A Budget with looming shadows

There were no rabbits in his hat. Hanging over Darling's speech was the spectre of global economic u

First it was going to be the green Budget. Then it was the anti-booze Budget, next the steady-as-she-goes Budget and, just at the last moment, the child poverty Budget. Budgets these days have to be all things to all people, or at least most things to as many people as possible. With a growing political consensus over the priorities of government, this would have been true even if it had been George Osborne standing up in parliament on 12 March. Budgets must be business-friendly and yet tackle inequality; they must give generously to public services while cutting the tax burden; and they must address the immediate issues of the day - this year it is the turn of first-time housebuyers, supermarket plastic bags and polluting cars.

In the end, Alistair Darling's first Budget has been the "hard truths" Budget. Under the pressure of an ever-slowing economy, the Chancellor was forced to outline the bleakest financial situation since Labour came to power in 1997, although not quite as grim as some predicted. He should be congratulated for avoiding the temptation to pull last-minute rabbits out of hats. "Not really his style," according to one aide.

As expected, he downgraded his forecast for growth for 2008, outlined in his Pre-Budget Report as being between 2 and 3 per cent, to between 1.75 and 2.25 per cent. Scare stories from the weekend before the Budget suggested he would need to raise £240 per household in taxes to plug a £5bn black hole in the public finances. The sums may appear complex and confusing, but much of the Chancellor's work is simple arithmetic - as revenues to the Exchequer drop, he either has to tax more or borrow more to honour the government's spending plans. In the end he will do a bit of both, but either way, Darling is in a dark place.

As he prepared the Budget in the full knowledge that the Bank of England, the European Central Bank and the US Federal Reserve were all pouring billions of dollars of funds into the money markets to avoid a global recession, he must have felt like the unluckiest man alive. Alone at the Despatch Box with just a glass of tap water for company, Darling was on the spot and it was his job and his alone to inform Britain of the naked truth about the state of the economy. His contention that the present situation is not as serious as during the worst Tory years is basically sound. Britain is still a high-employment, low-inflation economy. Growth may be slowing down but it had, indeed, been sustained for 62 quarters, a better record than for any of our major competitors.

It is also true that Darling has been dealt a duff hand, and not just by the American "sub-prime" mortgage crisis (for which no one can hold him responsible) but also by decisions of his predecessor, who built an edifice of public spending commitments on the assumption of continued growth. But, to an extent, politicians create their own luck and much of Darling's speech was taken up with atoning for the political miscalculations of his Pre-Budget Report in October. He held his nerve on the £30,000 levy on "non-domiciles", who avoid paying tax in Britain by moving their financial affairs elsewhere, but was forced into concessions. It is thought a deal has also been reached with the US Treasury on payments from American citizens. The Chancellor's attempt to simplify capital gains tax by introducing a flat rate of 18p had to be revised after he came under pressure from the business community. In less difficult times, such changes would have been seen as tweaks. In the present atmosphere, however, everything Darling does is scrutinised by the City for signs of indecisiveness.

As the analysis of the Budget plays out, attention will inevitably turn to the reaction in the Square Mile, where the knives have been out for Darling almost from the moment he arrived at 11 Downing Street. But some of the wisest economic heads in the country are turning to another area of grave concern: the state of our public finances. It is of course true that everyone is affected by the mood of Britain's financial markets, but a far more immediate impact will be felt as the money for schools and hospitals starts to dry up.

One problem for Darling is the growing national debt. The Chancellor's best Budget soundbite - that Labour has "turned welfare into work and borrowing into wealth creation" - is at the very least arguable. The Chancellor made much of Labour's record on borrowing. But David Cameron was right to raise the issue of Northern Rock. The so-called "sustainable investment rule", which states that net public borrowing should remain at or below 40 per cent, has already been shaken by the nationalisation of the high street bank, whose liabilities in reality push the figure closer to 45 per cent. If estimates of the economic slowdown are correct, the borrowing necessary to plug the hole in the public finances will push this figure even higher. In fact, even Darling's estimates push it within a percentage point of the 40 per cent danger point.

The investors' verdict

Then there is the looming shadow of the government's Private Finance Initiative schemes, which were designed specifically to keep borrowing off the Treasury's balance sheet. These projects, which use private funding for large public projects such as schools and hospitals, will soon be included as part of the national debt to bring Britain in line with International Financial Reporting Standards. At the same time, liabilities from public sector pension schemes, which have been badly hit by the international credit crunch, will also contribute to the growing debt. Some estimates suggest that the combined liabilities of pension and PFI schemes would bring the proportion of debt to 100 per cent of GDP.

In one sense, the sustainable investment rule is just an arbitrary measure, set by the government to measure its own economic competence. What really matters is the attitude of global financial institutions to such profligacy, and investors' preparedness to put their money into new projects. In the new period of economic uncertainty, the British public would certainly begin to notice if plans for a shiny new hospital or school were put on ice. Already concerns have been raised about the slow progress of the government's PFI-funded Building Schools for the Future programme.

The real issue is that we don't know the full consequences of the slowdown for the public purse. New Labour has never been here before. A recent article by Paul Gosling in Public Finance magazine put it succinctly: "Underlying everything is a fog of uncertainty. The use of 'financial engineering' and the complex hedging of financial risk means there is very real confusion about exactly who has lost what from the sub-prime crisis - and that is affecting almost everything on the world's financial markets."

Darling's first Budget was just the sort of solid, unflashy affair demanded in the circumstances. Many of the details will be welcomed by people Labour should care about: children, the poor and the old. But it will all mean nothing if he fails to address that fog of uncertainty afflicting the public finances.

This article first appeared in the 17 March 2008 issue of the New Statesman, Iraq: the war that changed us

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An unmatched font of knowledge

Edinburgh’s global reputation as a knowledge economy is rooted in the performance and international outlook of its four universities.

As sociologist-turned US Senator Daniel Patrick Moynihan recognised when asked how to create a world-class city, a strong academic offering is pivotal to any forward-looking, ambitious city. “Build a university,” he said, “and wait 200 years.” He recognised the long-term return such an investment can deliver; how a renowned academic institution can help attract the world. However, in today’s increasingly globalised higher education sector, world-class universities no longer rely on the world coming to come to them – their outlook is increasingly international.

Boasting four world-class universities, Edinburgh not only attracts and retains students from around the world, but also increasingly exports its own distinctively Scottish brand of academic excellence. In fact, 53.9% of the city’s working age population is educated to degree level.

In the most recent QS World University Rankings, the University of Edinburgh was named as the 21st best university in the world, reflecting its reputation for research and teaching. It’s a fact reflected in the latest UK Research Exercise Framework (REF), conducted in 2014, which judged 96% of its academic departments to be producing world-leading research.

Innovation engine

Measured across the UK, annual Gross Value Added (GVA) by University of Edinburgh start-ups contributes more than £164m to the UK economy. In fact, of 262 companies to emerge from the university since the 1960s, 81% remain active today, employing more than 2,700 staff globally. That performance places the University of Edinburgh ahead of institutions such as MIT in terms of the number of start-ups it generates; an innovation hothouse that underlines why one in four graduates remain in Edinburgh and why blue chip brands such as Amazon, IBM and Microsoft all have R&D facilities in the city.

One such spin out making its mark is PureLiFi, founded by Professor Harald Haas to commercialise his groundbreaking research on data transmission using the visible light spectrum. With data transfer speeds 10,000 times faster than radio waves, LiFi not only enables bandwidths of 1 Gigabit/sec but is also far more secure.

Edinburgh’s universities play a pivotal role in the local economy. Through its core operations, knowledge transfer activities and world-class research the University generated £4.9bn in GVA and 44,500 jobs globally, when accounting for international alumni.

With £1.4bn earmarked for estate development over the next 10 years, the University of Edinburgh remains the city’s largest property developer. Its extensive programme of investment includes the soon-to-open Higgs Centre for Innovation. A partnership with the UK Astronomy Technology Centre, the new centre will open next year and will supply business incubation support for potential big data and space technology applications, enabling start-ups to realise the commercial potential of applied research in subjects such as particle physics.

It’s a story of innovation that is mirrored across Edinburgh’s academic landscape. Each university has carved its own areas of academic excellence and research expertise, such as the University of Edinburgh’s renowned School of Informatics, ranked among the world’s elite institutions for Computer Science. 

The future of energy

Research conducted into the economic impact of Heriot-Watt University demonstrated that it generates £278m in annual GVA for the Scottish economy and directly supports more than 6,000 jobs.

Set in 380-acres of picturesque parkland, Heriot-Watt University incorporates the Edinburgh Research Park, the first science park of its kind in the UK and now home to more than 40 companies.

Consistently ranked in the top 25% of UK universities, Heriot-Watt University enjoys an increasingly international reputation underpinned by a strong track record in research. 82% of the institution’s research is considered world-class (REF) – a fact reflected in a record breaking year for the university, attracting £40.6m in research funding in 2015. With an expanding campus in Dubai and last year’s opening of a £35m campus in Malaysia, Heriot-Watt is now among the UK’s top five universities in terms of international presence and numbers of international students.

"In 2015, Heriot-Watt University was ranked 34th overall in the QS ‘Top 50 under 50’ world rankings." 

Its established strengths in industry-related research will be further boosted with the imminent opening of the £20m Lyell Centre. It will become the Scottish headquarters of the British Geological Survey, and research will focus on global issues such as energy supply, environmental impact and climate change. As well as providing laboratory facilities, the new centre will feature a 50,000 litre climate change research aquarium, the UK Natural Environment Research Council Centre for Doctoral Training (CDT) in Oil and Gas, and the Shell Centre for Exploration Geoscience.

International appeal

An increasingly global outlook, supported by a bold international strategy, is helping to drive Edinburgh Napier University’s growth. The university now has more than 4,500 students studying its overseas programmes, through partnerships with institutions in Hong Kong, Singapore, China, Sri Lanka and India.

Edinburgh Napier has been present in Hong Kong for more than 20 years and its impact grows year-on-year. Already the UK’s largest higher education provider in the territory, more than 1,500 students graduated in 2015 alone.

In terms of world-leading research, Edinburgh Napier continues to make its mark, with the REF judging 54% of its research to be either world-class or internationally excellent in 2014. The assessment singled out particular strengths in Earth Systems and Environmental Sciences, where it was rated the top UK modern university for research impact. Taking into account research, knowledge exchange, as well as student and staff spending, Edinburgh Napier University generates in excess of £201.9m GVA and supports 2,897 jobs in the city economy.

On the south-east side of Edinburgh, Queen Margaret University is Scotland’s first university to have an on-campus Business Gateway, highlighting the emphasis placed on business creation and innovation.

QMU moved up 49 places overall in the 2014 REF, taking it to 80th place in The Times’ rankings for research excellence in the UK. The Framework scored 58% of Queen Margaret’s research as either world-leading or internationally excellent, especially in relation to Speech and Language Sciences, where the University is ranked 2nd in the UK.

In terms of its international appeal, one in five of Queen Margaret’s students now comes from outside the EU, and it is also expanding its overseas programme offer, which already sees courses delivered in Greece, India, Nepal, Saudi Arabia and Singapore.

With 820 years of collective academic excellence to export to the world, Edinburgh enjoys a truly privileged position in the evolving story of academic globalisation and the commercialisation of world-class research and innovation. If he were still around today, Senator Moynihan would no doubt agree – a world-class city indeed.

For further information www.investinedinburgh.com