Welfare Cuts Credibility

The Osbourne budget and the subsequent resignation of IDS t only threaten the governments claim that we are all in it together, much more seriously they raise questions about their economic competence. In November much was made of the discovery of a spare £27bn forecast over the 5 years of the parliament. In truth this is less than 1% of the expenditure over that period and it is a brave person in any business that thinks their figures are correct to +/- 1% over one year much less 5.

If Mr Osbourne had said at the time this was nothing but rounding and not something to be taken account of in the calculations he could legitimately have taken the same line now when the same calculations mean that instead of a £27bn benefit we have a £29bn deficit.

Critically, all this means that the Chancellor now has a £13bn hole in 2019/20 fiscal target of budget surplus. He has however more than made up the £13bn hole. But how has he done it? According to Paul Johnson, “More than half
of it is purely temporary – shifting tax revenues into that year and shifting
capital spending out. The target would not be forecast to be met without
both this shuffling of money between years and a wholly unspecified
spending cut of £3.5 billion on top of the specific cuts announced in
November.” In other words the figures have been made to fit the policy.

Nothing illustrates the approach of the Chancellor more than his repeated claim that he would never make the figures fit the policy as he delivers a budget which requires the figures to fit the policy. To be fair the fiddling did not look to the short term political advantage for the Tory Party it was more about long term career advantage of Mr Osbourne.

The charge the budget process is driven more by political considerations than National interest has carried little weight when it came from the Labour Party. When it comes from within the cabinet it is a different issue. There is a crack here which has the potential to undermine the key claim of the Conservatives, that they are better at managing the economy. Labour should seize the opportunity.


In full: Iain Duncan Smith resignation letter – BBC News

In full: Work and Pensions Secretary Iain Duncan Smith’s resignation letter.

Source: In full: Iain Duncan Smith resignation letter – BBC News

Politics never fails to surprise. Yesterday my view of IDC was of someone wholly committed to cutting the costs of welfare in line with the Osbourne obsession with deficit reduction. A part of the inner group who were set on the reduction in the scale and role of the state. It goes to show that from a distance and from outside the machinery of government it is difficult to discern the subtleties of individual politicians positions.

His letter aside from the formal platitudes, is as heartfelt as Geoffrey Howe’s comments about being sent into bat when your captain had broken your bat before the match. You really do get the feeling this is a man whose intentions were honourable, whether you agreed with them or not. He genuinely wanted a system which provided a “generous safety net” but also incentives to work. Most people agree with that broad picture but, perhaps because of the constant compromises that had to be made to meet the demands of austerity, felt its implementation was not consistent with the vision. More and more it simply looked like cost cutting.

Clearly this eventually got to IDC and led to his willingness to question not just the need for the specific cuts but rather George Osborne’s whole approach to economic management. His view that the “fiscal self imposed restraints” were more “political” than “in the national economic interest”.

His criticism is not just of Osbourne however. His concern goes to the strategic framework of the Prime Ministers administration. The ideological rhetoric that “we are all in it together” is starting to dissolve and IDC’s resignation may be seen as a key moment in the beginning of that process.

The Tory’s risk tearing themselves apart. It will be fascinating to see what the Sunday papers say and whether the character assassination of IDC starts in earnest. No doubt Osbourne is winding that up right now. However, if he has any sense Cameron may want to try to avoid this. IDC has a lot of support and under attack some of that support will be just as vicious as the government machine can be.

Going forward it is difficult to see a happy scenario for this administration. If Messrs Cameron and Osbourne manage to win the referendum there will be a lot of very unhappy MP’s and constituency party members and it will be an impressive piece of leadership to avoid the party expending an immense amount of energy on internal squabbling. If they lose they will have to go. Of more concern this whole mess may actually help the no campaign.

Mr Osbourne delivered this budget with his usual panache. Despite having failed, two out of his three self imposed tests and clearly having to “fix the figures to meet the policy” for his final test in 2019/20 he presented the budget as part of a triumphant programme of successful economic progress.

For many there has been a disconnect between the rhetoric and the reality for some time. Both Mr Cameron and Mr Osbourne are past masters at saying one thing and doing another (supporting hard working families by removing tax credits, supporting the environment by reducing renewable energy subsidies). In this budget that disconnect has been revealed from the inside.

Mr Osbourne’s rhetoric about his success sounds more and more like the claim that “the DLS sale must end on Monday”. Stated with great conviction and fanfare, but basically not true.

Ironically IDC may have done more to protect the welfare system by his resignation than he ever did in office. However, and whilst it pains me to say it, I have revised my view of his motives. I think he genuinely was trying to improve the welfare system and it may be the case that with a less ideological chancellor he could have delivered the transformation of welfare that is needed. That job could never be done on the cheap and it wont be. A modern state is expensive but I suspect the alternative is ultimately more expensive.


Robo Financial Advisors

Article from FT

“Goldman Sachs has just bought a small financial technology company in Texas called Honest Dollar, which organises pension plans for small companies and self-employed workers, writes John Gapper. Builders and taxi drivers are not exactly Goldman’s usual set of customers so it is a sign of the revolution in asset management. 

Honest Dollar, although it dislikes being labelled as such, is one of a new breed of “robo-advisers” that offer a cheap, automatic version of something that used to take a long time and cost a lot of money. Instead of an expensive adviser picking out the stocks and bonds in which savers should invest, a computer does a more sophisticated job at the touch of a button.

Robo-advisory start-ups such as Betterment and Wealthfront in the US and Nutmeg in the UK are growing rapidly. They offer investors ease and simplicity at a very low price — often a quarter of the fee an investment adviser at Morgan Stanley or Bank of America Merrill Lynch would charge.”

Interesting and very welcome example of automation of professional services. Whilst one might be concerned about the automation of many professions Financial Services is not on of them.