Category Archives: Economic

Britain, Economic, Financial Markets, Government, Politics

UK economy: Growth is returning and the signs are promising…

SPENDING REVIEW

The Chancellor, George Osborne, is determined to stick to his guns, with yet another £11.5 billion of budget cuts to be delivered in an election year. Some may say this is a massive gamble for a Conservative Chancellor who will wish to see his party elected at the next general election.

But the Chancellor has to retain the confidence of the financial markets by showing he is willing to tackle the legacy of deficit and vast levels of debt left by Labour.

If the markets no longer have confidence in the economy, Britain’s low interest rates, which are so vital a component to recovery and growth, will come to a shuddering-halt. If that was to happen, many would face financial disaster.

The first fruits of Mr Osborne’s determined approach is seen in the latest publication from the Office of National Statistics which has presented its revisions of gross domestic product (GDP), the key measure of the total output of the economy.

After a dreadful couple of years, the economy appears to be genuinely on the mend. In the first three months of this year it recovered healthily, despite some poor weather which usually slows down performance, but this trend is confirmed by all the major economic indicators and surveys.

The influential National Institute of Economic and Social Research, an often stringent critic of the government, says that output expanded by 0.6 per cent in the last three full calendar months.

This means that the ‘modest recovery’, often referred to by the retiring Bank of England Governor Mervyn King, is well and truly underway.

Earlier estimates of GDP underplayed the actual health of the economy. Early estimates of construction activity, for example, fell short of the true picture. Building programmes ranging from shopping centres in Leeds, to new office towers in the City of London, as well as new homes being built across the land is evidence of that.

The building industry certainly looks to be doing much better than was previously thought. It is this improvement – together with a formidable robust service sector, sharply better production from the North Sea, and higher export levels (especially to America) – that is turning the economy round.

According to fund managers Henderson of the City of London there has been a strong pick-up in the amount of money circulating in the economy. They suggest that, on current trends, the UK could be among the fastest-growing leading Western nations this year, expanding by a remarkable 2 per cent.

In his House of Commons address, Mr Osborne hinted at the underlying strength of the economy. He pointed out that for every one public sector job that has been lost as a result of austerity and cost cutting, another five have been created in the private sector.

Essential to the delivery of continuing growth, however, will be the discovery of new markets for Britain’s goods and services – not least because of the appalling health of the economies of our major trading partners in the European Union.

The Chancellor said that one of the keys to this will be a ‘strengthening of trade and investment links with China’. As a spending priority, the Government is planning to work with Britain’s exporters to set up a series of centres to promote British goods and services in China’s fastest-growing cities. Switching the focus from Europe to the new wealth-creating economies of Asia is going to be critical for our continuing recovery.

In the meantime, however, it is Britain’s close trading and financial relationship with the United States and its recovering economy that is proving most important to export-led growth. Exports of both goods and services to the U.S. have been climbing strongly in recent months.

Amid the intense interest with what is going on in Brussels and the eurozone, it is often forgotten that America is by far our most important single marketplace. The UK exports to the U.S. everything from Rolls-Royce engines to defence equipment as well as music made by British iconic figures in our pop industry.

No one, though, should underestimate the task of what the government is faced with in building up the economy to the peak it reached before the 2008 financial crisis.

The UK’s debt is continuing to climb despite the cuts and will not reach its height until 2016, when it will be the equivalent of an alarming 93.2 per cent of the nation’s output according to the latest IMF forecast.

If items such as public sector pension liabilities, which are hidden from the country’s balance sheet, are included, our debts will actually exceed national output in 2016. The Chancellor’s latest reductions in spending, in fact, represent less than 0.1 per cent of the national debt as projected in the year 2015-16.

The Chancellor’s trimming of the national budget, despite the hysteria of hard-hitting cuts, is no more than a holding operation designed to stabilise market confidence between now and the election.

The arrival nest week of the new Bank of England Governor, Mark Carney, poached from the Bank of Canada, has the task of not just keeping inflation close to the Government’s 2 per cent target but also to support growth.

Now that the housing market finally appears to be recovering from the shock of the financial crisis, and more small and medium-sized businesses are taking out bank loans to expand, any increase in interest rates by Mr Carney would be the last thing the Treasury needs. Mr Carney will chair his first meeting of the interest-rate-setting Monetary Policy Committee next week and will set in place the new mandate for the Bank of England as outlined in the budget.

Mervyn King has warned of the dangers this would pose in terms of homeowners struggling to pay mortgages and the loss of confidence in business circles.

The financial markets, it should be remembered, are still extremely jittery. The mere suggestion last week that the United States might curb its huge amounts of quantitative easing (Q.E.) – or printing money – sent share prices crashing across the globe. Mr Carney will want to prevent that happening at all costs, as will the Chancellor.

State spending reductions, while necessary and essential to calm the markets, can only make a small dent in Britain’s deficit and debt. It is higher-than-expected growth that could radically alter the picture.

The greater the output of the economy, the more taxes are paid – and the less money is paid out in welfare benefits because so many more people are employed.

If Mr Osborne can deliver sustained growth by the election, he would then be in a strong position to be even more radical, by taking a long-overdue axe to Britain’s mammoth social security bill – by removing, for example, many generous benefits to wealthy pensioners – and put the economy on a path to true prosperity.

 

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Britain, Economic, Government, Politics

UK Government Spending Plans 2015-16…

SECOND SPENDING REVIEW

The Chancellor, George Osborne MP, will unveil his second spending review tomorrow when he will set out spending plans for 2015-16.

Mr Osborne’s problem is that this is the review he never wanted to deliver. The original plan was that the deficit would be under control in time for the election with no more cuts needed. Weak growth and lower tax receipts have blown that plan out of the water.

The result is that Mr Osborne will be announcing more deep cuts to public services. That is a given. And to put the scale of those cuts into perspective they will be, if anything, a little deeper than the average cuts experienced each year during this parliament.

For a number of key areas of public spending, including the Home Office, Ministry of Justice and the Department for the Environment, this will mean cuts of more than 30 per cent since 2010.

By any standards those are large budgetary chunks to be dispensing with. The question that many will be asking is why the cuts needed are so big? The scale of these cuts cannot be explained by deficit cutting alone. For the remarkable fact is that total government spending is not falling at all.

Some bits of spending are continuing to rise, while others are not falling – due to debt interest payments rising as debt levels continue their upward trend. Public service pensions are also rising, with state pensions, the NHS and schools ‘ring-fenced’.

In effect, this means that all of the strain is being taken by a limited range of areas. That is why cuts in defence, police, justice, local government, and welfare have been so deep already. And it is for this reason that further deep cuts will be a priority for a Chancellor anxious to balance the books.

We have already been told that this pattern will continue. Health and pensions will again be protected. The longer these two budgets are left untouched the greater the pain that others will feel.

Unless the Government can deliver some truly surprising plans for health, pensions or social security, most other government departments can expect cuts averaging around 8 per cent in 2015-16 – a big cut in any year but all the more so in being layered on top of what has already happened.

There are some in Whitehall, though, feeling rather emboldened by their success so far. Not only have all of the planned cuts actually happened, but in many areas there has been over delivery.

Government budgets were significantly under-spent last year even in the face of extremely tight plans. And so far at least the budget cuts have not provoked visible crises or the sort of public demonstrations and backlashes seen in some other countries.

Equally, it is not surprising that gaining agreement with all Cabinet ministers for a further tightening of the screw in their departments has not been easy. We have been told that all departments have settled, and know that the small ones, on average, have settled for the required 8 per cent cut.

But we are yet to get the details of some big and very difficult departments – education, local government and business among them. Decisions here will make big differences.

Within education it is only schools that are protected. Other services for children and young people could lose out.

The business department – which pays for skills, training, universities and research – has made the case that its spending is uniquely important for growth.

Local government spending has been squeezed hard already and ministers have expressed concern about the effects of a further squeeze on vital social care services.

But even after all that, tomorrow’s spending review will only raise the curtain on at least another two years of tough choices. For much more extensive cuts will be needed if the deficit is to be dealt with in the planned time horizon.

Unless, of course, the next government chooses to raise taxes, or gets fortuitous with an unexpectedly-strong economic upturn.

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Britain, Canada, Economic, Environment, European Union, Government, Health, Research, Science, Technology, United States

GM crops: The arguments presented by the Environment Secretary don’t stack up…

Environment Secretary, Owen Paterson MP: Fervent advocate of GM

Environment Secretary, Owen Paterson MP: Fervent advocate of GM

UK Government ministers want GM crops on supermarket shelves by the end of the decade after declaring they are ‘categorically’ safer than conventional food.

The UK Environment Secretary, Owen Paterson MP, made the extraordinary claim that millions of children in the developing world are ‘dying or going blind’ because the controversial practice has not been more widely adopted.

He blamed European reluctance to grow ‘Frankenfoods’ for ‘generating unwarranted resistance to the technology in the parts of the world’ that need it most.

In a statement Mr Paterson said:

… Over the last 15 years… every attempt to deploy Golden Rice (modified to boost Vitamin A) has been thwarted and in that time seven million children have gone blind or died.

… I think all those who have thwarted the attempts to bring this in, for free, should reflect those are real young people.

… Young people will wake up this morning able to see and they will go to bed blind for life. Some of them will die today.

His bold claims that GM crops are safer and would save lives were dismissed by critics as ‘hysterical’ and ‘emotional nonsense’, which deflects from more sustainable ways of improving food security.

Earlier this year, the International Rice Research Institute, which is working on the Golden Rice project, denied reports that it was available for commercial planting, saying it has yet to pass safety tests or prove it could reduce vitamin A deficiency.

Dr Helen Wallace of GeneWatch, an organisation which campaigns to ensure any use of GM is in the public interest, said: ‘Owen Paterson has lost the plot when he starts claiming that GM food is safer than the food we all eat every day.

Dr Wallace continued:

… Genetic engineering can introduce new proteins into food or cause unexpected changes that are not fully understood and it is important that people can avoid such foods if they don’t want to eat them.

… Claims that critics of GM are killing babies everywhere in the world are verging on hysteria. A decision on whether to grow Golden Rice will be made in the Philippines, not Europe. It is in any case an unproven approach to tackling vitamin A deficiency and better ways exist to stop children growing blind.

Peter Melchett, the policy director at the Soil Association, said: ‘Paterson is simply ignoring the science when claiming GM crops are safe when there is no scientific evidence to support that statement… And his claims that millions of people have died in developing countries because efforts to grow Golden Rice have been thwarted is emotional nonsense. No one in Europe had any control over GM Golden Rice and therefore, no way of stopping it.’

Due to public concern, there are only a handful of products containing GM-crops currently available on British high streets.

For the record, the Prime Minister, the Government’s chief scientific adviser, Sir Mark Walport, and David Willetts, the Science Minister, have all voiced support for the controversial technology. Many scientists, too, have also voiced their support for the technique.

But a British Science Association study showed public support for ‘Frankenstein foods’ declining from 46 per cent in 2002 to only 27 per cent now.

Various campaign groups have also raised concerns over ministers’ secret meetings with GM lobby groups – details of which emerged following freedom of information requests.

Currently, there are no commercial GM crops in Britain, but livestock is commonly reared on imported GM feed. So far biotech firms have been deterred due to tough European regulations.

Mr Paterson, a long-standing advocate of GM technology, wants to see an easing of the restrictions. He said he wants to see the controversial produce on British supermarket shelves before the end of the decade or ‘as soon as possible’.

Mr Paterson delivered his statement from the Rothamsted Research Centre in Hertfordshire, which is conducting the only active GM crop trial in Britain. He insists the technology was safer than conventional farming methods.

Regardless of the view in Westminster, the devolved administrations in Scotland and Wales remain firmly opposed to GM.

An analysis of claims made by the Environment Secretary:

PUBLIC HEALTH

Claim: GM food is ‘probably safer’ than the meals we eat today. ‘There is no substantiated case of any adverse impact on human health,’ said Mr Paterson.

Reality: In May 2011, independent doctors in Canada reported that toxins implanted into GM crops to kill pests were reaching the bloodstreams of women and unborn babies.

Ninety-three per cent of blood samples taken from pregnant women and 80 per cent of umbilical cords showed traces of the chemicals, probably ingested by eating meat, milk and eggs from livestock fed GM corn.

There is no conclusive evidence about the health effects, but these toxins could conceivably trigger changes in the body, including allergies, miscarriages, abnormalities and even cancer.

GOLDEN RICE

Claim: This modified crop – which developing countries have been reluctant to accept because of fears over GM – contains high levels of Vitamin A, which can protect the eyesight.

Mr Paterson’s emotive claim was that: ‘Over the last 15 years… every attempt to deploy Golden Rice has been thwarted and in that time seven million children have gone blind or died.’

Reality: Children do not go blind overnight through a lack of Vitamin A in their diet. In any case, the same vitamin is available more cheaply through many other natural foods such as green vegetables. Doctors can also offer cheap supplement tablets where there is evidence of a problem.

ENVIRONMENTAL EFFECTS

Claim: GM farming is good for the environment. ‘There is a very strong environmental case for GM,’ said Mr Paterson. ‘We can farm more efficiently, using new technology and using less land. It gives a wonderful opportunity to free up land for wilderness and forestry.’

Reality: Evidence from UK trials and commercial cultivation in the US points to real damage to the ecosystem.

British farms were planted with crops of oilseed rape and beet that had been genetically modified to make them immune to heavy spraying with a powerful weedkiller.

The results, published in 2003, revealed this spraying not only wiped out weeds, but also wild plants and insects. Butterfly numbers were down almost a quarter in some areas.

One strain of GM corn – Mon 810 – has been created by US biotech firm Monsanto to include a toxin which kills pests. Poland banned the crop last year because its pollen was believed to be harming bees. It is also banned in Germany, France, Austria, Bulgaria, Greece, Hungary, and Luxembourg.

PESTICIDES

Claim: GM crops are better for the environment because farmers use fewer pesticides.

Reality: Evidence from the US suggests that initial reductions in the use of chemicals on GM crops are now being reversed.

A study by Charles Benbrook, a research professor at Washington State University, found the weight of chemicals used on US farms has increased by 404 million lb since GM was introduced in 1996.

Professor Benbrook warned: ‘Resistant weeds have become a major problem for many farmers reliant on GM crops, and are now driving up the volume of herbicide needed each year by about 25 per cent.’

SUPERWEEDS AND SUPERBUGS

Claim: ‘Thanks to biotechnology, farmers around the world have been able to protect yields, prevent damage from insects and pests and reduce farming’s impact on the environment,’ said Mr Paterson.

Reality: Weeds and insects sprayed with chemicals on GM farms in the US have evolved to become immune to them.

As a result, superweeds are now so rampant in some areas that growers have resorted to machetes, flame throwers and defoliant chemicals used during the Vietnam war. The biggest threats are giant ragweed and pigweed, which grow at a rate of more than one inch a day and reach a height of 10ft.

YIELDS

Claim: High-yield GM crops will save billions from starvation: ‘At this very moment there are one billion people on this planet who are chronically hungry,’ said Mr Paterson.

‘Are we really going to look them in the eye and say we have the proven technology to help, but the issue’s just too difficult to deal with, it’s just too controversial?’

Reality: Research published in the last few days shows that increases in crop yields have been much greater in countries which have not adopted GM.

Yields of maize or corn in Europe, where farmers have rejected GM, have risen more quickly over the last 30 years than those in the US. Yields of oilseed rape have always been higher in Western Europe than Canada. This gap has grown since Canada started cultivating GM varieties.

The research was carried out by a team based at the University of Canterbury, New Zealand, and published in the peer-reviewed International Journal of Agricultural Sustainability.

INDIAN COTTON FARMERS

Claim: Growing GM cotton has been of huge economic benefit to poor communities in India. ‘It has been a massive boon to some or the least advantaged people in the world,’ said Mr Paterson.

Reality: Prince Charles has pointed out the high rate of suicide in India among farmers growing GM cotton.

Speaking in 2008, he highlighted the ‘truly appalling and tragic rate of small farmer suicides in India, stemming in part from the failure of many GM crop varieties.’ He has been accused by the GM lobby of being ‘Luddite’ and ‘ignoring’ the potential benefits of GM crops to feed the Third World.

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