Opinionomics | 18 April 2012

Must-read comment and analysis. Britain in the slow lane, youth unemployment speeding up, and Argent

1. Feed me, Seymour (Economist)

The Economist covers the YPF seizure, writing that:

First they came for the pensions, then they went for the central-bank reserves. Argentines have wondered for years which kitty Cristina Fernández, the president, would grab next in order to satisfy her government’s voracious appetite for cash.

2. High youth unemployment must be tackled, and fast (Guardian)

Jonathan Portes points out that youth unemployment remains high, and is still growing. It hasn't been this bad for a quarter of a century, but what is to be done?

3. IMF predicts modest growth as Europe starts to exit recession (Washington Post)

Howard Schneider reports on the good news from the IMF World Economic Outlook.

4. Economic update – April 2012: Coalition failures put Britain in the slow lane (Left Foot Forward)

Tony Dolphin presents his monthly overview of the economic situation.

5. Vodafone, C&WW, and a £5bn tax question (BBC News)

"A behind-the-scenes battle to acquire Cable & Wireless Worldwide, owner of one of the UK's largest fibre-optic cable networks, is coming to a head," writes Robert Peston. "What is striking about Cable & Wireless is that it pays very little tax thanks largely to massive capital allowances it generated in constructing its telecoms network. . . So there is an opportunity for both Tata Communications and Vodafone to reduce their UK bill for corporation tax by buying Cable & Wireless."

Protesters perform a skit during a tax day demonstration in New York City. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
Show Hide image

Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.