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.

Photo: Getty
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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

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

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