Tony Blair and shades of Grey

Unlike most people who have an opinion on Tony Blair's autobiography, I have actually read it.

This is an important distinction that can now be made when discussing Blair, his actions, his decisions, his mistakes and his successes - we do actually have his view on it, his thoughts at the time and his opinions now. The distinction can be made between those who think that judgement can be passed after hearing only the case for the prosecution, and those who are at least prepared to hear the defence before deciding on guilt.

There is nothing I find more frustrating when teaching, thinking or talking about politics and economics than those who see only black or white. There are umpteen shades of grey, and I like to explore them all before coming to a decision on what I think. I meet far too many people who think, say, 'black' on an issue, read only 'black', consider only 'black', and talk only 'black'. They then consider themselves to have formed an opinion. I don't regard them as being capable of doing so properly.

This has two consequences for me. First of all it means that it may take longer for me than for most to form an opinion, because I insist on reading as much as possible of the different views on it before doing so. Second it means I can and will change my mind on an issue, and I don't see this as a weakness.If I read a view or see evidence which causes me to doubt my previous position, I feel it's not a problem to reconsider.

Yet far too many people I have come accross during my life, and especially my career in education, be they students, teachers, parents, friends - have their view of the world and that's it. It may be the same view that their parents have, or that their favourite teacher has, or that their friends expect them to have, or it may be one that they have developed through reading books and newspapers that lean hard to one particular point of view. What I have found in too many people is an unwillingness to consider that there may be another legitimate point of view. They won't read another point of view, they won't even consider any evidence, to the point of wilfully ignoring its existence, just in case they find themselves doubting the position they think they have to have.

I find this intellectually cowardly and immensely annoying, and I must emphasise that I find it happens on both sides of the political spectrum, whether people are talking about the UK economy, UK politics, or the Global economy and international relations (particularly the Arab-Israeli conflict).

I've been trying to work out for a while why this happens. Is it because people are lazy? Yes, some of them. Is it because they are scared, maybe of what their friends or parents or colleagues would think if they were showing signs of developing independent thought? Definitely happens. Is it because they are worried about what they would think of themselves if their convictions wavered? I think so. Is it because they 'know they are right' and everyone who disagrees with them is not just wrong but a wicked person? I have come across too many for my liking who are like this.

The problem this causes is that it weakens the standard of debate around the country, and around the world. It means that we don't develop the understanding of each others' points of view that allows conflict to be resolved through sensible discussion. It means in this country too many people sleepwalk into voting for a party because "we're a Tory family, or I'm Labour and I always will be" instead of thinking about which policies may be better for the country at the time, mainly because they have no idea what other party policies actually are. I've voted in 5 elections in my life, for 3 different parties, depending on what, after much thought, reading and debate, I think would be best for the UK. When I decide what I think would be best, I'm not "right", that's just my opinion at that time.

Even if you think you will never change your view of an issue, there is nothing wrong with becoming as au fait as possible with contrary views, if only to strengthen your ability to argue against them using other tactics than just repeating your point louder and louder every time, or resorting to personal insults because you've run out of sensible points to make. You might, just might, change the view you have. Don't be scared, it's OK to do so.

I started with Tony Blair's autobiography so I'll end with it. I'm fed up to the back teeth of people saying "I'm not going to read it - it's all lies" or "I'm not interested in what that war criminal has to say". He was there, he was responsible for our country's safety, he made a decision, whether you think he is a hero or a war criminal it is important you read his views and the evidence he saw and used to make his decisions.

I've changed my position on the Iraq War many times - with different views on whether it should have happened (I think it's difficult to argue that the management of the aftermath has been anything other than a disaster). I've gone from the gung-ho - "let's kill them there terrorists" -  to the doubting - "why is regime change necessary there but not in places like Zimbabwe where people are dying but there's no oil" -  to "wouldn't the world be a worse place in 2011 if Saddam was still there?" to "really, given he was no danger to us, haven't we just contributed to a lot of muslim deaths? No surprise it's been such an effective recruitment tool".

Throughout my oscillations I relied on newspaper articles, books, films, interviews with those involved - all of these written with one bias or another. Tony Blair's autobiography is just another piece of evidence, which has obviously been carefully written with a view to the fact that he will be answering questions on this issue for the rest of his life. In it he quotes from UN inspector reports, from the UN security council resolutions and from conversations he says he had with different figures around the time.

He will have been just as selective in the information he provides as anyone, but the difference between him and others who have written about Iraq is that it was actually Tony Blair that was there. He made the decision, and we all sit in judgement of that decision, and to judge we need to hear from him.

The same people who talk about civil liberties and people being innocent until proven guilty tend also to be those most likely to decide that they have no need to read what he says. Well, until they do, they are not in a position to judge him or his decision.

As for me, having read extensively in preparing for an A-level Global Politics course and for my general interest in politics, I'm of the opinion that it was a war entered into for honest motives, but using seemingly dishonest means to persuade others of the case.

I'll read the Chilcot report too, and so will people who supported the Iraq War, no doubt, should the Chilcot report come out in favour of the decision to go to War. Should the Chilcot report come out against the decision, I'm sure those also against the War will read it. Sad that it won't be read by everyone whatever it says. But true.

Osborne needs balls, but the last thing he needs is Balls

"The harder I practice, the luckier I get", is golfer Gary Player's oft-quoted phrase (although he attributes it to fellow pro Jerry Barber). Yesterday's horrendous economic figures, showing that GDP has fallen by -0.5% must have made new Shadow Chancellor Ed Balls feel very lucky. But he will tell you that he has been practicing for this moment a long time, and it's not luck. He has been arguing for a long time that drastic cuts are not the way out of a recession, better to have a credible growth strategy. The news that the country has gone from growing by 1.1% in the last quarter of the Labour government to falling as it has in the second quarter of Coalition government surely proves Balls right. On the need for a growth strategy, definitely yes. On the lack of need for drastic cuts, the jury should still be out. What is certain is that the Labour Party now have the perfect person in place to argue that it is the Tory-led coalition's policies that have put us in this position. This was not the time to have Alan Johnson as your Economic spokesperson, and I imagine right now George Osborne knows that.

Watching Balls on the Daily Politics at lunchtime on the day the figures came out you saw the difference he makes. Andrew Neil pointed out (rightly) that the negative growth figures were not caused by the cuts, as the last quarter of 2010 saw public spending actually GROW by 5% to the largest amount ever. What Balls was able to do though was repeat his point about there not being a credible growth strategy and also bat away forcefully other economic points made (including showing his understanding of "Ricardian equivalence" - a flexing of his muscles to show the anti-Keynesians he's ready for them).

The fact is that we await April's figures with renewed interest, because if there is another fall in GDP then we have the double-dip recession that Labour have warned against for over a year now, and the effects for the Coalition's strategy could be far-reaching.

That doesn't mean these negative figures mean they should change course immediately - recovering from a recession as deep as the one we just had does usually involve some backward as well as forward steps. But it should cause pause for thought at least.

Most importantly, it renews the importance of communication. I'm convinced of the need to cut the deficit, but I am also convinced that economic growth can help to do that. I don't understand where this growth is going to come from. The fall of the pound has increased export demand for manufacturers (hence its growth) and loose monetary policy leading to low interest rates should help increase borrowing for investment (assuming banks actually are willing to lend money). But neither of these are in the control of the Coalition government.

So what are they doing? What is their growth strategy. Oh for a good Director of Communications........

Andy Coulson's lesson in Leadership responsibility

I once worked for a massive management consultancy firm. A leader in its field, the company was littered with broken marriages. The travelling was never-ending; you could find yourself being sent away for two weeks with an afternoon's notice. One day, they announced at a staff conference that were adding a 'slice' to their 'culture wheel' (looked like a cake, listed words like 'quality', 'knowledge' and 'sharing' on each slice). This new slice was to be called 'caring' and it meant that work-life balance was going to be properly taken account of. It all looked good.

About a month later, my uncle died, leaving behind two young sons whom I was very close to. Working in Paris at the time, I asked whether I could exchange projects with a London-based girl colleague with exactly the same skills and a boyfriend living in Paris. The answer was 'No'. I pushed a bit and found out something interesting...the 'caring' bit of the culture wheel was so that the partners of the firm could say that they were 'caring' nothing more. Off-the-record, they were happy to have a culture in which people felt like numbers and gave their life to the company. I was never allowed to speak to a partner about this issue, instead I talked to my team leader, his project manager, his manager and his senior manager, and the answer was the same.

When I left the company eventually, having been headhunted, I talked to the senior partner about this experience. He professed himself to be baffled by it. Even though he was 'my' senior partner, ultimately responsible for me, he was never consulted over this issue. The managers beneath him just made the decision they thought he would have wanted, given his previous decisions and the way he wanted people to be managed. "Had I known" he said, "of course you could have come back to London." I'll never know the truth.

I think we'll also never know the truth about Andy Coulson's role in the News of the World 'phone-tapping' scandal. What we do know is that it happened, and more and more people are suing the paper. Coulson claims that he had no idea about it, and although an ex-NOTW journalist has claimed that Coulson personally asked him to use phone tapping, the fact is that there is no evidence that Coulson asked anyone, nor knew anything about it. Speaking in front of the Cross-party House of Commons Culture, Media and Sport committee in 2009, Mr Coulson said he had given his reporters the freedom to do their job, but "my instructions to the staff were clear - we did not use subterfuge of any kind unless there was a clear public interest in doing so."

But the fact is that he presided over a journalistic culture where his staff didn't care about public interest, they went on fishing expeditions in the hope of finding the story they wanted. This is different, and it involved hacking into the mobile phone messages of allegedly thousands of celebrities, sports stars and politicians. Coulson recognised this when he resigned in January 2007 from his position as editor of the News of the World.

Now, he has had to leave his position as Communications Chief to the Coalition government. By all accounts, including that of someone as partizan as Alastair Campbell, he was doing a very good job. But, like Campbell in the aftermath of the Iraq War, he was becoming the story instead of trying to control stories. Rightly, he recognised that "when the spokesperson needs a spokesperson" it is time to go.

Is this fair? Should he be punished twice for the same 'crime'? David Cameron thought no, and the truth is he and Coulson could well have toughed this out. It seemed that there was no smoking gun that would have directly linked Coulson to the phone tapping. Or was there?

Leaders get paid a lot of money. Part of that is to be responsible for whatever happens on your 'watch'. The actions of your team become your responsibility. Royal reporter Clive Goodman is in jail right now for authorising the phone tapping of members of the Royal Households' phones. Was that an idea he came up with, or did Coulson create the kind of pressurized culture and atmosphere where journalists thought that was the kind of thing they were expected to do.

Did the Senior managers at my old management consultancy firm just not care about the fact they could make my colleague's life so much happier and allow me to support my cousins? Or were they under pressure to make those kinds of decisions because of the even unspoken attitudes of the senior partners to the employees of the firm, who were purely there to make them money and should never be given the impression of having any influence? It is that question that helps me to understand why even if there is no evidence Coulson asked anyone to phone tap, it is still the case that he presided over a culture where it was done systematically.

Enemies of News International (owners of News of the World) and the Conservative party were never going to give up linking him to this. Communications Chiefs should be unseen and unheard. When they are neither, they should probably go. Sad, but true.

Game on - Miliband finally gets some Balls

When there is only one opposition party, it is extremely important for that party to be effective. The responsibility of the Labour Party for the next four and a half years then is to hold the Coalition government in check, scrutinizing every decision they make. This is not a mandate for the lazy oppositionism that we have seen too often so far ('it is a coalition policy so I shall oppose it') but it is incumbent upon Ed Miliband to help make sure the necessary medicine this country needs to take is targetted fairly and its side effects justified rigorously by the Government. Given this is a Coalition, meaning their policies are those that have been agreed with each other rather than those in their manifestos, robust opposition is vital.

This is why the initial appointment of Alan Johnson as Shadow Chancellor was not the right choice. Nice man though he is, popular though he is, 'normal' though he is, he does not understand economics, and seemed almost to revel in this fact. This always left me uncomfortable, and left George Osborne with a free-ride, given that Johnson was not capable of debating the economic merits of Coalition policies. I live four miles from Westminster and I could hear Osborne's sigh of relief when that announcement was made.

For the same reason, the new appointment of Ed Balls is exactly the right choice. Not the most popular man, in his own party and with the public at large, he is, however, a proper economist at a time when economics is possibly being re-written. His Bloomberg lecture in August, explaining his alternative to the current attempt to eradicate the deficit in 5 years, was a masterpiece of economic discourse. Whether it was right or not is not the point right now. It showcased Balls' one advantage over every other candidate for the Shadow Chancellor role, that he could talk and debate comfortably with every single figure in the financial world - be in journalist, businessperson or academic.

More importantly, for the state of politics in this country, will be the effect it will have on George Osborne. Now he will have to work much harder to justify his policies and ideas. Now he will have to have proper economic justifications for his actions. Now he will face the most effective political as well as economic operator in the Labour Party and he must expect to lose many battles, even if the war ends up being won.

Yes, the simple answer for the Coalition will be to point to Balls' record running the country. Gordon Brown may have been Chancellor, but Balls was the driving force behind him. When the Labour Cabinet wanted to cut spending, it was Balls who was in the way. He disagreed even with the election strategy of halving the deficit in four years, although he says he has changed his mind now because it seems that would be possible without causing the double dip recession he was so sure would be happening.

Certainly, the Government can try this strategy, but that doesn't mean it will work, because blowing rasberries at the track record of your opponents is one thing, justifying what you are doing about it is another, and if they think the public won't listen to Balls because of his past is naive. They will listen to him because he will be the most formidable bulwark against the widespread panic being spread over the cuts at the moment the Government could possibly face. He will probably become the focus for popular discontent, and might even be found joining in the protests.

I fear Ed Balls may go for the short-term solution of causing havoc instead of the long-term solution of actually coming up with an alternative solution to the trillion pounds of debt that his policies put this country into. If he does that, he will be successful in bloodying this government's nose, but he will not make Labour electable. If he plays the long-game, arguing as cogently as he is capable of for a proper alternative that actually makes economic sense, then 5 years from now he will be the country's Chancellor of the Exchequer.

So effective was he during the Labour leadership battle that I wouldn't bet against him being Prime Minister one day.

(Tax) Dodgy stats from the Sunday Times

There are lies, damn lies and statistics, but you would expect the Sunday Times to know the difference. Instead they have used some statistics to try and prove a point that are the very definition of ambiguous, and it is a shame as they could and should have done better.

It was the leader article this Sunday (Jan 16th) and used the example of the tax avoidance schemes footballers are using to make the point that high tax rates breed clever tax avoidance, thus lower tax revenue. So far so good, but then they attempted to claim that lowering the higher rate of tax from 83% to 40% (as the Tories did in  the 1980s "boosted, rather than reduced, the share of income tax paid by high earners."

This, in my view, was an attempt to say that a lower high rate of tax is progressive, which means that those on a higher income pay a higher percentage of that income in tax than do those on low income. They followed this up with some statistics.

 "In the last year before the new 50% tax rate came into force, the top 1% of earners contributed 25% of all income tax revenues. That compared with 21% a decade earlier and just 11% in 1978-9, the last year of Mr Healey’s tax regime. With a high tax rate of 40%, the top 5% of earners contributed an impressive 44% of all income tax revenues."

Now, on the face of it, the Sunday Times make their point. The top earners are paying more tax. Progressive right? Job done? Case closed? No, a great example of statistics used to prove a point which with very little effort can be seen to actually show something quite different.


Imagine there were 10 people living one an island with a GDP of £100,000. 9 of those people earn £5,000 a year, and one earns £55,000 a year. If everyone paid the same tax rate (say, 10%) then you could say that the "top 10% of earners paid 55% of all income tax revenues" and conclude that all is fair and progressive on that island. You could even make the person on £55,000 pay double the tax rate (20%) and then say "the top 10% of earners paid 71% of all income tax revenues" and all looks even more like a progressive paradise.

But that of course would ignore the issue that one person earns 11 times what everyone else earns. In this country we have bankers and footballers earning more in a DAY than the average YEARLY salary of the country. They are in that top 1% of all earners who are contributing 25% of income tax revenues, but that's more because of rampant income inequality than progressive tax rates.

In 1979, when the high tax rate was 83%, the Gini coefficient of the UK was 0.25, now it is in the mid-0.40s. The Gini Coefficient measures income inequality. The nearer it is to 0 the more equal income is, the nearer it is to 1 the more unequal our income distribution.

We have plenty of other examples of the creation of a financial elite in this country. How about the way that the average pay of CEOs has sped so quickly away from the average pay of a "shop-floor" worker. The UK ratio is second highest in the world after the UK and has multiplied again and again over the past few years.

Those CEOs pay more tax, much more tax compared to their cleaners. But that doesn't mean they are paying a higher rate of tax (even with the highest rate of tax at 50% there are so many tax avoidance schemes it is quite possible that CEOs pay less tax as a proportion of their income than a cleaner). It also hides the income inequality in this country.

I actually have no argument with the point the Sunday Times was making. There is an "ideal" higher tax rate for raising the highest tax revenue and it probably is lower than 50% (although David Cameron is rightly going to wait for the tax revenue figures to be released before judging that ).

But if you are going to argue that a 40% tax rate is "fairer" or more "progressive" than a 50% tax rate you need to find better statistics than the ones they found.

I'm not angry...just disappointed.

Bonus killers - careful what you wish for

It was the day a friend who works at a hedge fund told me his boss was looking into buying a Harrier Jet, about 3 hours after I'd had a fraught conversation with a mother of a pupil at my old school who couldn't afford to buy him replacement school uniform that I realised something was wrong with the way money is distributed in this country. This is the prism through which we need to look at the current debate over the bank bonuses which are about to be paid out. Yet, like every issue, it is complicated, because the government intervention that is being sought could be more damaging than most realise.

Somehow, apparently, the government is supposed to 'take action' over bonunes like they promised before the election. What this 'action' is, nobody can say, apart from the idea that those who work at the banks that are majority government owned (particularly RBS) should not be paid big bonuses at all.

The reasons for this are pretty unarguable. We are, apparently, "all in this together" (Osborne, G. 2010). We are all going to be hit by government spending cuts and tax rises, and there could be job losses. If everyone really is 'all in this together' then people who work in banks should not be getting massive bonuses. After all, it was the banks who caused this financial meltdown (although they did not, repeat not, cause the structural deficit) and government money was used to bail some of them out so paying out billions of that money in bonuses seems callous and crazy.

Suggested actions the government could take include: Taxing any cash bonuses at 50%, ordering RBS not to pay bonuses over a certain figure, a windfall tax on the profit pool from which bonuses were going to be paid, forcing the banks to lend more to small businesses and first time buyers and, well, it's not particularly clear. The hope was that the banks would be 'shamed' into not paying massive bonuses. Here's why none of the above will happen:

1) Bankers get bonuses. That's it. The job actually has very little other rewards. You don't meet your clients often and job satisfaction is minimal. It's all about a number. That number is the bonus you get paid at the end of the year. To use economic language, the pecuniary rewards are all, the non-pecuniary rewards are pretty much non-existent. Your entire sense of self-worth in the workplace is based upon your bonus and if it isn't big enough you leave. I'll come back to that sentence later.

2) Banking can be done from anywhere. So, at the moment the country gets a huge amount of tax from the financial services community but the banks could easily do their work in another country such as Switzerland. If the UK put a windfall tax on banks then it has to be done in other countries or the banks will go to those other countries, and the UK loses jobs and tax revenue that it cannot do without. It may be worth looking at the profits from which the bonus pool is paid. Some of those profits could be classed as "normal" profit - which is the acceptable return on the capital employed in setting up and running a business. Some, though, could be "supernormal" or "monopoly" profits, gained because the banking sector is dominated by massive companies charging much higher fees than they would in a competitive market.Trying to tax these monopoly profit though will only work if other countries do it.

3) If a bank pays £7 billion in bonuses over £3billion of that comes back in taxes. Any bonuses that take the annual remuneration over £150,000 is taxed at 50% anyway. If the bank doesn't pay it out as bonuses then they would need to declare it as profits, which is taxed through corporation tax, about to go down to 27%. This would mean a massive drop in tax revenue receipts if it were that simple. But many banks lost so much money a few years ago that they can effectively write those losses off against corporation tax for a long time, so the UK would less get revenue. This is, in economic terms, actually the strongest argument against most of what the opponents of paying bonuses are suggesting.

4) Yes, the government own RBS. We own RBS. It sticks in the craw that we pay out so much of what seems like "our" money out in bonuses. But what would happen if we decided that RBS staff don't get the bonuses? RBS is not like a normal nationalised firm. Taking ownership of it was always a short-term option, and the clear intention is to sell it back into private hands for a profit. This would help clear the billions of pounds of debt we have. Given it was nationalised when it was on its knees, if the government can wait until RBS builds its balance sheet up to full strength again it should be able to sell at a significant profit. To do that, RBS needs to be competitive. To be competitive it needs the best employees. To have the best employees you have to have competitive pay. If bonuses are cut, those employees will leave, RBS will be less competitive, and its value will plummet. Again, be careful what you wish for.

5) Making an apparent deal to make the banks lend more to small businesses and first time buyers in return for leaving them alone on bonuses sounds like a good idea. But on lending banks have been put in a difficult position. Having been castigated for irresponsible lending they reined in their lending and are now being asked to let it out again. What if what has actually happened was that the level of lending they are at now IS the responsible lending level? I just re-mortgaged, and it was extremely hard and took a great deal of time, with far more difficulty in getting the re-mortgage approved despite a perfect credit record and not borrowing a huge amount compared to income. I was quite sanguine about this, because this is perhaps what should have happened 4 years ago when I got a mortgage for over 5 times my income. What if lending to small businesses and first time buyers on a looser basis returns us to the same problems? Who will take the blame?

All government intervention in any market can lead to government failure. Intervening in the paying of bonuses could be a great example of that. This is not to say there isn't a moral case against the paying of excessive bonuses. They distort housing markets all over London and other areas where second homes are rife.  They are also particularly difficult to stomach for those in our population not sure where their next meal is coming from.

It might be better if instead of looking for a harrier jet, the hedge fund manager at the top of this article looked for an anti-poverty charity to give to. But some people have no shame. Just a massive amount of money.

VAT - economically right whatever the politics says

VAT is one of those issues on which many of the arguments involve a suspension of economic logic in favour of political expediency. On the day the Coalition government has put it up to 20%, it is worth reviewing and evaluating those arguments so that it is possible at least to see through the political mist that has descended over real assessment of whether raising it was the right thing to do.

First, a quick explanation of what VAT actually is. Value Added Tax is known in economic language as an ad-valorem indirect tax. Ad valorem means that it is a percentage that is added to the value of the good, so the amount of tax paid rises depending on the price of the good. It is an indirect tax because it is not paid directly by consumers to the government but it is collected by businesses (who operate as unpaid tax collectors). It is now charged at 20% on all products except those that are "zero-rated" which includes necessities like most food and children's clothing. Household energy bills are subject to a 5% VAT rate, which isn't being touched.

The reason why the coalition raised VAT is quite simple. There is a £160bn deficit and raising VAT by 2.5% raises something like £13bn. That said, here are the issues with it.

Figure 1: VAT is regressive.

1) It is a regressive tax - this is the classic argument, that since it is a flat-rate tax, those on a lower income pay proportionately more than those on a higher income. In simple terms, it hits the poorest hardest. This is shown by the graph on the right, produced by the Institute of Fiscal Studies.

BUT others argue that this is a misleading graph, as VAT is better measured on how much extra people will actually pay. The graph opposite makes a lot of assumptions, in particular on what the poorest actually buy, when  in fact it is those on higher incomes or those who are at a stage in life when they have to make certain purchases (e.g. moving house) who actually pay more in VAT.

2) It is easy to avoid - it is reckoned that VAT fraud costs the UK government about £2 billion a year, but the rise in VAT will motivate people to pay their plumber in cash this time whereas before they wouldn't have. There are predictions that VAT fraud will thus go up to £3-4 billion as a result of this change, so the government won't collect as much as they think

BUT - Legal income tax avoidance adds up to about £35 billion at the moment, making VAT pale into insignifiance. Also, this misses out the fact that the simplest way to avoid VAT is not to buy items that are not zero-rated. Ed Miliband helped out with this by saying that "they will be taxing you higher when you go out and get a cup of coffee. And when you pick up a DVD for the kids to watch at home." Both of those purchases are what you would definitely call 'discretionary'. If Miliband was saying that you were being taxed more for a pint of milk or a loaf of bread then he would have a point. But he isn't, so he doesn't.

3) There are other alternatives -  money can be raised using carbon taxes or a tax on financial transactions. Some argue that bank bonuses should be taxed more and the higher rate of income tax should be put up. There is also an argument for a "land tax" of 1% on the value of land owned (much of it by hereditary landowners), which could raise about £50bn. There is also the fact raised by those on the right that the same effect on the deficit could be achieved by cutting 2% more off government spending. There are those on the left who will suggest that the deficit is not so much of a problem that anything needs being done about it. The point is, there are alternatives.

BUT - if you want to raise money to cut the deficit in a way that can easily be implemented and be almost guaranteed for it to work, VAT is probably the most effective solution.

4) Both the Conservatives and the Lib Dems promised not to raise it during the election campaign -  yes, this did happen, although the Conservatives said they "had no plans to" rather than promising not to.

BUT - The problem is that you campaign in poetry and govern in prose and there were a lot of promises made in that election campaign that were irresponsible, and now they have the responsibility of government they have to just do what they feel is right. It would be irresponsible to not do something simply because they said they wouldn't in the election campaign. Also, as the Conservatives quickly pointed out, Ed Miliband was in the Cabinet only a year ago that tried to raise VAT - a plan nixed by Gordon Brown for purely political rather than economic reasons.

This is the first major tax rise by this government and it makes economic sense. The opportunity cost of not doing it was to cut more spending, so to raise any tax should be seen as a good thing by the "fight any cuts" lobby. Is it the right tax? Well, there are alternatives, and I would hope they are being considered. But this VAT rise seems the right policy for right now.

Where were the Union leaders when their members really needed them?

Mark Serwotka - head of the PCS

If you want to go on a fruitless search, find a single union leader who uttered any words of warning about the dangers of the government building up so much debt. While you're at it, find a single union leader who expressed any concerns about so many jobs being created that had to be funded by borrowing due to the massive shortfall from tax revenue. Can't do it? Now find a story about union leaders warning about the cuts. Easy isn't it? Welcome to the world of vested interests.

If you have a vested interest in something, you have a very strong reason for acting in a particular way, for example to protect your money, power, or reputation.This is why the unions, and in particular the public sector unions, never complained about the enormous amount of money being showered upon their members. You might ask why they should, after all, that money brought them more power. Yet their role is to represent the interests of their members, and pointing out the dangers of the government getting into such debt would have been in their members' interests.

Why? Think about it this way, the Labour government created something between 750,000 and 1 million public sector jobs. When you get a new job, you may move home, including your family. You may take on a new mortgage or other debts. You may make major changes in your lives linked to the new job you have. All of these assumes your new job is secure. If, however, your new job was being paid for with borrowed money that will have to be paid back at some point then you should know about it as your new job may well not last long. 


But where were the union leaders then? "Be careful - these jobs are being paid for with borrowed money, there will have to be cuts at some point". Or "We would warn our members against making onerous commitments that depend on their income from these jobs that the government can't afford to give out". Nope, none of it. 

I'm not talking about jobs such as teachers or nurses or essential workers. I'm talking about the 'sustainability facilitator' or 'walking co-ordinator' or 'performance change champion' types of jobs that sprang up in every local authority over the past 10 years of so. Each time someone got one of these jobs, the public sector unions got another member. This increased the membership subscriptions and the power of the unions, which is why they were quite happy to cheer the creation of hundreds of thousands of jobs that made some contribution to putting the UK into a trillion pounds of debt.

Only now, the axe is falling. Government spending is being cut and the unions are shouting loudly, threatening to 'co-ordinate' their strikes around Easter (this skirts around the illegality of a General Strike). Mark Serwotka - Head of the Public and Commercial Services Union said strikes were 'inevitable' and that "The more of us that stand together against the cuts, the more problems we can create." 

The problem is that the country is a trillion pounds in debt and Mark Serwotka said nothing whilst that was happening. So claiming to stand on the moral highground is a bit rich now. 

I have nothing against unions. Without them, the exploitation of the workforce, in terms of pay and working conditions, would be far worse. 

But I am against self-serving 'have your cake and eat it' leaders who want your money from your pocket to pay their members wages regardless of the financial position it puts the UK into. Had they raised concerns about borrowed money being used to hire workers then I would be very happy for them to be bleating the way they are now about those workers being jettisoned. But they didn't, so I'm not.

It's Labour's Debts AND the Coalition's Cuts - not OR

The new Labour leader Ed Miliband has been getting plenty of advice recently on how to take his party forward. "Abandon New Labour", some say. "Attack the Coalition's cuts as ideological, too fast and too deep" say others. These are simple strategies that could work in the short term.  "Deny all responsibility for the trillion pounds of debt the country is in and the £150 billion budget deficit", say many more. This is far more dangerous, and gives the Tories in particular a massive hole to drive a truck through like a knife through hot butter every time the Coalition strategy is questioned. A far more effective long-term strategy, and one more likely to result in Labour being returned to government in 2015 would be to 'admit and explain'. Here's why.

Without meaning to be morose, imagine your parents died, leaving a massive amount of debt that you hadn't known about. You and your family had always planned to move into the house they had owned when they died, but now the bank wants the house sold to pay off those debts. Are you simply going to say that the bank is being unreasonable? What about your parents leaving that amount of debt? What if they even left a note with their will saying "I'm afraid to tell you there's no money left"? At what point would it come into your head that there are two issues - one is how you feel about your parents leaving so much debt, and the other being whether the bank is being reasonable in expecting their house to be sold to pay it off?

Now look at the politics of the deficit and the policies to deal with it. The Labour government left a £168 billion deficit and a debt of £1 trillion. Liam Byrne, former Labour Chief Secretary to the Treasury, left a note for his successor saying the exact words in the above paragraph. The Conservative-led Coalition have decided to get rid of the deficit by 2015, at which point they will need to start paying down the actual debt.

Labour politicians are attacking this strategy, saying that it is too fast and too deep. The Coalition is responding with "there is no other alternative" given the deficit left by Labour. Labour, and many on the left of the political spectrum then tend to splutter something about the banks causing the deficit, which is, quite frankly, economically illiterate at best, lying at worst. It is as if accepting their part in creating the current problem would mean that they can't then attack the policies the Coalition are choosing. But I don't think this is true.

Let's go back to basic economics. When there is economic growth, you would expect to build up a budget surplus, as tax revenue should be more than government spending. When there is a recession, you would expect to drop to a budget deficit, as you will spend more than tax revenue to keep the economy out of depression. This is a cycle, which is why it is assumed that a budget deficit of 3% of GDP is a "cyclical deficit" - in that it is something that happens when a country goes into recession. The EU stability and growth pact suggests that budget deficits shouldn't go over 3% and net debt over 40% of GDP.

The Labour government, however, spent a lot more than tax revenue from around 2001. This meant that we entered the recession in 2008 with a deficit of around 3% of GDP and with debt of around 40% of GDP. So, in order to spend our way out of a recession the UK had to borrow more money, which is why we find ourselves with almost a trillion pounds of debt (72% of GDP) and a deficit of around 11% of GDP - second highest in Europe. This, then, is a 'strucural' deficit, which is where government spending is above tax revenue for other than cyclical reasons. The structural deficit can't be blamed on the recession. 

So, there is a charge, which can stick, that Labour didn't "mend the roof while the sun is shining". There is also a charge that the Conservative-led coalition is making 'ideological' cuts, which means they are shrinking the size of the state purely because that's what they believe in doing rather than as a response to UK finances. The charge that could come back would be that the building up of debt even during a period of sustained economic growth was also 'ideological' on Labour's part, in that they believe the state should be as large as possible. The jibes at Gordon Brown's comment in the 2006 budget - "No return to boom and bust" - are important here because going into a recession in so much debt can only happen if you weren't expecting a recession.

Labour answer that they had to spend a lot of money to improve public services after many years of chronic underinvestment during 18 years of Tory government from 1979 - 1997. This is true, particularly with schools and hospitals, both of which were in a terrible state in the mid-1990s. They then point to the fact that the recession was caused by a 'global financial crisis' - which was not their doing and nobody expected, a charge which is less easy to justify, given that Gordon Brown had created a tri-partite financial regulation system which basically failed to regulate our banking system. But essentially it is possible to blame the banks for the recession, which increased the size of the deficit.

Chris Mullin

BUT attempting, as Chris Mullin, ex-Labour MP, author of some brilliant diaries ("A View from the Foothills" and "Decline and Fall") does in an open letter to Ed Miliband in the Times recently, to say that the financial meltdown was not Gordon Brown's doing but  "a crisis of capitalism", and “It was the bankers, stupid”, is showing, again, either economic naivety or politically-motivated mendacity. I hope it was the former.

There is a reason why it's called a "public debt". It's because the public sector was spending more than it was getting in from taxes. Had, when the financial meltdown hit, the UK had a budget surplus then perhaps Mullin would have a case. He doesn't, and as long as Labour and others on the left use this line of attack they can never regain economic credibility.

So Ed, why not instead admit that the country's finances are in such a bad state for a good reason. The financial crisis was caused by the banks, but the deficit and the public debt were caused by the need to invest in the country's future. Talk of all the successes, talk of all the differences made when Labour were in government.

Give concrete examples. It is quite possible, and Ed Miliband has the time to do so, to argue that the country's financial position is partly the result of Labour policies which were necessary.

If you want to say how necessary, ask anyone whether this country was a better, or nice place in 1997 than it was in May 2010, I'm not sure you'll find many even die-hard Tory supporters who would prefer to go back to 1997.

If you can separate the two arguments, that the deficit and debt was necessary for the long-term good of thr country, and that the Coalition's fast and deep cuts are the wrong way to go about dealing with them, you may be able to win both of them.

If you don't know how to do this, ask Ed Balls to do it for you. He's good at it, which is why it's a shame that you chickened out of making him Chancellor.