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Weekend reading: Pre-budget blues

Good reads from around the Web.

This week we’ll see the Chancellor deliver another uninspiring budget. Everyone knows the economic figures will be bad, and nobody knows what to do about it. (Certainly far more unites our political parties than divides them).

My early optimism in 2010 about a return to growth in the UK turned out to be wildly misplaced (although happily it hasn’t retarded the UK stock market).

Like most people I underestimated how long the global crisis would drag on for – we haven’t seen the likes of this for 60 years. And while I knew UK consumers were living according to precepts of Brewster’s Millions [1], I didn’t appreciate just how ruinously this dovetailed (IMHO) with excessive state spending to produce a double-whammy of living beyond our means. Now we’re catching up with reality.

I used to think the Coalition government was making the best of a bad hand, but I’ve now concluded they’re simply way out of their depth in facing this challenge.

We all have our own opinions about why most politicians are now basically PR men and self-confident ex-public schoolboys largely untested in the real world. Personally I think the electorate must take most of the blame.

For example, I was rooting for Obama not Romney in the recent US elections, but you only have to see how the latter was vilified for his infamous 47% comment to understand that free debate is toxic in modern politics.

Better than nothing

In any event, there’s no evidence we’ll see anything bold from this lot. Even the things they’ve got right they’ve inched towards half-heartedly, and they’ve embraced stealth taxes to boot.

Being bolder would have at least been good for our animal spirits. I’d have raised the £10,000 personal allowance at a stroke, for example, which would have raised real incomes for the poorest, sent a clear signal about rewarding work, and delivered a boost for the economy.

I’d have been cleverer on spending, too.

I don’t apologize for seeing the need to make many of the cuts the government has started to make. State spending and a growing entitlement culture needed curbing in my view, even without the gigantic IOU left by the financial crisis.

But I’d have offset at least some of these cuts with targeted infrastructure spending. Now is the time for the government to borrow a few billion at today’s bargain rates to build a new town or two in the South East, for instance. Damming the Severn Estuary to create a massive hydroelectric resource would have been another capital spending project I’d have put into place. There are others.

I understand infrastructural spending has a mixed record, but in my view it’d be great for morale. And even if we end up slightly down on the deal in fiscal terms, at least a few hundred thousand young people would have been employed and would have had a better chance of one day owning a home. And there would be slightly less need for fossil fuels in the future, too.

Fiddling while Romford burns

Big bold actions like radical tax reform – say an across-the-board flat rate tax of 30% and all exemptions out the window – are unthinkable with these leaders.

Instead we’ll get more tinkering.

On that note, be especially alert to talk of changing the Bank of England’s inflation remit. The Bank’s own chief economist Spencer Dale warned as much this week in The Telegraph [2]:

The lesson from history has been the best a central bank can offer for “a prosperous and vibrant economy was to deliver enduring price stability”, Dale said.

“Recently, there have been some worrying signs that cracks may be appearing in that consensus. A sense that inflation is somehow yesterday’s war. That central banks should focus more on growth. That a period of higher inflation may even aid the recovery. This is dangerous talk.”

Citing the experience of the late 1960s when policymakers let “inflation to get out of control after nearly two decades of price stability”, he cautioned against being “complacent about the risks posed by further stimulus”.

He added: “It would be irresponsible to repeat the same mistakes again.”

Dale is right to warn on this.

Today we find ourselves with political leaders who have never aspired to be much else. That means in my view that solving our problems via higher inflation [3] – even if it means overall we’re worse off than we might have been – is an  appealing option, because the electorate doesn’t understand the real value of money.

Of course we could argue that politicians don’t, either.

The stage is set for a little-noticed tweak on a par with Gordon Brown’s raid on pensions in the late 1990s.

Fingers crossed that the Bank’s own counsel prevails.

From the blogs

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Product of the week: About the only case I see for a cash ISA right now (as opposed to a must-have share ISA [14]) is that you will need the cash soon. In that case, the best instant access cash ISA is currently Cheshire’s 2.5% paying ISA Saver Issue 1 [15]. It accepts transfers, too, but beware the 2% bonus rate ends in July 2014.

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Other stuff worth reading

Book of the week: If you’re going to read a book on empowering women in the workplace in 2013, make sure it’s Lean In [30] by Sheryl Sandberg. I often get into rows with friends because I don’t believe women are professionally oppressed anymore in the UK and US, although I’d do something radical if in power to make sure, via better childcare. Sandberg sort of agrees. (For the record, I think it’s a disgrace there are so few female MPs, and would legislate to change. And globally, most women certainly ARE still oppressed).

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