Category Archives: Society

Britain, Economic, Government, Politics, Society

Analysis of the Autumn Statement…

AUTUMN STATEMENT

A highly charged political autumn statement delivered by the Chancellor, George Osborne, has set a trap for Labour by challenging the party to sign up to a new set of tough fiscal rules that would mean billions of pounds of new spending cuts after the 2015 general election.

Mr Osborne announced that Parliament will vote on a new ‘charter for budget responsibility’ before the election. This would set the terms of the election battle but would give maximum advantage to the Conservatives, who seem certain to pledge the running of a budget surplus once the annual deficit has been removed in 2018-19.

The Chancellor’s plans for a ‘responsible recovery for all’, however, have been dealt a blow when the independent Office for Budget Responsibility (OBR) warned that house prices are expected to jump by 3.2 per cent this year, 5.2 per cent next year and 7.2 per cent in 2015. This implies that the OBR expects homes to cost 10 per cent more by 2018 than it previously predicted. Labour said that brought into question the merits of the Government’s Help to Buy scheme which guarantees 95 per cent mortgages, but which critics claim could inflate another housing bubble. Labour has warned that home-buyers would be ‘back to square one’ if prices rose sharply and they were unable to get a mortgage. But Mr Osborne said the OBR’s new forecasts still left house prices 3.1 per cent lower than their 2007 peak.

The statement contained few surprises, with the Chancellor confirming limited ‘giveaways’, including a tax break for married couples, free school meals for all five- to seven-year-olds and the scrapping of a 2p rise in fuel duty due next September.

Trumpeting higher than expected growth and lower borrowing forecasts, the Chancellor said: ‘Britain’s economic plan is working. But the job is not done. We need to secure the economy for the long term.’

Mr Osborne’s statement, seen more or less as an election gambit, creates a huge dilemma for Ed Miliband and Ed Balls, the Shadow Chancellor, who was drowned out by Tory MPs on the backbenches when he responded to it. Whilst Labour has pledged to stick to the Coalition’s day-to-day spending plans for the first year after the election the party does intend to borrow more to fund building projects such as a huge housing programme.

Charges of irresponsibility could be made by the Tories if Labour does not vote for the new charter. And whilst Labour will invariably try to find a different approach, allies of the Labour leader fear the public may stick with the Tories if Labour appears to promise more of the same austerity.

For his part, Mr Balls has vowed that Labour would not be deflected from fighting the election on the ‘cost of living’ crisis. The Shadow Chancellor said that recent statistics published showed that working people in 2015 would be £1,700 worse off on average than they were when David Cameron became Prime Minister, up from the previous estimate of £1,600. He also said that wages would fall by 5.8 per cent over the five-year term of this parliament. In its election campaign, Labour seems certain to accuse the Tories of being ‘out of touch’ and failing to understand the huge problems that ordinary people face because wages have lagged behind inflation.

The Liberal Democrats will be anxious to avoid a commitment to yet more Tory cuts. Though Nick Clegg has signed up to the idea of a new ‘fiscal framework’ which uses budget surpluses in good years to bring down debt, he seems certain to part company with the Tories by insisting that the deficit should be cleared partly by higher taxes (such as a mansion tax on homes worth more than £2m) rather than solely through spending cuts as the Tories propose.

Vince Cable, the Business Secretary’ said: ‘The Liberal Democrats are an independent party. We will go into the election with our own identity, equidistant from the other two parties and with a completely different set of policies. We will not be locked into a Tory agenda.’

Mr Osborne also set out plans to impose a cap on welfare spending. Cyclical benefits for those seeking work, part of the housing benefit budget and the basic state pension will be exempt. The move could open the door for pensioners’ perks such as winter fuel allowances, free bus travel and TV licences to be pared back.

The squeeze on public sector pay will continue, with annual rises limited to 1 per cent. But in a scheme to be trialled, some government organisations will be given the freedom to make the trade-off between pay and jobs.

AUTUMN STATEMENT – MAIN POINTS:

Pensions – People in their 40s get state pension at 68. People in 30s at 69

Growth – 2013: 1.4% (up from 0.6%); 2014: 2.4%

Cuts – Extra £1bn from government departments each year until 2017

Borrowing – 2014-15: £96bn, 2015-16: £79bn, 2018-19: £2bn surplus

 

Economic growth – Growth forecast for this year increased from 0.6% to 1.4%, revised up for next year from 1.8% to 2.4%, but then down slightly for the following three years to 2.2%, 2.6%, and 2.7%.

Revised figures from the Office for National Statistics show that UK GDP declined by 7.2% in 2008-09, not 6.3% as previously thought, equivalent in value to £112bn.

Government Borrowing – The UK’s “underlying” deficit – a measure that excludes the acquisition of the Royal Mail pension scheme and the effects of quantitative easing – has been revised down by the Office for Budget Responsibility (OBR) to 6.8% this year, and to 5.6% next year.

It is then expected to fall to 4.4%, 2.7% and 1.2% in the subsequent financial years.

The OBR predicts there will be a small cash surplus in 2018-19.

Borrowing is expected to come in at £111bn for this year, falling in 2014-15 to £96bn, then down to £79bn in 2015-16, £51bn the year after and £23bn the year after that.

Public debt this year is due to total 75.5% of GDP – £18bn lower than forecast in March – rising to 78.3% next year, before peaking at 80% the next year. By 2017-18, debt is expected to be more than £80bn lower than forecast in March.

Departmental budgets will be cut by about £1bn next year and the year after.

Benefits and Pensions – The state pension age is to increase to 68 in the mid-2030s and to 69 in the late 2040s. In April 2014, the state pension will rise by £2.95 a week.

Overall welfare spending is to be capped.

Anyone aged 18 to 21 claiming benefits without basic English or Maths will be required to undertake training from day one or lose their entitlement. People unemployed for more than six months to be forced to start a traineeship, take work experience or do a community work placement or lose benefits.

Taxes and Allowances – From April 2015, capital gains tax will be imposed on future gains made by non-residents who sell residential property in the UK.

From 1 January 2014, the rate of the bank levy will rise to 0.156%, and is estimated to raise £2.7bn in 2014-15 and £2.9bn each year from 2015-16.

Employer National Insurance contributions are to be scrapped on 1.5 million jobs for young people.

Stamp duty on shares purchased in exchange traded funds is to be abolished.

The personal income tax allowance will rise to £10,000 from April 2014, and then increase from 2015-16 by the Consumer Prices Index (CPI) measure of inflation.

A married couples and civil partners tax break, which is set to cost about £700m a year, is proposed to start in April 2015, enabling people to transfer £1,000 of their income tax allowance to their partners.

Business rates in England to be capped at 2% rather than linked to RPI inflation, with some retail premises in England to get a discount. Businesses moving into vacant high-street properties will have their rates cut by 50%.

From April, a new tax relief is to be introduced for investment in social enterprises and new social impact bonds.

Jobs and Training – The number of people claiming unemployment benefits is down 200,000, with unemployment now forecast to fall from 7.6% this year to 7% in 2015. Unemployment is then expected to fall further to 5.6% by 2018.

Total number of jobs to rise by 400,000 this year and 3.1 million jobs predicted to be created by 2019.

A boost in the government’s start-up loans scheme will aim to help 50,000 more people start their own businesses.

Export finance capacity available to support British businesses will be doubled to £50bn.

Transport – Petrol taxes stay frozen – a planned rise of 2p per litre for next year is to be scrapped.

Regulated train fares will rise in line with inflation, not at 1% above RPI as planned.

The tax disc to show motorists have paid vehicle excise duty is to be replaced with an electronic system.

Education and Families – An extra 30,000 places at English universities will be created in 2014-15. The following year, the current cap on student numbers will be abolished entirely.

Science, technology and engineering courses will receive increased funding, and a new science centre in Edinburgh University is to be named after Prof Peter Higgs, the discoverer of the Higgs boson particle.

The proportion of young people from disadvantaged backgrounds applying to university is up.

An additional 20,000 apprenticeships are to be funded over the next two years.

All pupils at state schools in England in Reception, Year 1 and Year 2 are to get free school lunches from next September, at an estimated cost of £600m a year.

Housing – The government hopes £1bn in loans will boost housing developments in Manchester and Leeds, among other sites.

The housing revenue account’s borrowing limit is to rise by £300m.

Councils are to sell off the most expensive social housing and rundown urban housing estates to be regenerated, and workers who live in council houses are to be given priority on housing lists if they need to move home to find a job.

Infrastructure – Tax allowances aiming to encourage investment in shale gas to cut tax on early profits by 50%.

More investment in “quantum technology”, which involves attempting to apply the strange behaviour of materials on a tiny scale to practical purposes, is promised.

Overseas Aid – The government’s pledge to spend 0.7% of gross national income on international development is to be met without an increase to the current aid budget.

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Britain, Economic, Energy, European Union, Government, Politics, Society

Reduction in energy bills following the removal of green levies – a step in the right direction…

ENERGY BILLS

Householders will be somewhat relieved to hear that the UK government will be pegging back the recent increases made to electricity prices by all the major suppliers. The reduction is being made because the government is removing some of the green levies applied to bills to pay for policies designed to either reduce energy use or to encourage renewable energy development. These levies can be as much as 11 per cent that are directly added on to domestic bills. The impact of green levies on suppliers is to be lessened and the savings passed on to consumers. Utility bills will still go up by an average of around £70, rather than £123, a saving of about £50 this winter.

Changes are being made to two of these levies, the Energy Company Obligation, which commits energy firms under statute to assist with the costs and installation of better insulation, and the Warm Home Discount, which reduces bills for elderly consumers over 75. The idea is to transfer some of the money raised to pay from these schemes to general taxation so the taxpayer rather than the energy consumer foots the bill.

These charges are not being scrapped, but diverted. According to Ed Davey, the Energy Secretary, this will cost the taxpayer somewhere in the region of £600 million. The problem, however, goes much further than the bills themselves. Whilst Labour have proposed a freeze or cap on bills from 2015, this is wholly unrealistic since energy companies cannot control wholesale costs and will be required to invest for the future. The dilemma of market failure arising, something which is still to be investigated, will be attributable to Labour – because when the party took office in 1997, there were 17 companies in the energy sector that kept the market competitive. By the time Labour left office in 2010, there were just six remaining. Most analysts now perceive the energy market as operating like a cartel where energy prices are effectively rigged.

All the main political parties must share some responsibility for the confusing mess that passes for an energy policy. They are now engaged in a political battle over who can promise the lowest prices. Yet, the biggest problem concerns energy security.

Next winter looks certain to be affected by a coalescence of factors that will alter the capacity of the electricity system. A recently published report from the Royal Academy of Engineering suggests that the mothballing of gas-fired power plants and decarbonisation targets could lead to a ‘significant reduction in the resilience of the system’.

Undoubtedly, the cheapest way to generate electricity at the moment is by burning coal. The global price of coal has dropped substantially in recent months as coal mines in many parts of the world, including America, remain under-exploited. Yet, amendments to the UK Energy Bill are expected to force coal stations to close earlier than planned. In addition, there are also doubts in the medium term over the nuclear power programme planned at Hinkley Point, with questions in Brussels over the payments of subsidies to French and Chinese companies. Future supply, then, is the critical issue: energy consumers may be pleased to see their bills go up less than originally planned, even though many will still be paying for it through taxation. But they will be appalled if the lights go out. And for those who believe that green energy is greatly over-valued will complain that the government is just shifting the burden from one set of people to another.

The finer details of the changes also reveal that homebuyers will become eligible for a £1,000 contribution towards insulating their new home. Mr Davey has said this will be paid via a reduction in the stamp duty paid on the purchase price.

The changes to energy bills might just cause the energy companies and the government to be more transparent about exactly what makes up the unit price of gas and electricity on our bills. Hopefully, that might lead to them being more sensitive to that information, delivering consumers a far better deal in the longer term.

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Asia, China, Japan, Politics, Society, United States

The embroilment over the Senkaku Islands between Japan and China…

SENKAKU ISLANDS

Intro: Japan and China, and America’s delicate balancing act

The row between Japan and China over the Senkaku islands is escalating. It has implications for almost everyone.

The Senkaku (or to China the Diaoyu) is an obscure archipelago comprising a tiny chain of five uninhabited islets and three barren rocks, located hundreds of miles from land. To an outside observer this might seem an unlikely prize given the awkwardness of the island’s geographical position, but with everything from oil revenues to regional clout at stake, the dispute in Asia is cause for grave concern.

The history concerning ownership of the islands is important to understand. Whilst Beijing maintains that the islands were claimed by China in the 1300s, Tokyo insists they were classed as an international no man’s land until Japan seized control and took them over in 1895. The political dispute has been rumbling on since the 1970s, but the pressure has steadily increased in recent years as a newly rich and empowered China has sought to flex its regional muscles by attempting to extend its influence in the US-dominated Pacific.

Last year, Japan stoked tensions with the announcement by the Governor of Tokyo of plans to use public money to purchase the islands from their private owner. That hardly gave notice of Japan’s intention to defuse ongoing tensions. Now, though, it is China that has upped the ante. Last week, Beijing declared a new ‘air defence identification zone’ covering a swathe of the South China Sea, including the disputed islands. The order from China requires all aircraft entering the sector to submit flight plans or face ‘defensive emergency measures’. This was always going to be contentious, if not provocative for Tokyo, as the area overlaps with one of Japan’s own air defence zones.

Indeed, Tokyo’s response was swift and uncompromising. The Prime Minister, Shinzo Abe, derided the plan as being ‘unenforceable’ and of having ‘no validity’. Two Japanese long-haul airlines which initially complied with Beijing’s demands were soon persuaded to withdraw their co-operation.

The reaction of the United States, however, has been imperative here. Because Washington has a post-war commitment to the defence of Japanese territory (which includes the Senkaku Islands), and given its recent foreign policy ‘pivot to Asia’, Beijing’s moves are increasingly being interpreted as a test of resolve for Barack Obama and of Mr Abe. America’s orientation towards Asia has stemmed from China’s rising power.

The U.S. has acted decisively. This week, it sent two unarmed B52s through the zone without notifying the Chinese authorities.

In an attempt to pacify tensions being inflamed still further, the Pentagon quickly claimed the flight was a long-planned training mission. For many analysts, though, the message is crystal clear – particularly given that it came days after the Defence Secretary, Chuck Hagel, denounced Beijing’s move as a ‘destabilising attempt to alter the status quo in the region’. Mr Hagel stated, too, that American military operations or its foreign policy on Asia would not change.

America’s intervention and move has been the right one, simply on the premise that China cannot be allowed to throw its weight around. If Beijing has a case then it must be sought through the correct legal channels, not implemented and administered unilaterally because of its desire to control.

Japan must also bear some responsibility in provoking tensions as flashpoints have become commonly frequent. In equal fashion it has shown itself too ready to indulge in rhetorical chest-beating with Mr Abe at times exhibiting disturbingly nationalist leanings. For the U.S., maintaining regional balance is paramount, and it should not been seen to be endorsing posturing from either side.

The diplomatic task facing the US in Asia is as difficult and perilous as any it is currently faced with. The Senkaku Islands may be just a few distant and remote rocks, but the chances are they could become the fulcrum upon which one of the greatest challenges of 21st century geopolitics lie. With both Beijing and Tokyo under growing domestic pressure for a show of strength abroad, and with the inevitable disruption that China’s economic rise will cause, America must be sure of its approach in maintaining regional balance.

At the heart of the dispute are eight uninhabited islands and rocks in the East China Sea. They have a total area of about 7 sq km and lie north-east of Taiwan, east of the Chinese mainland and south-west of Japan's southern-most prefecture, Okinawa. The islands are controlled by Japan.

At the heart of the dispute are eight uninhabited islands and rocks in the East China Sea. They have a total area of about 7 sq km and lie north-east of Taiwan, east of the Chinese mainland and south-west of Japan’s southern-most prefecture, Okinawa. The islands are controlled by Japan.

Related issue:

In response to an article published on The Economist, dated 20 October, 2012, entitled: ‘Rattling the supply chains’, MD wrote:

‘The simmering tensions between Beijing and Tokyo over the Senkaku islands has prompted questions over what the high-profile dispute could mean for proposed trade talks between Asia’s two largest economies and South Korea, as well as for regional trade overall.

An announcement in May of this year was made of plans to open formal trade negotiations between Seoul, Tokyo and Beijing. They agreed to begin the talks by the end of 2012 but this deadline has lately been called into question, with many analysts believing that two of the three parties might not even make it to the negotiating table.

The tensions between China and Japan stem from a territorial dispute over a series of tiny islands in the East China Sea, an area to which both countries have now laid claim. The islands – known as Senkaku in Japan and the Diaoyu in China – have symbolic significance, with their surrounding waters said to be rich in natural gas deposits.

The row, which has intensified rapidly in recent weeks, reached new heights in the past few days when Chinese finance officials pulled out of attending annual meetings with the IMF and World Bank that were being hosted by Tokyo. How the disagreement will be resolved remains unclear, as well as what the broader trade implications could be. The tri-lateral trade agreement with South Korea, for instance, might be under threat.

However, despite their disagreements, Chinese and Japanese officials have made clear that the proposed free trade agreement could have major benefits for both economies. Regardless of his insistence that his country will not cede sovereignty of the disputed territory, Japanese Prime Minister Yoshihiko Noda has openly acknowledged the value of eliminating trade barriers with Asia’s most powerful country. In the last decade alone, trade between the two nations has tripled, reaching more than $340 billion. A continuing row is not only likely to damage what has been a healthy relationship over the past ten years but could prove troublesome for the wider Asia region. Regional trade could be affected; ties between many countries could radically change because, invariably, any major trade relationship will always involve Japan and China.

Some of the predicted effects are beginning to surface. Japanese car exports to China have suffered since the dispute began and according to the latest JPMorgan Chase projections, could decrease by as much as 70 per cent in the final quarter of this year.’

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