David Cameron and Vince Cable are both wrong. Infrastructure isn’t the answer and nor is QE – money in pockets is
Why not build a bridge to the moon? It will restore confidence, “kickstart infrastructure spending”, create thousands of jobs and boost British scientific and engineering expertise. A moon base could exploit rare mineral resources and even relieve the housing crisis. A Humberside portal for the bridge will help close the north-south gap. The prestige gain for business would be immense. The consultants are ready. Britain showed it could do something extravagantly pointless like an Olympics. Why not go to the moon?
This is the level of economic debate in the UK at present. Bridge-to-the-moon projects have been knocking about business schools for years, ever since George Bush proposed a lunar colony in 2004. They offer every cliche in the “growth strategy” book, including a sensational ministerial headline.
Britain now has two government economic policies. On Thursday the prime minister, David Cameron, was in Yorkshire, promising that the recession was almost over and things were on the mend. Meanwhile Vince Cable, the business secretary, was dismissing the PM’s policy as too timid and proposing more spending on our old friend, infrastructure.
Both ministers agree on essentials. They accept the Treasury and Bank of England view that the level of demand in the British economy is about right to contain inflation and nothing else really matters, not even stagnation and recession. The only difference between them is whether a little stardust might be in order from a handful of high-profile building projects – some roads, houses, power stations – guaranteed against future borrowing. It is roughly the same policy as advocated by Labour’s Ed Balls. Demand is bad, infrastructure good.
As a result there are not just two policies but two British economies now running in parallel. One is doing just fine. The stock market is back to its highest level since before the crash in 2008. Banks and their executives are returning to prosperity. This has nothing to do with the economy but with the microeconomy of quantitative easing. QE has given £375bn to the banks, who have used it to refinance government debt and inflate the stock market.
Rather than boost the economy with renewed lending to businesses, this vast sum has depressed demand by reducing bond yields, cutting private pensions, and forcing companies to funnel money into pension schemes to keep them solvent. The Pension Insurance Corporation estimates the Treasury has lost £37bn in corporation tax as a result. If anything, QE has sucked spending power out of the economy. Yet for some reason the BBC continues to call it “pumping money into the economy”.
The reason banks have not been lending to businesses is easy to see in the second, real, economy. It is flat, indeed went backwards in the last quarter. Triple-dip now beckons. Retail sales sputter up and down. Manufacturing and construction are dormant. Exports, which should benefit from a devalued pound, are ailing. The economy is drained of blood. It craves cash in circulation, and the government starves it. The banks are right: why should they risk bad credit on businesses with no customers?
The sole coalition policy for growth this past four years has been QE. It has been a pretence, an intellectual confidence trick, with the economic establishment buying into it. The reason is that the Bank of England under Sir Mervyn King is still more worried about inflation than about continuing recession. Asked to justify QE, all King and the Treasury can say is, “Things would have been worse without it”.
After four years of failure he really should prove it. The trouble any layman has in arguing this toss is that QE is so technical and dreary that nobody dares challenge the pundits. Yet the question for King is not whether Britain would be worse off without his donation of £375bn to the City but whether it might have been better off had the money gone into consumer circulation.
Suppose the government had used its printing presses to put the same £8,000 a head into the pocket of every man, women and child in Britain? Or suppose it had written off the equivalent in private and housing debt? Would the economy really have been worse off than it is now? I do not believe it.
The argument over so-called “helicopter money” continues to rage. Two members of the bank’s policy committee, Adam Posen and Andrew Sentance, have queried as to whether QE as such has been effective. The maverick candidate for the bank governorship, Adair Turner, gave a lecture to the Cass Business School last month, pleading to lift the “taboo” on discussing unconventional or “overt” increases in money supply to the economy. He suggested using QE to finance handouts, tax cuts or benefits rises, reflating the real economy rather than just the stock market. Turner pointed out that the economy is so far from operating at full capacity that the risk of inflation is now minimal. Britain’s problem is not inflation but intractable recession.
Turner is focusing on what is now a classic of British establishment snobbery. Giving money to ordinary people to spend is considered by the Treasury, the Bank of England and Westminster to be immoral. (When they did it in Sweden it led to a surge in employment.) Yet it is just fine to give similar sums to “respectable” bankers, pension fund managers, consultants, contractors.
Last year, after blowing £375bn on QE, the government blew another £80bn on a bank lending scheme. Lending actually fell by more than £2bn. The Treasury has no shame. Had local councils wasted so much money they would have been wound up overnight. The money went on inflating the assets of the rich.
Now the cry is once more for infrastructure spending, code for respectable spending, spending on things ministers want by “people like us”. One day in the future a railway, a power station, a housing estate, may be built. Perhaps some of this will some day trickle down to the consumer, but not now. For the present, the policy is merely to swill ever more money around the City, perpetuating a recession now forecast to last a decade.
For most of those alive today, this must constitute the greatest failure of political intelligence of the age. And nobody dares try any other plan. How historians will curse us.
Bank of England governor Sir Mervyn King says there is a case for splitting up state-owned Royal Bank of Scotland.
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Executives at the Mayfair estate agency could delay taking bonuses until lower 45p rate is in place
Savills, the Mayfair estate agency behind some of London’s most expensive property sales, has given its top staff the opportunity to defer bonuses until the start of the next tax year to avoid the soon-to-be-abolished 50% top rate of tax.
Executives at the firm, some of whom earn more than £1m a year, could delay taking bonuses until the lower 45p rate is in place.
The chancellor, George Osborne, announced in December that the top rate of income tax would be cut from 50% to 45% from 6 April. He said: “We’re going to have a top rate of tax that supports enterprise,” and promised that it would “raise more money from the rich”. The top rate is levied on incomes of more than £150,000.
The estate agency is not the first firm to allow high earners to defer bonuses for tax reasons. The Guardian reported in January that London-based insurer Aon was helping 250 of its best-paid staff avoid the 50% rate by deferring bonus payouts.
These are thought likely to be just two examples of a popular remuneration strategy among Britain’s biggest bonus-paying firms. Many large businesses are expected to be quietly pursuing a similar strategy in the hope of avoiding the ire that Goldman Sachs attracted from Bank of England governor Sir Mervyn King at the start of the year.
The US investment bank abandoned its plan to defer London bonuses after it was attacked by King. He told parliament’s Treasury select committee: “I find it a bit depressing that people who earn so much seem to think that it’s even more exciting to adjust the timing of it to get the benefit of the lower tax rate … which they will benefit from in the long run to a very great extent knowing this must have an impact on the rest of society, when even now it is the rest of society which is suffering most from the consequences of the financial crisis.”
Savills, which is listed on the London Stock Exchange, declined to answer questions from the Guardian on the timing of bonus payouts to directors and other top earners. However, one source close to the company denied that in previous years bonuses and profit-share rewards had been routinely paid in March. Savills offers flexible arrangements every year, with staff able to take payouts at any time between the company’s year-end in December and its annual shareholder meeting in May, the source said.
Among the senior staff at Savills who could benefit from receiving their cash bonus after 6 April include chief executive Jeremy Helsby and finance director Simon Shaw, who received £1.27m and £891,390 respectively in salary, bonuses and perks for 2011. Savills’ head of residential property, Rupert Sebag-Montefiore, is also thought to be among the top earners, though his earnings are not disclosed by the company as he is not a board director. Savills declined to say whether any of these three intended to delay taking their 2012 bonuses.
While widespread attempts to exploit the timing of the tax changes have “depressed” King, the expected clustering of bonus payouts within the 2013/14 tax year may eventually be seized upon by Osborne as evidence of the apparent success of his controversial top-earner tax cut.
The chancellor has already suggested that Labour’s decision to raise the rate to 50% was “a con” because it had raised “almost no money”. A large part of the explanation for the seemingly disappointing tax take from the 50% was that many top earners timed their take-home income to minimise their tax bills.
When the bidding began last winter for the Los Angeles Dodgers — a storied baseball team in America’s capital of glamour — the lengthy list of suitors was predictably studded with bold-faced names. There were TV celebrities like Larry King, baseball luminaries like the former Dodgers great Steve Garvey, billionaire investors such as hedge fund mogul Steve Cohen, and prominent owners of other teams, such as Stan Kroenke of the NFL’s St. Louis Rams.
Continue reading here: Guggenheim is flexing its $170 billion muscles
Tesco reports that sales of pale malt beer seen as ‘stepping stone’ from lager to ale have risen by 40% on last year
Golden ale is the UK’s fastest growing beer variety, having lured increasing numbers of drinkers away from the dominant and heavily promoted lager brands.
Retail analyst Nielsen reports that sales of golden ale have soared by 26% in the last year across all retailers, while sales of lager fell by 3% over the same period.
At Tesco, the UK’s biggest beer retailer, the trend is even more marked with year-on-year growth of 40%, far larger than for any other type of beer.
Industry experts say golden ale has become the stepping stone for younger drinkers as they switch from lager to ale.
Among the most popular golden ales are Thwaites Wainwright, Greene King Old Golden Hen, Greene King IPA, St Austell Tribute, Badger Fursty Ferret, and Harviestoun Bitter & Twisted.
Roger Protz, editor of the Good Beer Guide called the trend “a remarkable turnaround. A few small brewers in the 1980s launched golden ales because they didn’t have the right equipment to make lager but wanted to introduce younger drinkers to the delights of paler beers.
“The beauty of golden ales is that they’re made only with pale malt, so there are no roasted, darker malts to impede the hops. The result is a beer style that positively bursts with tangy, zesty and citrus hop flavours.”
Tesco ale buyer Chiara Nesbitt added: “Over the last five years ale has made a resounding revival as a flavoursome beer that is now appealing to a younger generation of beer drinkers. Golden ale with its light and refreshing taste is playing a major role in this revival as it is the beer lager drinkers first generally try if they want to switch to ale.”
Justin King, the chief executive of Sainsbury’s, speaks to the BBC’s Newsnight about the horsemeat scandal
Continued here: VIDEO: Supermarkets ‘not out of woods’ on meat
Will the next governor of the Bank of England, Canadian Mark Carney, be like his predecessor Mervyn King, or something completely different?
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