Depression in the 1930s; from the five years from 1932 to 1937 the economy growth at an annual average rate of 4.2%. But we are not witnessing a big bounce-back now – instead we are in the midst of the worst recovery in more than 200 years. This shows the fundamental weaknesses in an economy with structural flaws.</p>
<h2>The productivity problem</h2>
<p>At least there is good news in the labour market as unemployment is falling and <a href="http://www.bbc.co.uk/news/business-26255696">there are now only 2.34m unemployed</a>. Yes, 2.34m – which is 7.2% of the labour force. Times have changed: in the period from 1950 to 1973, unemployment in excess of 3% was considered as an economic failure. </p>
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<p>Falling unemployment is good for those who can get a job, but it also reflects a lack of investment in the economy. Falling real wages are encouraging firms to employ more workers, but not to invest in machinery and technology. This has led to a significant decline in productivity – and it is productivity growth that drives long-term prosperity.</p>
<h2>Unbalanced Growth</h2>
<p>Lack of investment is one indicator of the failure to rebalance the economy. Another is poor export performance, as we do not produce the goods and services that the rest of the world wants. The problem for UK exports in linked to the lack of investment as there is a failure to develop new products and new processes. The current modest recovery is being <a href="http://blogs.lse.ac.uk/politicsandpolicy/archives/38005">driven by consumption and household debt</a>. And it is not a sustainable solution to expect long-term growth to depend on those parts of the economy that were integral to causing the financial crisis in the first place.</p>
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<h2>Policy vacuum</h2>
<p>There are two fundamental weaknesses at the heart of economic policy formulation in the UK. First, the focus on the austerity and public sector debts has “crowded out” any significant discussion of a strategy for long-term growth. This does not only apply to the government but also to the opposition. Second, the disparaging rhetoric and propaganda directed at the public sector has distorted understanding of the role of the state in advanced countries. </p>
<p>The lessons of other prosperous countries shows the important role of the public sector in encouraging long-term growth, including: the focus on education and skills in the Nordic countries; and investment in technology and equipment in Germany. Even in the US, the home of free enterprise, the innovation system is managed and controlled by the federal government. Whatever fiscal initiatives emerge from George Osborne’s red box in the Budget, enhancing the role of the state as a driver of growth will not be amongst them.</p>
<p>Has Osborne won? Well, in 2015, the election may show that he has won the political argument. But good politics too often defeats good economics.</p><img src="https://counter.theconversation.com/content/24439/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Kitson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The days leading up the budget are hectic as many in the Treasury are busy devising financial gimmicks to please the electorate. This forthcoming budget is particularly important as next year’s budget…Michael Kitson, University Senior Lecturer in International Macroeconomics, Cambridge Judge Business SchoolLicensed as Creative Commons – attribution, no derivatives.