LibDem leader Nick Clegg says Chancellor Alastair Darling should resign. It appears that Darling "flipped" his second home designation no fewer than four times in order to minimise his capital gains liability.
Some coincidence, then that there's a piece in today's Sunday Times Greed, sorry, Money Section, outlining how Joe Average can reduce his capital gains tax bill. The main wheeze: flip your second home designation. The article breezily assures Mr Average that he can do this as often as he wants, and the requirements for actually living in the properties thus flipped are not exactly onerous.
If anyone can do this, it's a bit unfair for Clegg to pick on poor old Alastair, especially as it seems as if he may be out of a job as soon as Friday. But wouldn't it make sense to tighten up the capital gains rules on second homes anyway? It looks like yet another way that the current rules favour wealthier homebuyers over those just starting out.
Sunday 31 May 2009
Fasten your seatbelts!
The takeover of GM Europe by Magna et al should ensure that the European car industry is a much more interesting place in the next few years. As one of the biggest auto components makers in the world, Magna has long toyed with the idea of moving into car manufacture. At its annual meeting in Canada a couple of decades ago it unveiled a prototype of quite staggering hideousness that thankfully never made it into production. But although it assembles a few low-volume vehicles for specialty manufacturers like Aston Martin, it has no real experience of mass production of a high volume vehicle.
Having never made a car of its own, it follows also that Magna has never had to sell one. Its customers have always been the big manufacturers themselves. So it has little value to add to GM Europe on the marketing and sales side.
I don't make these points to suggest that Magna is a bad company. Far from it: it has revolutionised car making in North America by taking maximum advantage of the outsourcing programmes of the Big Three. But in taking over GM Europe, it's moving into new territory. That entails significant risks, especially with the global auto industry in so much trouble.
So much for the metal bashing. The real reason Magna's arrval promises to be interesting lies in the personalities of its principals. The company's founder, Frank Stronach, is still going strong as CEO at the age of 76. Frank is, shall we say, self-confident and not a little eccentric. Twenty years or so ago, I attended one of the company's annual meetings, at a time of prosperity for the North American car industry. Stronach had hired the flashiest concert hall in Toronto for the event, and put on a staggering buffet for the assembled guests. The crowds of Canadian seniors who seem to own stock in a wide range of companies solely in order to graze the nosh at the annual meeting thought they'd died and gone to heaven. The highlight, though, was Frank's speech to the adoring crowd. He prowled the stage like Frank Sinatra doing My Way, picked out by a single spotlight against an elaborate slideshow backgound featuring the company's latest achievements.
A couple of years later, the Big Three were in trouble and so was Magna. The annual meeting downsized to a conference room in a hotel and the buffet gave way to coffee and muffins. Magna nearly went to the wall that time, but thanks to Stronach's skill and charisma, it survived. With two of the Big Three on the canvas, it's suffering again now, but its balance sheet is still strong enough for it to come out on top in the bidding for GM. It's quite an achievement.
Then there's Frank's daughter, the fragrant Belinda. She became an MP for a riding north of Toronto in which Magna is by far the biggest employer, then crossed the floor of the House in exchange for a ministerial post. There are persistent rumours that her name may feature somewhere in Bill Clinton's little black book, which must have made things interesting when the current US Secretary of State was asked for her opinions of Magna's takeover proposal.
The media are describing Frank Stronach as "a man almost unknown outside Canada and his native Austria". That's about to chamge in a big way. It's going to be interesting.
Having never made a car of its own, it follows also that Magna has never had to sell one. Its customers have always been the big manufacturers themselves. So it has little value to add to GM Europe on the marketing and sales side.
I don't make these points to suggest that Magna is a bad company. Far from it: it has revolutionised car making in North America by taking maximum advantage of the outsourcing programmes of the Big Three. But in taking over GM Europe, it's moving into new territory. That entails significant risks, especially with the global auto industry in so much trouble.
So much for the metal bashing. The real reason Magna's arrval promises to be interesting lies in the personalities of its principals. The company's founder, Frank Stronach, is still going strong as CEO at the age of 76. Frank is, shall we say, self-confident and not a little eccentric. Twenty years or so ago, I attended one of the company's annual meetings, at a time of prosperity for the North American car industry. Stronach had hired the flashiest concert hall in Toronto for the event, and put on a staggering buffet for the assembled guests. The crowds of Canadian seniors who seem to own stock in a wide range of companies solely in order to graze the nosh at the annual meeting thought they'd died and gone to heaven. The highlight, though, was Frank's speech to the adoring crowd. He prowled the stage like Frank Sinatra doing My Way, picked out by a single spotlight against an elaborate slideshow backgound featuring the company's latest achievements.
A couple of years later, the Big Three were in trouble and so was Magna. The annual meeting downsized to a conference room in a hotel and the buffet gave way to coffee and muffins. Magna nearly went to the wall that time, but thanks to Stronach's skill and charisma, it survived. With two of the Big Three on the canvas, it's suffering again now, but its balance sheet is still strong enough for it to come out on top in the bidding for GM. It's quite an achievement.
Then there's Frank's daughter, the fragrant Belinda. She became an MP for a riding north of Toronto in which Magna is by far the biggest employer, then crossed the floor of the House in exchange for a ministerial post. There are persistent rumours that her name may feature somewhere in Bill Clinton's little black book, which must have made things interesting when the current US Secretary of State was asked for her opinions of Magna's takeover proposal.
The media are describing Frank Stronach as "a man almost unknown outside Canada and his native Austria". That's about to chamge in a big way. It's going to be interesting.
Wednesday 27 May 2009
Monster Raving Celebrities
The big Anglo-Saxon democracies are usually two-party states, but every so often a few mavericks or independents try to muscle in. The most famous recent example in the United States was Ross Perot's run for the Presidency in 1992, which foundered on his Prince Philip-like lack of tact (and was probably not helped by the fact that the closest thing he had to a campaign slogan was "giant sucking sound"). For many years, elections in Canada have featured the Rhinoceros Party, whose extravagantly named candidates (I recall Mikhail Gourd-Bas-Chef on one occasion in the early 1980s) run on a satirical and surrealistic platform. Here in the UK, Screaming Lord Sutch for many years single-handedly carried the banner of the Monster Raving Loony Party. Mostly, these folks serve to lighten the atmosphere a little, though I'm not sure you could really say that about Ross Perot.
One side-effect of the Parliamentary expenses scandal in the UK is that the independents are on the march again -- but with a twist. Perhaps unsurprisingly in an era when fame counts for much more than achievement or even coherence, it's the celebrities (I'm being charitable here) who are out to save us. Esther Rantzen, last seen dissing Eminem on a late-night show, says she will stand for Parliament in Luton South, where the incumbent MP, Margaret Moran, saw fit to claim expenses for a second home in Southampton. Former Bucks Fizz singer David van Day is going to run against the Tory MP Nadine Dorries. (Sir, I knew Screaming Lord Sutch, and you are no Screaming Lord Sutch). Even Terry Waite, God bless him, is thinking of getting in on the act, and has even cajoled the Times into letting him publish something of a manifesto, basically on the lines of "as an independent MP, I'd do independent things".
The murmurings of the celebrities have prompted a response from a Labour grandee, Spluttering Lord Hattersley. His Lordship argues that we don't need MPs with fewer ideological ties. Far from it: we need to know exactly what candidates would do if elected, and for that, we need the party labels. Somewhat regrettably, I think he's right. It's not especially comforting to think of our representatives being herded like cattle into the division rooms in Parliament, but how would sticking Esther, Terry or David into the mix make any difference? There are plenty of strong personalities with maverick tendencies within the major parties (for example Frank Field for Labour; Vince Cable for the Lib Dems; Boris Johnson for the Tories) and their party affiliation at least gives them an opportunity to influence policy. Would any of these people be more effective outside the main parties? It's hard to see how.
I don't mean to imply that there's no place for independents in British politics. I loathe the fact that local elections have been reduced to little more than a mid-term referendum on the Westminster government. Anyone knocking on my door in the next couple of weeks should promise to do something about the potholes at the end of my street, rather than telling me what's right or wrong with Gordon Brown. And there's always the House of Lords. Why not make that elective and fill it through a kind of nationwide beauty contest? I'm sure Esther and Terry would like that. It's just too bad that his untimely death has robbed us of the possibility of electing Lord Screaming Lord Sutch.
One side-effect of the Parliamentary expenses scandal in the UK is that the independents are on the march again -- but with a twist. Perhaps unsurprisingly in an era when fame counts for much more than achievement or even coherence, it's the celebrities (I'm being charitable here) who are out to save us. Esther Rantzen, last seen dissing Eminem on a late-night show, says she will stand for Parliament in Luton South, where the incumbent MP, Margaret Moran, saw fit to claim expenses for a second home in Southampton. Former Bucks Fizz singer David van Day is going to run against the Tory MP Nadine Dorries. (Sir, I knew Screaming Lord Sutch, and you are no Screaming Lord Sutch). Even Terry Waite, God bless him, is thinking of getting in on the act, and has even cajoled the Times into letting him publish something of a manifesto, basically on the lines of "as an independent MP, I'd do independent things".
The murmurings of the celebrities have prompted a response from a Labour grandee, Spluttering Lord Hattersley. His Lordship argues that we don't need MPs with fewer ideological ties. Far from it: we need to know exactly what candidates would do if elected, and for that, we need the party labels. Somewhat regrettably, I think he's right. It's not especially comforting to think of our representatives being herded like cattle into the division rooms in Parliament, but how would sticking Esther, Terry or David into the mix make any difference? There are plenty of strong personalities with maverick tendencies within the major parties (for example Frank Field for Labour; Vince Cable for the Lib Dems; Boris Johnson for the Tories) and their party affiliation at least gives them an opportunity to influence policy. Would any of these people be more effective outside the main parties? It's hard to see how.
I don't mean to imply that there's no place for independents in British politics. I loathe the fact that local elections have been reduced to little more than a mid-term referendum on the Westminster government. Anyone knocking on my door in the next couple of weeks should promise to do something about the potholes at the end of my street, rather than telling me what's right or wrong with Gordon Brown. And there's always the House of Lords. Why not make that elective and fill it through a kind of nationwide beauty contest? I'm sure Esther and Terry would like that. It's just too bad that his untimely death has robbed us of the possibility of electing Lord Screaming Lord Sutch.
Monday 25 May 2009
Tax doesn't have to be taxing
So goes the HM Revenue and Customs slogan, anyway. And it certainly seems to be true for nine members of the government, including such heavyweights as Alastair Darling and Jacqui Smith, who have been claiming the cost of professional help in preparing their tax returns.
In what's now a time-honoured response, the nine MPs are asserting that this was in line with the letter and the spirit of the rules governing expenses. Oh, really? When I moved back to the UK from Canada, my company provided me with a tax preparation service. After a couple of years I realised (a) that the accountants weren't very good and (b) that the service was costing me serious money, as I was liable for tax on the deemed benefit. (I switched to using a software programme called Legatio Fast Tax, which I can heartily recommend, especially to Alastair and Jacqui).
Unlike me and unlike every other taxpayer, the MPs got their tax preparation advice tax free, thanks to the wheeze of putting it through on expenses. I suppose it's possible that this is within the letter of the rules -- heaven knows, there doesn't seem to be much that isn't -- but it's hard to see how it can be in the spirit of them.
You also have to wonder if it has occurred to Alastair Darling that if he thinks he needs help in getting his taxes right, then just possibly the system might have become the teeniest tiniest bit too complicated.
In what's now a time-honoured response, the nine MPs are asserting that this was in line with the letter and the spirit of the rules governing expenses. Oh, really? When I moved back to the UK from Canada, my company provided me with a tax preparation service. After a couple of years I realised (a) that the accountants weren't very good and (b) that the service was costing me serious money, as I was liable for tax on the deemed benefit. (I switched to using a software programme called Legatio Fast Tax, which I can heartily recommend, especially to Alastair and Jacqui).
Unlike me and unlike every other taxpayer, the MPs got their tax preparation advice tax free, thanks to the wheeze of putting it through on expenses. I suppose it's possible that this is within the letter of the rules -- heaven knows, there doesn't seem to be much that isn't -- but it's hard to see how it can be in the spirit of them.
You also have to wonder if it has occurred to Alastair Darling that if he thinks he needs help in getting his taxes right, then just possibly the system might have become the teeniest tiniest bit too complicated.
Sunday 17 May 2009
Radix malorum cupiditas est
In the early stages of the MPs expenses scandal, the Times ran an editorial or two arguing that it wasn't that big a deal. One of the points it made was that anyone who entered Parliament with an eye on getting rich was an idiot. Well, the past week has shown that the biggest idiot is the editorial page editor at the Times who saw fit to publish that piece of nonsense. Really, what was he/she thinking? To take just one example, can anyone imagine that Tony Blair would have made anything like the kind of money he's making now if he hadn't gone into politics? There aren't many modestly qualified lawyers pulling down six-figure retainers from JP Morgan et al.
MPs from all the main parties have been gorging from the expenses trough, but somehow it's the Labour offenders who look the worst. Sure, there are plenty of laughs to be had with the likes of Douglas Hogg's moat cleaning bills, but really, that's just petty cash. (By the way, where do you look in the Yellow Pages to find a moat cleaner?) Much of the real gaming of the system has come from the Labour side. There's the aforementioned Blair, mortgaging his constituency home at the taxpayer's expense for almost ten times what he paid for it, and in effect using the proceeds to make a downpayment on his London mansion. There's Hazel Blears switching residences at dazzling speed and failing to pay capital gains tax on properties she sold. There's Elliot Morley, "forgetting" he'd paid off his taxpayer-supported mortgage, and also double-dipping by renting his London property to another MP, who (needless to say) also charged the taxpayer for his rental costs. And there's the MP for Luton (40 minutes by train from London), claiming a second homes allowance not for a place near Parliament, but for one in Southampton, because her boyfriend lived there.
Now there are signs that the scandal is spreading away from expenses per se, to encompass MPs' financial dealings in a wider sense. This time it looks as if the Tories will come off worst. One of their MPs apparently has no fewer than ten jobs outside Parliament. If this is in any way common, it certainly goes some way to explaining why there are so few people in the House of Commons most of the time. Even quite senior Tories -- William Hague for example -- admit to these outside interests, which you'd think would raise all kinds of conflict of interest concerns.
Why is this important? Well, MPs claim that their salaries are inadequate, despite the fact that their base income of £64,000 puts them in the top 10% of earners, even without taking any account of expenses, pension rights or the remarkably generous transitional payment they receive when they leave the Commons. Most people earning £64,000 a year put in a full week's work for 48 weeks a year and pay their own commuting costs. They certainly don't take half the year off or use their main job as a platform for a whole range of nice little earners elsewhere.
It remains to be seen how the expenses system will be reformed, but there are already distressing signs that this whole ghastly episode will do lasting damage to the UK political system. In the near term, it's very likely that fringe parties, ranging from the Little Englander UKIP to the racist BNP, will pick up votes and seats in the local and European elections at the beginning of June. There's also a very high likelihood that a large number of shamed or simply dispirited MPs will step down at next year's general election. Sadly, it won't just be the crooked ones that go.
And that piece of Latin in the title? The love of money is the root of all evil.
MPs from all the main parties have been gorging from the expenses trough, but somehow it's the Labour offenders who look the worst. Sure, there are plenty of laughs to be had with the likes of Douglas Hogg's moat cleaning bills, but really, that's just petty cash. (By the way, where do you look in the Yellow Pages to find a moat cleaner?) Much of the real gaming of the system has come from the Labour side. There's the aforementioned Blair, mortgaging his constituency home at the taxpayer's expense for almost ten times what he paid for it, and in effect using the proceeds to make a downpayment on his London mansion. There's Hazel Blears switching residences at dazzling speed and failing to pay capital gains tax on properties she sold. There's Elliot Morley, "forgetting" he'd paid off his taxpayer-supported mortgage, and also double-dipping by renting his London property to another MP, who (needless to say) also charged the taxpayer for his rental costs. And there's the MP for Luton (40 minutes by train from London), claiming a second homes allowance not for a place near Parliament, but for one in Southampton, because her boyfriend lived there.
Now there are signs that the scandal is spreading away from expenses per se, to encompass MPs' financial dealings in a wider sense. This time it looks as if the Tories will come off worst. One of their MPs apparently has no fewer than ten jobs outside Parliament. If this is in any way common, it certainly goes some way to explaining why there are so few people in the House of Commons most of the time. Even quite senior Tories -- William Hague for example -- admit to these outside interests, which you'd think would raise all kinds of conflict of interest concerns.
Why is this important? Well, MPs claim that their salaries are inadequate, despite the fact that their base income of £64,000 puts them in the top 10% of earners, even without taking any account of expenses, pension rights or the remarkably generous transitional payment they receive when they leave the Commons. Most people earning £64,000 a year put in a full week's work for 48 weeks a year and pay their own commuting costs. They certainly don't take half the year off or use their main job as a platform for a whole range of nice little earners elsewhere.
It remains to be seen how the expenses system will be reformed, but there are already distressing signs that this whole ghastly episode will do lasting damage to the UK political system. In the near term, it's very likely that fringe parties, ranging from the Little Englander UKIP to the racist BNP, will pick up votes and seats in the local and European elections at the beginning of June. There's also a very high likelihood that a large number of shamed or simply dispirited MPs will step down at next year's general election. Sadly, it won't just be the crooked ones that go.
And that piece of Latin in the title? The love of money is the root of all evil.
Monday 11 May 2009
East End boys
There's not much that I can say about the MPs' expenses scandal that others haven't already said with much more venom. See, for example, Mr Eugenides. Somehow I'm not surprised to find that the most shameless crook of all may have been dear old Tony Blair. It appears that he remortgaged his constituency home in County Durham, which cost him all of £30,000, for £265,000, and charged the interest off to the taxpayer. He did this not long before he bought his megapad in Bayswater, and the timing suggests that in effect, the taxpayer financed the downpayment on that house, which is now the base for the Blairs' global moneygrubbing empire. As an example of gall and greed, this can hardly be bettered.
Supposedly there's going to be a new set of rules governing MPs' expenses any day now. A year from now, given the public mood about this scandal, there's also going to be a new set of MPs. However, I still think there's a better solution: put them all up in student-type accommodation in London. As Libby Purves has suggested, maybe tie up an old ship somewhere in the Thames for them to live on. It might be a security risk, but right now, does anyone care?
For the longer term, if we're all feeling a bit more charitable, how about setting aside some of the Olympic village housing for MPs' use after the Games? I was down in the East End earlier today, and it wouldn't be too much of a commute into Westminster for the poor dears -- the Jubilee line goes direct from Westminster to Stratford in less than 20 minutes. I'd be willing to bet that if we put in place an arrangement like that, a whole lot of MPs would suddently discover that their constituency homes were within commuting distance of London after all.
Supposedly there's going to be a new set of rules governing MPs' expenses any day now. A year from now, given the public mood about this scandal, there's also going to be a new set of MPs. However, I still think there's a better solution: put them all up in student-type accommodation in London. As Libby Purves has suggested, maybe tie up an old ship somewhere in the Thames for them to live on. It might be a security risk, but right now, does anyone care?
For the longer term, if we're all feeling a bit more charitable, how about setting aside some of the Olympic village housing for MPs' use after the Games? I was down in the East End earlier today, and it wouldn't be too much of a commute into Westminster for the poor dears -- the Jubilee line goes direct from Westminster to Stratford in less than 20 minutes. I'd be willing to bet that if we put in place an arrangement like that, a whole lot of MPs would suddently discover that their constituency homes were within commuting distance of London after all.
Saturday 9 May 2009
Name and shame
The practice of selling "naming rights" to sports stadiums is growing here in the UK. Think of the Emirates or the JJB, or, in the lower leagues, the Galpharm (Huddersfield) or Matchroom Stadium (Leyton Orient). Nothing is sacred; apparently, if and when Anfield ever gets rebuilt, the name of the new stadium will be auctioned off to the highest bidder.
This practice began in the US, and stadia there regularly change their names as contracts expire or onwerships change or whatever. So historic names like San Francisco's Candlestick Park and the Montreal Forum disappear forever, to be replaced by "3Com Field" and the Molson Arena. This past week, however, the naming trend has descended to a new nadir. The Miami Dolphins of the NFL play at an arena known as Dolphins Stadium, clearly an unsatisfactory state of affairs, as no-one has found a way to get those pesky mammals to pay for the publicity. From this season, however, it will have a new name, thanks to a new sponsor, the terminally laid-back singer Jimmy Buffett.
Yes, starting in July, the Dolphins will be playing at....Land Shark stadium! When not blending that frozen concoction that helps him hang on, Jimmy Buffett favours a beer of his own making, Land Shark lager. Now, he wants the rest of the world to enjoy his product, and this is the route he's chosen to make it better known. The name is even more bizarre than it seems, since it's based on a decades-old comedy sketch from the venerable Saturday Night Live TV show. (For what it's worth, the land shark, Dan Aykroyd in a rubber suit, terrorises innocent New Yorkers by knocking on their doors pretending to be a pizza delivery guy or a candygram).
So: the Dolphins, the first team ever to achieve an unbeaten season in the NFL, will be playing at a stadium named after a beer named after a long-forgotten comedy sketch. Liverpool fans, you have been warned.
This practice began in the US, and stadia there regularly change their names as contracts expire or onwerships change or whatever. So historic names like San Francisco's Candlestick Park and the Montreal Forum disappear forever, to be replaced by "3Com Field" and the Molson Arena. This past week, however, the naming trend has descended to a new nadir. The Miami Dolphins of the NFL play at an arena known as Dolphins Stadium, clearly an unsatisfactory state of affairs, as no-one has found a way to get those pesky mammals to pay for the publicity. From this season, however, it will have a new name, thanks to a new sponsor, the terminally laid-back singer Jimmy Buffett.
Yes, starting in July, the Dolphins will be playing at....Land Shark stadium! When not blending that frozen concoction that helps him hang on, Jimmy Buffett favours a beer of his own making, Land Shark lager. Now, he wants the rest of the world to enjoy his product, and this is the route he's chosen to make it better known. The name is even more bizarre than it seems, since it's based on a decades-old comedy sketch from the venerable Saturday Night Live TV show. (For what it's worth, the land shark, Dan Aykroyd in a rubber suit, terrorises innocent New Yorkers by knocking on their doors pretending to be a pizza delivery guy or a candygram).
So: the Dolphins, the first team ever to achieve an unbeaten season in the NFL, will be playing at a stadium named after a beer named after a long-forgotten comedy sketch. Liverpool fans, you have been warned.
Thursday 7 May 2009
Football crazy
So what's the big news of the day? The deaths of civilians in the wake of a US military strike in Afghanistan? The continuing gradual spread of swine flu? The results of stress tests on US banks? Hell, no. According to the Times, it's Culture Secretary Andy Burnham's demand that the "big 4" Premier League football clubs "share the wealth" with their less successful rivals. Yes, believe it or not, that's the main story on page 1 of the print edition for May 7.
Mysteriously, a quick trawl around fails to find the story anywhere else in the major media. Let's think now. The Times is owned by News International, which is also the parent company of BSkyB, which owns the rights to broadcast almost all of the live football seen in the UK. Murdoch's fingerprints are all over this one, though I can't quite figure out the angle. Maybe people are not signing up for Sky because of the dwindling competitiveness of the Premier League, and Andy Burnham has seized on this as a way for the government to re-ingratiate itself with Murdoch, who seems distinctly cooler towards Gordon Brown than he used to be towards his old poodle, Blair.
Mind you, it says it all about the state of this government that Burnham isn't even the headline-grabbing idiot of the week. That honour surely goes to Jacqui Smith for naming a list of individuals who have been banned from the UK on public order grounds. Many of them, it turns out, have never expressed any interest in coming here in the first place.
Footnote: you know my problem? I'm not subtle or devious enough. On May 8, just a day after running the Andy Burnham story as its front page lead, the Times ran an editorial telling him that football was none of the government's business! So there's a Murdoch angle here all right. The great man is trying to keep the government from messing with his cash cow.
Mysteriously, a quick trawl around fails to find the story anywhere else in the major media. Let's think now. The Times is owned by News International, which is also the parent company of BSkyB, which owns the rights to broadcast almost all of the live football seen in the UK. Murdoch's fingerprints are all over this one, though I can't quite figure out the angle. Maybe people are not signing up for Sky because of the dwindling competitiveness of the Premier League, and Andy Burnham has seized on this as a way for the government to re-ingratiate itself with Murdoch, who seems distinctly cooler towards Gordon Brown than he used to be towards his old poodle, Blair.
Mind you, it says it all about the state of this government that Burnham isn't even the headline-grabbing idiot of the week. That honour surely goes to Jacqui Smith for naming a list of individuals who have been banned from the UK on public order grounds. Many of them, it turns out, have never expressed any interest in coming here in the first place.
Footnote: you know my problem? I'm not subtle or devious enough. On May 8, just a day after running the Andy Burnham story as its front page lead, the Times ran an editorial telling him that football was none of the government's business! So there's a Murdoch angle here all right. The great man is trying to keep the government from messing with his cash cow.
Wednesday 6 May 2009
Lessons from Canada (no, really!)
I hadn't heard of the Institute for Government (IfG) until this past weekend, when they parachuted a piece into the Sunday Times about Canada's fiscal experience in the 1990s, and the lessons it holds for the UK. Judging from its website, the Institute looks to be pretty formidable intellectually. Still, I can't help thinking that its researchers may not have grasped all the key lessons from Canada.
The IfG's Sunday Times article correctly stated that Canada had been trying for years to solve its fiscal problems before Paul Martin became Finance Minister. Every budget in the late 1980s included medium-term plans to set the federal fiscal situation right, but somehow the projected improvements were never achieved. (The fiscal situation of Canada's ten Provinces was also dire at this time, but that's another story, and one with fewer lessons for the UK). The IfG believes that Paul Martin's great innovation was something called "Program Review", with each spending ministry obliged to justify its outlays anew. Truth to tell, this had a relatively limited impact, especially on the main social programmes.
What actually worked, and seems to have been Martin's own idea, was a shortening of the planning horizon. With a five-year horizon, spending cuts were always pushed out to the later years, so in practice nothing was ever done. Martin adopted a system of rolling two-year targets and cracked the whip on his colleagues in the
programme ministries to ensure that these were met. This may not seem like a major change, but it largely eliminated the procrastination that had bedevilled all previous attempts at fiscal austerity. One implication of this is that it is pointless for either the UK government or the opposition to pretend that they know how they will correct the current fiscal mess once the recession ends. The key to success, if the Canadian lesson is to be believed, is to look after the pennies in the short term, and keep making steady progress against rolling short-term targets.
The IfG notes that Canada achieved GDP growth even as it was cutting its budget deficit. It sees this as a hopeful augury for the UK. In truth, it was mainly the fact that the economy was growing so steadily that allowed Canada to get out of its fiscal mess so quickly. With a very open economy (and over 80% of its exports going to the US), Canada benefited greatly from the growth in the US economy throughout the 1990s. It also benefited from the generally declining trend in US interest rates during that decade, since US rates are by far the largest determinants of Canadian rates. Those falling rates were very helpful in reducing the debt service burden and cutting the budget deficit. The UK may not enjoy these advantages -- it does not have tariff-free access to a market ten times as large as its own, as Canada does.
However, the lesson from Canada seems clear: it will be very difficult for the UK to correct its budget deficits unless the economy is growing. I am not sure that the Conservatives understand this. On the other hand, if the economy is growing, the deficits will fall much faster than anyone can imagine at this stage. In Canada the Government consistently and probably deliberately understated the extent of the fiscal improvement, in order to keep voters and politicians focused on the need to fix the problem once and for all.
There is another point that's worth making about growth. Although the Canadian economy expanded through the late 1990s, it most surely did not feel that way to most Canadians. The proceeds of growth were almost entirely directed towards reducing the previous massive public sector dis-saving. Living standards were largely stagnant. It will not be easy for whichever UK government that has to preside over the fiscal recovery phase to maintain its popularity. The Liberals' reward for rescuing Canada from the brink of insolvency was first re-election with a reduced majority, and then electoral defeat. The Chancellorship after the next UK election will be a poisoned chalice indeed.
The IfG's Sunday Times article correctly stated that Canada had been trying for years to solve its fiscal problems before Paul Martin became Finance Minister. Every budget in the late 1980s included medium-term plans to set the federal fiscal situation right, but somehow the projected improvements were never achieved. (The fiscal situation of Canada's ten Provinces was also dire at this time, but that's another story, and one with fewer lessons for the UK). The IfG believes that Paul Martin's great innovation was something called "Program Review", with each spending ministry obliged to justify its outlays anew. Truth to tell, this had a relatively limited impact, especially on the main social programmes.
What actually worked, and seems to have been Martin's own idea, was a shortening of the planning horizon. With a five-year horizon, spending cuts were always pushed out to the later years, so in practice nothing was ever done. Martin adopted a system of rolling two-year targets and cracked the whip on his colleagues in the
programme ministries to ensure that these were met. This may not seem like a major change, but it largely eliminated the procrastination that had bedevilled all previous attempts at fiscal austerity. One implication of this is that it is pointless for either the UK government or the opposition to pretend that they know how they will correct the current fiscal mess once the recession ends. The key to success, if the Canadian lesson is to be believed, is to look after the pennies in the short term, and keep making steady progress against rolling short-term targets.
The IfG notes that Canada achieved GDP growth even as it was cutting its budget deficit. It sees this as a hopeful augury for the UK. In truth, it was mainly the fact that the economy was growing so steadily that allowed Canada to get out of its fiscal mess so quickly. With a very open economy (and over 80% of its exports going to the US), Canada benefited greatly from the growth in the US economy throughout the 1990s. It also benefited from the generally declining trend in US interest rates during that decade, since US rates are by far the largest determinants of Canadian rates. Those falling rates were very helpful in reducing the debt service burden and cutting the budget deficit. The UK may not enjoy these advantages -- it does not have tariff-free access to a market ten times as large as its own, as Canada does.
However, the lesson from Canada seems clear: it will be very difficult for the UK to correct its budget deficits unless the economy is growing. I am not sure that the Conservatives understand this. On the other hand, if the economy is growing, the deficits will fall much faster than anyone can imagine at this stage. In Canada the Government consistently and probably deliberately understated the extent of the fiscal improvement, in order to keep voters and politicians focused on the need to fix the problem once and for all.
There is another point that's worth making about growth. Although the Canadian economy expanded through the late 1990s, it most surely did not feel that way to most Canadians. The proceeds of growth were almost entirely directed towards reducing the previous massive public sector dis-saving. Living standards were largely stagnant. It will not be easy for whichever UK government that has to preside over the fiscal recovery phase to maintain its popularity. The Liberals' reward for rescuing Canada from the brink of insolvency was first re-election with a reduced majority, and then electoral defeat. The Chancellorship after the next UK election will be a poisoned chalice indeed.
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