The budget: déjà vu all over again

Prepare for a rush to the calculators, writes Tullett Prebon's Tim Morgan.

How do you start a budget speech? Well, “stop me if you’ve heard this one before” would be appropriate, because, to quote Yogi Berra, this budget is likely to be a case of “déjà vu all over again”. The economy will, yet again, have confounded the serial optimists at the OBR. The deficit reduction plan will…er, yet again…have gone further adrift of the government’s plan. The debt target will – well, “yet again” – have slipped by another year.

This time, though, observers will need to keep their calculators handy if they are to figure out what is really happening. Whilst Mr Osborne is likely to disappoint sensation-seekers, lovers of the obscure will have a field-day.

One of the less scrupulous initiatives of the Nixon administration was the concept of “core inflation”. This, it was claimed, showed the real state of affairs if distorting variables were left out. The snag, of course, was that the things that Tricky Dickey wanted to omit were those very items – energy and food – whose prices were rising most rapidly at the time. Small wonder that one critic dubbed it “inflation ex-inflation”. It’s a bit like saying that “Britain had wonderful weather in 2012, if we exclude the days on which it rained”.

The Treasury, it seems, is lining up a similar exercise in smoke-and-mirrors for the budget, arguing that the British economy looks fine and dandy if the weak bits (principally, finance and the North Sea) are left out. They could take this even further, of course, showing how the economy looks really terrific if we also leave out construction, real estate, retailing and the state-funded sectors…

If this is indeed a line that the Treasury pushes, it will join another piece of legerdemain which will portray a deficit of about 7.8% of GDP as something closer to 5.1% by including within the fiscal numbers, amongst other things, the £28bn assets (but not the £37bn liabilities) of the Royal Mail pension fund, taken over by the state in April.

Behind the statistical smoke, the reality is that Britain combines one of the developed world’s most troubled economies with one of its worst deficits. The biggest source of frustration for objective observers, however, will doubtless be yet another repetition of the sterile debate between plans A and B, with the government claiming that Britain’s policies would be working were it not for global economic conditions (‘it’s those foreigners again’), whilst Labour, ignoring the £1.1 trillion that has already been pumped into the economy, calls upon ministers to borrow Britain’s way out of a debt problem.

Considering the economy on a basis which excludes financial services would, of course, be ludicrous, because assessing Britain ex-banking is about as rational as evaluating Saudi ex-oil. Politicians who spent decades wooing the City seem now to have forgotten that it’s the financial sector which alone earns the foreign currency to pay for essential imports such as food (a deficit of -£18.7bn last year) and energy (-£21.3bn).

Let’s be clear that there is one initiative, above all, that could get the economy moving, and that is house-building. Unfortunately, the only way in which this could work – a state-financed programme of building council houses – contradicts the mantra of government ideology. Ministers would prefer to encourage private sector developers, but this idea is a non-starter. With the over-valued property market already critically exposed to interest rate risk, developers are not going to commit to building over-priced properties any more than mortgage lenders are going to rush to finance them.

Just this once, the government should sacrifice ideology to the public interest, and start building council houses, funding this from savings in current expenditure.

This post originally appeared on the Tullet Prebon Research blog, and is reposted here with permission.

Photograph: Getty Images/Edited: Alex Hern

Tim Morgan is the Global Head of Research for Tullett Prebon, an international broker.

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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

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Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.