Budget 2015 - the sequel: George Osborne screws the Civil Service...

It might have been easy to miss amidst the torrent of announcements that George Osborne finally made it clear that, whilst Britain deserves a pay rise, his largesse does not extend as far as the civil servants who are expected to deliver his reforms.

The announcement that pay restraint would be extended for another four years will have come as a body blow to many who have seen their pay go backwards relative to the wider economy over the past five years, by as much as 15% in some cases.

As the Budget Report says;

1.85 In the last Parliament, the government exercised firm restraint over public sector pay to deliver reductions to departmental spending, saving approximately £8 billion. As set out by the Chancellor at Autumn Statement 2014, the government will need to continue to take tough decisions on public sector pay in order to deliver reductions to departmental spending and protect the quality of public services. 

1.86 Overall, levels of pay in the public sector are now, on average, comparable to those in the private sector. However, public sector workers continue to benefit from a significant premium once employer pension contributions are taken into account, as shown in Chart 1.10. 

1.87 In light of this and continued low inflation, the government will therefore fund public sector workforces for a pay award of 1% for 4 years from 2016-17 onwards. This will save approximately £5 billion by 2019-20. The government expects pay awards to be applied in a targeted manner within workforces to support the delivery of public services.

In other words, £13 billion worth of cuts have been, and are to be, borne by public servants who have seen their job security taken from them, their pension contributions trebled and quadrupled, and their workloads increased - 'doing more with less' has become the ever-present buzzphrase in central government.

But, we were all in it together, weren't we? And the country was in a hole, right?

Well, if you look at the OBR projections for the next four years, average earnings growth is expected to be 3.8% over the next four years, compared to the 1% increase permitted for the public sector. And inflation? Approximately 1.7%, which means that public sector workers will fall far behind their private sector counterparts and see real terms cuts for good measure.

Now, it should be noted that a 1% increase in the paybill does not equate to a 1% increase across the board. Public sector jobs come with a payscale, whereby you enter at the lowest level (usually) and reach the maximum for the grade by means of increases over a period of years. Thus, those at the top of the payscale get less. The more numerate amongst my readers will see where the issue is here. Experienced staff will be even worse off, as has been the case for the past five years.

One side effect of the reduction in public sector jobs over the past five years is a significant fall in recruitment, and a resultant greying of the workforce that remains. Indeed, Lin Homer, Chief Executive of HM Revenue & Customs, noted that very concern a few years ago, and the National Audit Office repeated the message last month.

And, when the greybeards go, as they undoubtedly will, many sooner rather than later, the promise that pay will fall behind inflation from the day a new recruit walks through the door is hardly likely to act as an incentive to join. And, for those who have marketable skills, the decision as to whether they stay or go just got a whole lot easier.

You might almost think that the Conservatives wanted to destroy the public sector. But who would administer the country then?...

Welfare reform - so much for 2.2 children, a labrador and a house in the suburbs?

The reports that George Osborne is likely to reduce tax credits for families with more than two children in tomorrow's budget are interesting indeed. Superficially, it appeals to the sort of people who think that you shouldn't have children if you can't afford to keep them - as if children are like pets.

It is hardly worth going through the reasons why claimants might not have control over their circumstances and thus claim for three or more children - change (or more likely, loss) of job, the birth of multiple children at one time, etc., etc. - so I will focus on the concept of retroactivity.

The problem about children, and I say this having had none of my own, is that once you've got them, you can't undo that. They still require feeding, clothing and everything else, and in dramatically reducing the income available to do these things, you increase poverty and deprivation. Alright, it might not be a huge amount of money per household, but at a time when the financial resilience of households is fairly fragile, differences at the margins matter.

And whilst it is legitimate to question what responsibility the State has to provide support and to what extent, to withdraw that support when those impacted are unable to do anything to change their situation is questionable in terms of ethics. To do so, when you are already intending to punish larger poor families by means of the benefits cap smacks of being punitive.

Yes, you could decide that, in future, you might withdraw or reduce benefits for those who go on to have third, fourth or more children, although I would be sceptical given the potential circumstances that I outlined earlier. But you might also wonder whether or not such action is wise given the falling birth rate and the need to have young people to look after the rest of us as we get older. There are those, after all, who believe that migration from abroad will be needed to make up for our low birth rate. And you are proposing to create a disincentive to have children?

It is, unfortunately, typical of the Conservative Party that it increasingly appears to see itself as a remedy for the outrage of the ill-informed and the narrow-minded, on migration, on the welfare state or Europe or English nationalism, and so much else. Seldom, sadly, are these ideas thought through in terms of either viability of their likely consequences, and it becomes clearer by the day that not only were the Liberal Democrats a brake on the more ludicrous or unpleasant tendencies of the Conservative Party, but that they were the engine for most of the Coalition's good ideas.

Yes, it was the right of the British public to punish the Liberal Democrats if that was what they thought was best - that's how democracy works, as I understand it - but there must be more than a few people who might now be wondering if that was such a great idea...

Why does George Osborne need a law to make him do what he wants to do anyway?

We probably all have a piece of law which we believe to be stupid, or unnecessary, or both. And then there are laws which serve no useful purpose except to cause trouble for someone, some time, some place.

Enter George Osborne, who has the idea that you can have legislation which limits the freedom of not only himself, but any future occupant of his current position, to act as they see fit, applying the philosophy that they have a mandate for. He doesn't want to raise taxes, so he proposes to pass legislation preventing certain taxes or levies to be increased. He doesn't believe in debt-based government spending, so he seeks legislation preventing a future government from running a deficit except under certain unusual circumstances.

It's almost as though he doesn't trust himself.

But really, all he is doing is creating a pointless legislative stick to beat his opponents with. In a future election, he can tell the public that it is impossible for opponents to do certain things because they will be in breach of the surplus rule, or because they'll need to raise taxes that can't be increased. It is, if you like, the politics of the kindergarten.

And yet, it is astonishingly stupid for three reasons - there are probably more, but I'm in a hurry;

• Any incoming government can simply repeal it. If they want to be bound by it, they will behave accordingly. If not, they won't. So, wasting Parliamentary time on a piece of vanity legislation is really unhelpful, especially when your party has things it would really like to do.

• It gives the impression that your Party's future is more important than that of the country. Such a cynical move does not go unnoticed by your enemies, and even your current friends, and it does give this observer, at least, a reminder of your perceived arrogance.

• It takes away a whole clutch of your economic tools voluntarily. You might want to do something unexpected, or events elsewhere may force your hand. Do you really want to make yourself a liar? Are you seriously giving your opponents the means to bring your trustworthiness into question?

Frankly, if the Lords has a chance to play with it, they should. It is anti-democratic, foolish and unnecessary, and is the sign of a man who confuses smugness for competence, and has an opinion of his genius which is far outweighed by the evidence.

Osborne thinks outside of the box. But has he got the wrong end of thestick?

The suggestion that George Osborne is thinking about cutting £5 billion from the social welfare bill by reducing tax credits to their 2003/4 level (in real terms) is an unexpected turn in some ways. That's partly because there will be many who wouldn't have suspected that they had risen by more than the rate of inflation in the first place, but also because everyone has been going on about 'hard working families' and how important it is to provide an incentive to work.

There is no doubt that the growth of tax credits as a way of 'making work pay' has had some impact, but it is interesting to note the words coming from the Conservatives that tax credits have, effectively, subsidised employers. They have, at least, spotted the dilemma that Gordon Brown's tinkering has created. However, they have done drawn a conclusion which demonstrates the difference between Liberal Democrat thinking and Conservative thinking.

The Conservative approach appears to be that it is perfectly acceptable for employers to pay salaries that require state intervention to bring them up to a sufficient level, and that the solution is to make the relatively poor somewhat poorer. But why not instead raise the minimum wage by something above inflation (not too much, and perhaps over a number of years), and raise benefits by just a little less than inflation? That way, you can reduce the tax credit bill at both ends, whilst retaining the incentive to work.

And perhaps, whilst you're at it, you could do something about the pensions triple lock, which is looking increasingly generous towards a group of people who disproportionately vote Conservative. After all, their real term increases are one of the reasons why such large cuts are needed from the rest of the social welfare budget. I suspect that I may have answered my own question in the first sentence of this paragraph...

And yet, despite this, George Osborne is being made to look moderate relative to some of the thinkers within his own party. Kwasi Kwarteng is suggesting that the young should be paid their benefits in the form of a repayable loan, suggesting as he does that, even if they remained unemployed for the entire period between 18 and 25, the amount would still be 'less than a student loan'. Might I point out to him that if someone is unemployed for significant periods at that point in their lives, they are highly unlikely to ever earn the sort of salary that would allow them to repay such a loan.

I have a nasty feeling that it's going to be a very difficult five years...

George Osborne: paying peanuts and expecting not to get monkeys?

We will go on restraining public sector pay.

It was just one line in George Osborne's speech at the Conservative Party Conference in Birmingham yesterday, and it may have gone unnoticed by many out in the country, assuming that they were even paying attention to the speech itself. But, for public sector workers, it will have caused alarm and dismay in equal measure.

Years of pay freezes, or 1% paybill increases, and tens of thousands of job losses, combined with sizeable increases in contributions for smaller retirement pensions have seen earnings fall dramatically in real terms. An Executive Officer working for HM Revenue & Customs in London, for example, will have seen his or her salary increase from £29.272 in 2007/08 to £30,331 in 2013/14, an increase of 3.6%, or less than 0.6% year on year. That doesn't look good, but they will be paying an additional 3.85% in pension contributions. In other words, they are earning, in actual terms after pension contributions, marginally less than they were six years earlier.

These are, dare I remind you, gentle reader, the people who are expected to raise the funds to help meet the country's commitments, reduce the deficit and investigate all of those tax evaders who so exercise George.

Inflation over that period? 21%. You can see the problem. Indeed, the only consolation is courtesy of the Liberal Democrats, as the Personal Allowance, the amount that an individual can earn without deduction of income tax, has increased over the same period from £5,225 to £10,000. Alright, that hasn't earned any gratitude from the Civil Service trade unions, but since when was it likely that they would?

And, as the economy recovers, this steady deterioration in pay and conditions is beginning to have an effect. Last November, Accounting Web, which describes itself as the UK's largest community for accountants (I try not to recoil in horror...), noted that HMRC resignations were at their highest level since 2008/09.

There is, of course, a risk that those who resign are those most likely to find better pay and conditions elsewhere, but whilst HMRC continues to meet its targets, one cannot see the Treasury taking any action to improve pay competitiveness. After all, their pay scales are even worse, as Sir Nicholas Macpherson, the Permanent Secretary at HM Treasury, noted last year;

It’s frustrating for us to be some sort of feeder second division Belgian football team which provides really good people for Premier League teams like Chelsea and Manchester United.” Sir Nicholas said he had discussed the matter with the Bank of England’s Governor, Mark Carney who had been “very helpful”.

One really does wonder if we want the country to be run efficiently... 

Public sector efficiency savings - is there no-one in the Conservative Party paying attention?

Listening to David Cameron this morning on the Today Programme, it suddenly dawned on me why he keeps George Osborne as his Shadow Chancellor. It's because he knows less about finance than even George does. His bumbling efforts to justify how he was going to find £6 billion made the back of the envelope job that George uses to justify the NIC non-rise (it isn't a cut, might I make it clear) look like an IMF report.

So, for the benefit of Conservatives everywhere, and for any journalists keen to actually probe Conservative fiscal policy, here are a few points to be borne in mind;

1. Most of the Civil Service is now covered by multi-year pay deals. Most of them aren't exactly generous, with some Departments already having a pay freeze in place.
2. Most of the paybill increases go towards those junior staff whose salaries are further down the pay scale, i.e. they're being paid less than their colleagues for doing the same job.
3. Many departments have severely curtailed recruitment in recent years, for example, HM Revenue & Customs is in the middle of cutting 25,000 jobs over six years whilst avoiding compulsory redundancies - until now, that is.
4. If you lose staff through natural wastage, they may very well not be the people you want to lose - after all, it's the ambitious and the more highly-skilled who attract most offers of alternative employment.
5. Rates of natural wastage are lowest during a recession and in the period shortly thereafter - government jobs are seen as more secure.
6. Any alteration to NIC rates would impact upon a whole year's income, whereas the impact of natural wastage disproportionately falls in the later part of the fiscal year.

But I come back to a point that I've made in the past, the most effective way to deal with the size of government is to decide what you want it to do, then staff it accordingly. Making changes on the hoof stretches out the inefficiencies caused by process changes, demoralises staff - making them less efficient and less motivated - and tends to create waste as the level of monitoring increases to justify the changes made.

There is another point too. The Conservatives have made it clear that they will protect some areas of government activity at the expense of others. What that means is that they will have to recruit new staff in some areas, or transfer staff from one Department to another. The former is a breach of their declared policy, the latter is expensive, with excess fares, grants for house moves, and all the rest of it.

Significant savings are to be found from the Government estates, by transferring them to the private sector, from retrenchment. Interestingly, the fact that there might be leasehold agreements appears to have been overlooked. And given that this was the week in which the House of Commons Public Accounts Committee published its report into the impact of the transfer of the Inland Revenue estate to Mapeley, an off-shore tax avoidance device (was that embarassing or what?). What that demonstrated was that public sector organisations aren't great at managing such contracts, and that ability isn't going to develop overnight.

All in all, the notion that there are efficiency savings to be had isn't a nonsensical one. The problem is, in the rush for 'quick wins', much that will be done will be negative in the medium and long term. Over an economic cycle, the rewards for getting it right are potentially huge. In the short term, that might mean upfront investment, and there are no signs that the Conservatives understand that...

Chancellors on Ice - Vince keeps his cool

So, the big debate is over, and the dust has settled. Time to mark the contenders, I think, and, in a nod towards modern culture, the marks are inspired by 'Dancing on Ice'...

Alistair Darling

artistic impression - 4.2
technical merit - 4.8

He clearly doesn't rate George Osborne, and was only too keen to attack his proposals on National Insurance Contributions. Indeed, his attacks displayed a sense of passion that has seldom surfaced in the recent past. He does give the impression that he is grimly determined to fix the economy, and one sensed that, if it were down to him, and an election wasn't pending, there would be far more detail on proposed cuts.

George Osborne

artistic impression - 5.2
technical merit - 3.7

As I noted this morning, George used his prepared soundbites well, and said the right things in terms of what needs to be done - deficit reduction, supporting enterprise, rewarding work - without ever convincing that he could demonstrate how it would be achieved. The problem is, what he says is so obviously correct that you want to move straight on to the detail. As was pointed out, you can't ridicule Labour plans for efficiency savings and then use them to justify tax cuts, and you can't say that reducing the deficit is the key priority and then dedicate a large chunk of savings identified to tax cuts. You certainly can't claim to be protecting the NHS, defence and overseas development unless you can say how this will impact on other spending areas.

Vince Cable

artistic impression - 5.5
technical merit - 5.7

Vince went in with a Channel 4 poll showing that, of the three, he was the preferred choice as Chancellor. He kept it steady, playing a straight bat, not attempting to pin zingers on his opponents, but attracting virtually all of the applause. He attacked Alistair for failing to provide sufficient detail on proposed efficiency savings, whilst making George look like the history graduate and spin merchant that he actually is. Virtually all the specifics came from Vince and, let's face it, the audience response spoke volumes.

In summary, 'Good Time George' demonstrated that, whilst he would be passable in a strong economy, you wouldn't want to depend on him. Alistair, the county town solicitor, appears trustworthy if uninspired. But Vince, now there's a man who you'd entrust your savings to.

How do you solve a problem like George Osborne?

How do you catch a cloud and bring it down?...

If the Observer is to be believed, Labour intend to target George Osborne as the weak link in the Conservative leadership team. What astonishes me is that it has taken them so long to reach the conclusion.

It may be that, in tonight's 'Ask the Chancellors' debate, George will do quite well against Alistair and Vince, especially if it boils down to a battle of soundbites. However, he still has a barrier to negotiate before he can establish a degree of credibility where it really matters, with the pundits and the public.

I've done a lot of Local Party events over the past year, and one consistent feature is the response when Ros suggests that one rarely hears that what our economy needs is George Osborne as Chancellor. That response is not muttering or discontent, it's laughter. I freely admit that Liberal Democrats are hardly likely to display any warmth towards a Conservative politician, but it is unusual for any of them to attract such a degree of ridicule.

Having been pretty critical of Conservative proposals on tax and the economy, and they can't be called plans in the absence of substance, you might think that I would be personally critical of young Master Osborne. Actually, I think that he's pretty bright, or is at least sensible enough to surround himself with bright people. The problem, as I see it, is that his skill set is wrong.

He has a keen eye for a soundbite, as I noted earlier, and his call for a dramatic rise in inheritance tax thresholds was well-timed and achieved its political aim, to prevent Labour from calling, and winning, an Autumn 2007 election. The fact that it was, in fiscal terms, barely literate, and would have helped far fewer people than seemed to be the case, was hardly relevant. What it also achieved was to secure his position, despite the doubts about his overall ability to do the job for real.

But now, with the public finances in a desperate state, with the economy fragile, what the country craves is reassurance. And what George doesn't do is reassure. Worse still, he seems determined to offer tax cuts in the belief that the soundbite is enough. The notion that people want to know how any cut in taxes will be funded doesn't seem to have registered, creating a sense that he doesn't really have what it takes.

And so the pressure is on today. Another announcement of tax cuts, this time National Insurance Contributions, is a typically flashy effort, with nothing to indicate how it will be funded. Tonight, you can be sure that he'll be pressed on the point. He'd better have a good answer...

Hey George, we're in debt, remember!

Today's interview in the Sunday Times with George Osborne provides further evidence that the Conservative Party still haven't made time in his busy schedule for that Economics 'A' level that he so badly needs.

His suggestion that a Conservative government might sell off its shareholdings in the banks at a discount in order to offer the public a 'people's bank bonus' is, in the shallowest sense, good politics, in that it will be popular. However, the country's finances are in crisis, the national debt enormous, and the burden of servicing that date a heavy one. So how would giving state assets away at a discount actually help?

Yes, those people who buy those shares will have an immediate profit. However, they are people who have money anyway. Those who don't have money won't buy any, so they will remain without. So, George is calling for a redistribution of Government assets to the comparatively well-off. That would be a bribe then...

I would have thought that any Government would have a responsibility to get the best price for those shares that it could, and use the funds raised to lower debt levels - in the same way that a household would arrange its affairs. Instead, George wants to be altruistic with my money, having spent so much time telling me how much of a debt Gordon Brown has run up on my behalf.

I have no objection to selling off the shares. Indeed, I would accept the premise that, in an ideal world, the Government would divest itself of the shareholdings in the likes of Lloyds TSB or HBOS, because I have never believed that governments are terribly good at active shareholding. However, the market decides how much those shares are worth, that figure is factored into the Government's finances, and potential purchasers of gilts and the like value those assets on a cold calculation of expected profit. For George to announce that he will effectively write off a proportion of their worth is to encourage overseas investors to be nervous. At the moment, nervous isn't good.

But how much will the potential profit for those purchasing shares actually be? Who knows, after all, these plans are still being drawn up, although the suggestion is that people would be offered shares worth between a few hundred and a few thousand pounds. So, unless there will be a really serious discount, you'll need to be at the 'few thousand' end to make a profit worth having, a profit that will be on paper only, unless the shares are sold on.

And so, yet again, George demonstrates his flair for low politics and his disregard for those at the bottom end of the economy by promoting a scheme that will hand money to those who have already, people like him. Perhaps he might like to go to a Peckham housing estate and explain how his cunning plan will help them?

Unveiling the new Conservative Shadow Chancellor... Vicky Pollard!

The weekend's reports that the Conservatives are rowing back frantically on the subject of cutting public spending are just another sign that they haven't really got a grasp on how to run an economy. Alternatively, you could argue that it's a sign that they haven't got a clue about how to win an election other than keeping their fingers crossed that Labour will continue to find new and interesting ways to shoot themselves in the foot.

As I noted last month, cutting public spending isn't that easy. If it were, everyone would do it. It isn't necessarily popular either, at least when specifics have to be announced. Everyone is in favour of less public spending, with the criticial exception of those aspects they benefit from. And in the face of a slight drop in Conservative support, the Conservatives have wavered.

"Public spending cuts, Mr Osborne?"

"Yeah but no but yeah but no but..."

The dance of the three main parties on public spending has been quite enlightening. Labour started off denying that cuts would be necessary and then backtracked as it became clear that the concept of reducing debt was a popular one. The Conservatives started by calling for major, rapid cuts (quite popular) then realised that they couldn't really think of anything that would make a difference and not be unpopular. Seemingly, only the Liberal Democrats have adopted a position and stuck to it for longer than six weeks. Hopefully, that situation will continue.

The Conservatives are so close to power that they can almost taste it. The worrying thing is that, if they get it, they are still no closer to working out how to pay the nation's bills. It's kind of scary, when you think about it...

George Osborne wants to re-enact the mid-1990's Canadian fiscal consolidation - so do I...

George Osborne writes in today's Times that he has been studying the methods used by Canada in the mid-nineties to consolidate the economy. He's young, and perhaps doesn't understand how the Canadians got to such a state. Of course, a better memory and a stronger grasp of history does help. So, for the benefit of George Osborne, perhaps a refresher course might help.

First, just who was in Government in Ottawa between 1993 and 2000? Let me see, ah yes, Jean Chretien. You remember him, didn't like George W Bush very much, rode a bicycle, led the, on the tip of my tongue, yes, I remember, Liberal Party of Canada, sister party of the Liberal Democrats. Not the Conservatives, who were in opposition.

Second, why were the Liberals in power? Ah yes, the 1993 Canadian election, when the ruling Conservatives went from having a majority to being the opposition. Actually, to be accurate, they weren't the opposition because the Bloc Quebecois had more seats in Parliament than they did. As did the Reform Party... And the New Democrats... In fact they only retained two seats, lost their Party leader and were cast into the political darkness for the best part of a decade.

So I say to George Osborne, bring it on, young man. We'll run the country whilst you go away and write some policy. We won't wait up in anticipation...

Cameron and Osborne: small boys acting up...

Our Conservative friends are becoming increasingly upset with the way things are developing. Their lead in the polls is ebbing away, their Shadow Chancellor is looking increasingly vulnerable and they have little to say in terms of what to do next. Their response? Repeated claims that Gordon Brown isn't answering David Cameron's questions...

Now I would be one of the last to suggest that Gordon is inclined to provide direct answers to direct questions. However, it might help if he was asked some. David's tendancy to harp back to events past merely exposes the fact that he has nothing salient to add to the debate on our economic future. He knows that Gordon is hardly going to admit to mistakes, yet he insists on attempting to provoke one. Now one may well have legitimate doubts about the management of the British economy by Gordon, and now Alastair, but one can hardly look seriously to a political party who merely parrot what Vince Cable was saying five years ago.

So, a word to the wise for the Conservatives. Stop trying to score debating points as though you're still in the Oxford Union, ask the question, and then critique the answer outside afterwards. That way, you can ask more questions about more Labour failings. Or, if that's too much like hard work, you could leave holding them to account to the Liberal Democrats, Plaid Cymru, the Scottish Nationalists, the DUP et al. Maybe, just maybe, we, the public, might learn something...